A Tale of Two Budgets

There was a time in my life when I thought the United States would be better off with a parliamentary system of government—instead of the presidential system that it has had for 223 years.

I expect that most people who spend much time thinking about politics have played the game that I have. It goes like this: if I were in charge of the world, how would I rewrite my country’s constitution so that things would work better? Right now a lot of people must be playing this game, as they watch the dysfunctional Kabuki theater that is the current congressional lame duck session.

If you are like me, you will be very happy when we get to the point where we don’t hear the phrase fiscal cliff every time a newscast comes on. The economist and commentator Irwin Stelzer had a better term yesterday evening on BCC radio. He said, aptly, that a better metaphor would be a fiscal bungee jump.

After spending a year in Europe as a student, I became enamored of the parliamentary system. Here are some of that system’s attractive qualities. Election campaigns are mercifully brief—mainly because usually no one knows for sure when the next parliamentary election will be until a few weeks before. You do not have divided government, as the U.S. currently has with voters electing one party to control the House Representatives and another to control the White House. If a government becomes extremely unpopular, it can be brought down and replaced almost immediately. And, perhaps most attractively, it is easier to find a political party that is in line with your own values because there are more of them.

The fact is, when we have only two parties (for all practical purposes) to choose between, most of us will find ourselves voting for the lesser of two evils because neither party will correspond exactly to every nuance of opinion that we hold on the wide array of social, economic and legal issues of the day. It’s no wonder that U.S. presidential elections tend to devolve into highly researched marketing campaigns that attempt to push as many hot buttons for the highest number of targeted voters as possible.

Eventually, however, I came to the conclusion that the United States is simply too large a country—and too complex, given its fifty state governments—for a parliamentary system to be able to work effectively. The current system may have lots of problems, but it’s hard to think of a better one.

The difference between the American and European political systems can be seen clearly in the way the U.S. and Ireland (where I currently live) are going about their budgets. While Barack Obama and John Boehner butt heads and hope that they can make the other appear to be responsible for the looming failure to ward off across-the-board tax increases and budget cuts, Ireland’s Taoiseach Enda Kenny simply presented a budget that was pre-ordained to be passed by Dáil Éireann, the parliament. Kenny only had to negotiate with members of his own party, Fine Gael, and his coalition partner, the Labour Party.

In the end, though, the practical result in Ireland is not altogether dissimilar from the U.S. going over the fiscal cliff. The Irish are looking forward to significant tax increases and budget cuts. This isn’t exactly because Fine Gael and Labour thought this would be a fine and good way to manage things. They had no choice because they were working under constraints imposed by the so-called troika (the European Union, the International Monetary Fund and the European Central Bank), which had to bail Ireland out of bankruptcy.

At the end of the day, does it really matter what political system a country has, as long as it’s essentially democratic in nature? Won’t a society get around to doing what it needs to do under whatever system it happens to have?

The answer is probably, yes—although some systems seem more conducive to decisive action than others. But then decisive action is always easier when there is a predominant political consensus. And that is America’s problem. The country is very divided about what kind of nation it wants to be. In fact, when it comes to consensus, America has the same problem as Europe. It likes the idea of ever increasing government financial obligations to its citizens—but no one (except maybe Warren Buffett, President Obama and a few others) wants to pay for it with their own money.

Here’s a dirty little secret. The reason some billionaires, like Buffett, seem happy enough to see their tax rates go up is that they know that, despite politicians’ claims and promises to the contrary, there will always be loopholes to shelter their money—as long as they contribute wisely during election season.

The Not-so-great Divide

The polls had the American presidential election so close that the eventual winner remained a huge mystery through the final weeks, days and hours. That mystery has now been solved. The mystery that remains, though, is why anybody would actually want to be president—or for that matter in Congress—for the next four years.

Domestically and internationally, there are plenty looming crises that look problematic to resolve without angering or causing despair for or even endangering a lot of citizens. Of course, President Obama does not need to worry about ever running for office again, but the next four years look to be a true spiritual and psychic trial for any human leader, regardless of the political considerations.

So far, all the focus is on the so-called “fiscal cliff.” It’s hard to see how this gets dealt with except as yet one more stop-gap—simply because there is so little time to deal with it. And a more definitive solution will take more time than is available before the deadline.

But the “fiscal cliff” itself is really small potatoes in the grand scheme of things. Without major entitlement and tax reform, the country is on a trajectory toward fiscal insolvency. A bit of trimming of growth of federal spending and/or a simple four-percent tax increase on high earners will not fix that. And Obamacare, which is now on track for full implementation, will only add to the revenue/spending gap. When more consequences start occurring, like another credit rating downgrade or higher borrowing costs and/or inflation, it won’t be that much fun to be in government. Internationally, who knows what is going to happen with Iran and Israel as Teheran gets closer to having a viable nuclear weapon?

Frustratingly, the president has given precious little indication that he understands the problem or takes it seriously. The good news is that this impression is certainly more political calculation on his part than a reality. After all, he’s a very smart man. And, if we learned anything this week, we know that he has people around him who know how to count. Hopefully, they aren’t all exclusively campaign operatives.

So now that the American people have spoken, the politicians will now sort everything out, right? Well, as many pundits have been pointing out, after all the time and expense and energy and aggravation of the now concluded seemingly endless campaign, the political makeup of the government is barely changed. More than one wag has cited the old aphorism about the definition of insanity being doing the same thing over and over and expecting a different result. The difference now, though, is that harder deadlines are coming up, which tend to focus the mind. We can only watch and see how our representatives do.

Here’s something to ponder. The apparent lesson of the election is that the country has changed, that is has moved further left. This is undoubtedly true. Yet the same voters that gave the president a large Electoral College majority also chose a strong Republican majority for the House of Representatives. You can explain this up to a point by politicians’ tendency to draw incumbent-safe districts when they get the chance, but that doesn’t account for the Republican House dominance entirely.

There is a long history of Americans electing divided government. The usual explanation for this is that, ultimately, voters worry less about ideology than about keeping a check on the more extreme impulses of two major political parties. The problem now is that the country’s fiscal situation is getting to the point where the only viable solutions will necessarily be somewhat extreme.

Un-henged

I think I have a new hobby. I’m averaging a visit to a different Stonehenge every couple of decades or so.

Maryhill Stonehenge in Klickitat County, Washington, USA
(taken with my first digital camera)

My first Stonehenge was a site familiar to people in America’s Pacific Northwest. Any time I found myself driving near Goldendale, Washington, I would make a point to stop at Maryhill, especially if I had someone with me who hadn’t been there before. On the property of the Maryhill Museum, there is a replica (built to a smaller scale) of Stonehenge overlooking the Columbia River. Completed in 1929, it was built by the entrepreneur Sam Hill and named for his wife and daughter (both called Mary) and was dedicated as a memorial to the World War I dead of Klickitat County.

The real Stonehenge in Wiltshire, England
(taken with my first digital camera)

The original Stonehenge’s exact purpose is more obscure than Sam Hill’s replica. It wasn’t until 1996 that I actually got to see the real Stonehenge. My wife and I attended a wedding in Northamptonshire and the next day found ourselves with several hours to fill before it was time to catch our flight back to Dublin. I had always wanted to see Stonehenge but had never managed it. I calculated that we could actually drive to the Salisbury Plain and then back to the airport in time to make our flight. So that’s what we did. It was exciting to see such an iconic structure, although the milling crowds of tourists distracted from the aesthetics. And I did wonder why it was more famous than, say, the Ogham stones I had seen in County Kerry or the dolmens I had seen in County Clare.

Last November another Stonehenge came into existence and not too far from where I live. Over a weekend, a property developer named Joe McNamara put together his own circle of columns on a hilltop on County Mayo’s Achill Island. It was dubbed Achill-Henge and, as with the original, its purpose is somewhat mysterious. What is crystal clear, though, is the colorful personality of Joe McNamara, who lives in Galway. Two years ago he drove a cement mixer to the gates of Leinster House (where the Irish parliament, or Oireachtas, sits) as a protest against Anglo Irish Bank, to which he owed 7.5 million euro. Anglo Irish was the financial poster child of the dramatic crash of the Celtic Tiger economy. The stunt earned McNamara the sobriquet “the Anglo Avenger.” He was subsequently charged with criminal damage and dangerous driving, but the case wound up being dismissed by the Dublin District Court. In another incident, he parked a cherry picker truck outside Leinster House.

Achill-Henge in County Mayo, Ireland
(taken with my mobile phone)

It’s not clear (to me, anyway) whether Achill-Henge is also a form of protest against the Ireland’s financial mismanagement. The structure is built on commonage, and he was ordered to remove it by the Mayo County Council because he did not have planning permission. He insisted that he didn’t need planning permission because the structure (30 meters in diameter and nearly 4.5 meters high) is a piece of “ornamental garden” artwork. The courts have gone against McNamara on this one, and he is currently under order to take Achill-Henge down.

But as of Saturday evening it was still standing. I figured I better go have a gawk while it was still there and add a third notch to my Stonehenge belt. We went up and down a lot of narrow unpaved roads above Dooagh and Pollagh before we found it, but we finally stumbled upon it, almost in spite of ourselves. I have to say that there was no air of ancient spirituality about it. It looked to me like one of those round concrete visitor centers that you see at various historical locations—but with no roof or glass in the windows. The land around it clearly bore the scars of heavy machinery, and the structure itself was decorated with all manner of graffiti. One of the more coherent and printable messages read simply, “Viva Joe!”

At the end of it, there was something bizarrely impressive about this makeshift monument to crushed economic dreams. People have speculated for years whether the original Stonehenge was a burial site or some sort of celestial observatory or something else entirely. Standing at Achill-Henge, I couldn’t help but wonder whether it was at all possible that its more-than-four-thousand-year-old cousin across the Irish Sea could have been thrown up by disgruntled individuals, who were fed up with the people who were supposed to in charge.

Arithmetic

I am still looking for a way to give President Obama the benefit of the doubt.

I’m doing my best to understand how he plans to deal with the looming fiscal calamity if he gets a second term. As far as I can tell, his plan pretty much consists of maintaining the status quo in government spending as much as possible and raising taxes on the highest earners. Full stop.

The problem is that it doesn’t add up. Or, as he and the vice-president have liked to say since Bill Clinton’s stem-winder at the Democratic convention, it’s math, it’s arithmetic.

The president warns that Mitt Romney’s policies would amount to a return to the policies that got us in the mess in the first place. But that doesn’t sound right. Romney is proposing pro-growth policies which, historically, have added revenues to government coffers. Fiddling with tax rates doesn’t affect the revenue stream as much as good old-fashioned economic growth.

It seems to me that the simple way to arrive at the best policies is to look back at what policies were in place during our periods of highest widespread prosperity. That would be (first) the Clinton administration and (second) the Reagan administration. Both were characterized by trimming the growth of government spending. (Remember welfare reform under Clinton?) Importantly, these were also periods when the tax code was fairly stable so businesses could plan and hire comfortably. Under Obama businesses have watched things lurch from one short-term stop-gap measure to another, with no assurance of where tax policy will wind up. No wonder there is so much money not being invested while everyone waits for the perpetual uncertainty of the Obama presidency to finally resolve itself.

So why doesn’t every president simply emulate the policies that were in place under Clinton (and, it should be added, a Republican Congress)? Beats me. When I try to read between the lines, I get the sense that Democrats think they can do better than just copy Clinton-era policies. That there is a better way to spread prosperity throughout all of society. My first question is, where is your historical precedent? Point me to the country and era that demonstrate the viability of your policies. The problem is, there is no time and place to point to that exceeds the general standard of living of America during the last two decades of the 20th century. Unfortunately, the precedents for current policies that do come to mind tend to be countries like Greece and Argentina.

That means what Democrats want to undertake is basically an experiment. They want to use the United States as a laboratory to see how much better they can make things by putting their theories in practice. That is, of course, not without considerable risk—considering all the failed economic experiments we have seen around the world over the past century or so.

Am I being too cautious? Maybe. When I was younger, I was more inclined to see grand new ideas tried, never mind the risks. Now I’m at a point in my life when my first thought is of all the people just trying to get by and earn a living. They don’t need or want to become collateral damage in someone’s grand experiment.

Counting Down

Voting for the November election in the United States has already begun. As an overseas voter registered in the state of Washington, I have already received my ballot. I can fill it in and post it back anytime between now and Election Day.

I take my vote seriously. I always vote as if my vote was the only one that counted. On the other hand, I have no illusions about the practical effect of my vote. Washington is not a battleground state. My vote will have absolutely zero effect on the fact that all of Washington’s electoral votes will go to President Obama.

If the media and polls are to be believed, nearly half the country has firmly made up its mind to vote one way, and nearly half has made its mind up to vote the other way. The election then comes down to a relatively small number of voters who can be seen and heard in news stories telling reporters that they don’t know which side to believe and they don’t have enough information. Of course, in this day and age no one can realistically say that there isn’t enough information out there. What they really mean, I think, is that they don’t have enough time to investigate it in depth and to weigh it.

Personally, I think most people arrive at their voting decisions out of habit or through their gut. They generally stick with the party or the candidate that makes them feel comfortable. To the extent that they read up on issues, they tend to seek out facts that support positions their heart has already taken. I don’t say this as a criticism. I think it’s just human nature.

But what if you were starting out as a blank slate and were trying to figure out whom to vote for? How would you go about deciding? Here is the process I would—and actually do try to—use.

First, if there is an incumbent, you would have to give him preference. He is a known quantity and he has experience in the job. If he is doing the job well, why toss him out in favor of someone who has no experience being president and would have to start with a learning curve?

But what if things are not going well and the country is on a trajectory toward disaster? Then you have to weigh the alternative. And, as far as I can see, that is where the U.S. is. The gap between government revenues and outlays keeps widening. The point where Medicare becomes insolvent is clearly viewable on the horizon. The deficit has grown close eclipsing the entire economic output of the country. And the current administration has put forward no plan that makes any serious attempt to correct the situation and has offered none for a second term. The administration’s plan is very short-term and does not address the Medicare problem.

The problems that aren’t getting solved aren’t just ones looming in the future. Right now today unemployment remains high. This is causing real hardship throughout the country. Yes, the official rate is edging down, but the rate that includes people who have stopped looking for work has remained constant at over 14 percent.

Of course, responsibility for the lack of progress in solving the country’s problems has to be shared between the White House and Congress. But only the president is in a position to exhibit the leadership to reach a resolution. And in this area, the president’s striking lack of experience has clearly proved to be an impediment. Remember that, before his election, his federal experience consisted entirely of three years and ten months in the Senate. And during that time he authored no significant pieces of legislation and spent much of his partial term campaigning for president. Exhibit A for how this lack of experience has been detrimental can be found in Bob Woodward’s recent book The Price of Politics, in which he describes how the president botched negotiations for a debt deal.

Still, even if the president came into office with little experience, he certainly does now have the experience of being president for nearly four years. But has he given any indication that he has actually learned from his presidential experience? I see no sign that he would do anything differently in a second term.

The president’s own defense of his first-term performance consists of a couple of basic points. One is that he was blocked from solving problems by Republicans. The problem with that argument is the fact that, as of the end of this term, in addition to controlling the White House, the president’s party will have controlled the Senate for six years and the House of Representatives for four of the past six years. The other basic point in the president’s self-defense is that electing a Republican president would amount to a return to the policies that created bad economy. But on examination, this argument devolves into the notion that low tax rates caused the 2008 financial crisis. That makes absolutely no sense.

So there is plenty of justification to at least consider replacing the president. But would that actually be the best thing to do? There is no way to know for sure. A change could well improve things. On the other hand, no matter how bad things seem, they can always be made worse.

In the end, the decision comes down to a leap of faith. Many will put their faith in the idea that President Obama will perform better in a second term. Many others will put their faith in the fact that Mitt Romney has successfully run large organizations, including the mostly Democratic state of Massachusetts, and demonstrated his problem-solving abilities with turning around the 2002 Winter Olympics.

In the end, though, most of us will go along with what our heart tells us. Or, as political journalists put it, the “direction” we want for the country. Personally, at this point I am not too interested in “directions.” My main priority is not having the United States turn into Argentina.

In Defense of Free Speech

Years ago I found myself wandering the streets of Dublin down to the big Eason bookstore on O’Connell Street. In celebration of the bookstore’s anniversary, some well-known authors had been invited to read excerpts from their recent books in public and sign autographs. My own specific reason for going was to hear Neil Jordan, one of the announced authors. Unfortunately, Jordan was a no-show. He had to bail because he is also a film director, and he was unable to break free from his production duties.

I was disappointed, but my disappointment turned to pleasant surprise when I learned that his unannounced replacement was none other than the Indian-born British author Salman Rushdie. At that time, seeing Rushdie was not easy to do. In 1989 Iran’s Ayatollah Ruhollah Khomeini had issued a fatwa, or edict, demanding Rushdie’s execution because his novel The Satanic Verses was deemed to be an insult to Islam. He spent nearly a decade in hiding and still has to be careful because the fatwa has never been lifted. In fact, within the last several days an Iranian religious foundation upped the reward for Rushdie’s killing. The justification was something that Rushdie had absolutely nothing to do with, a 14-minute YouTube video.

Calling for a writer’s death because of something he has written is crazy. Increasing the incentive for killing that writer because of a video that has nothing to do with him is even crazier. The reason for the fatwa was always clear. It was meant to intimidate any writer anywhere in the world when it comes to writing about one particular religion. The reason for the mass protests against the YouTube video across the Moslem world is also clear. A particular anti-democratic movement is using the video as a pretext to show force in the streets and intimidate governments and individuals.

The right response from western governments is to denounce the violence and the resulting deaths. The video should be ignored as the irrelevancy that it is. If it is mentioned at all, it should be in the context of emphasizing support for human rights around the world, including freedom of speech.

But you may ask, isn’t that irresponsible? If the video is inflaming passions in the Moslem street, shouldn’t western leaders do whatever they can to calm things down? I suppose the answer is yes, if they have a clue as to how to calm things down. But the American government doesn’t seem to. While statements from the president and secretary of state rightly condemned the violence, that condemnation was expressed as an afterthought in the course of condemning the video in forceful terms. The two of them went so far to buy television time in Pakistan to denounce the video. Basically, the U.S. government has been buying into the extremist narrative that western attitudes and values are the root of the problem.

The reality is that many, if not most, people protesting will not have seen the video and only know what they have been told by local media and other local sources. The U.S. government has only heightened the video’s profile and significance. And if people abroad cannot believe that such a video could be produced in America without government approval, they will not have been disabused of that impression by the spectacle of the man believed to be the filmmaker being led out of his home by a contingent of Los Angeles sheriff’s deputies in the middle of the night. He was questioned and released, but compare this to the French government’s response when the satirical magazine Charlie Hebdo ran more of its infamous cartoons of Islam’s prophet in response to the reaction to the video. The government offered the magazine protection.

Let us be clear. The man who made the video is sleazeball and his intentions were malign. Worse, he duped his cast and put them in danger. If you have seen the video, you know that the acting is very broad, almost like a spoof. And the dialog that means to offend was crudely dubbed in and was not spoken by the onscreen actors. The maker of this video is not the sort of person that well-intentioned people really want to be defending. But the highest officials in the U.S. government have no business condemning his constitutional expression of free speech. The fact that they did so quickly and with no hesitation should have a chilling effect on all who value freedom of speech.

The height of the mishandling came a week ago Sunday when UN Ambassador Susan Rice was sent to appear on no fewer than five Sunday interview shows, repeating the line that the video caused a mob to attack the U.S. consulate in Benghazi and led to the death of the U.S. ambassador to Libya and three others. That same day National Public Radio was reporting the Libyan president’s assertion that the consulate was deliberately targeted by terrorists. In other words, it was already known that the attack on the consulate had nothing to do with the video or the protests.

It is understandable that U.S. government officials would want to calm a volatile situation that could lead to more senseless deaths. But appearing to give validity to extremists’ anti-democratic views will only be counter-productive.

Perhaps what is most disheartening is how little pushback there has been from the media and civil libertarians on the government’s weak defense of freedom of speech. The Los Angeles Times even went so far as to editorialize that a ban of the video might be justified under the Constitution. More people are worried about the spectacular security failure in Benghazi on the anniversary of 9/11 and the fact that the administration seemed so out of touch with reality about what had actually happened.

Quickly buying into a patently false narrative in the aftermath of the attack did not look good for a president who had just told CBS News, “You know, Governor Romney seems to have a tendency to shoot first and aim later.”

Up for Grabs

Back in June I happened to catch an interview with Mitt Romney’s former foreign policy spokesman on National Public Radio’s Talk of the Nation.

Richard Grenell had recently resigned from his campaign job after pressure from some Republicans over the fact that he was gay. He had been quite qualified for the position, having spent eight years being an ambassadorial spokesman at the United Nations. I was expecting to hear some bashing of the Republican party for being homophobic, and I suspect maybe the show’s host, Neal Conan, was too. But he put the blame on both political parties, saying that “what became increasingly clear is just that the far right and the far left, which a lot of media are not focusing on the far left’s responsibility here, but the far right and the far left together really just wanted to talk about my personal life.”

It became clear that what Grenell really wanted to talk about was what he considered President Obama’s weak foreign policy. And that’s mostly what he talked about. At one point Conan pressed him about “how could someone who is openly gay, has a partner, supports gay marriage, in fact would like to be married, as I understand it,” support Romney. Grenell’s response: “Most of us realize that you have to prioritize issues. You have a bunch of complicated issues. When you go into the voting booth, you are making a decision on who best represents your worldview. And for me, that’s clearly Mitt Romney.”

And that’s the thing. When there are only two viable parties to vote for and realistically only two presidential candidates, it would be very unusual if you agreed with either one on every single issue. So the only way to make a choice is to decide which issue or combination of issues is the most important for the fundamental welfare of the country. For me, there is no question that the overriding issue is the economy. Not only does it directly affect everyone’s standard of living, from the poorest of the poor on up, but all other issues become exacerbated in a bad economy.

A very good friend wrote me recently, “I’m assuming you’re going to vote for Romney based on your views and beliefs surrounding the economy (my apologies if that assumption is inaccurate), but unless your social views also coincide with his, I don’t understand how you (or anyone) could possibly vote for the man. What about the setbacks his policies would create for gays/lesbians, women’s reproductive choices, undocumented immigrants, global warming and environmental issues of many a kind?”

Actually, despite all of my criticism of the president’s performance, I am keeping an open mind about the presidential election. If the president can make a convincing case that he has any kind of plan for averting the United States’s looming debt crisis and encouraging a return to prosperity across society that is at least as serious as what Romney and Ryan have put on the table, my vote is available to him. But I am not hopeful that I will see him make such a case before the time comes to drop my ballot in the letter box. He seems determined to speak in generalities and attack the specifics offered by others.

What I won’t do is decide how to vote based on hot button social issues that both sides use to gin up elements of their respective bases. History shows that politicians always end up following the people on those issues and not the other way around. If you cast your vote based on the expectation that the former governor of Massachusetts would take away your abortion rights, I think you are being manipulated.

Now maybe, if the president is reelected, he will turn around and make bold and forthright choices and exhibit strong leadership and take the country beyond the struggling recovery he has presided over. But I see no evidence of that happening. His pattern on the economy for four years has been to postpone hard choices ever further down the road and blame others who offer concrete proposals. He criticizes Paul Ryan for not signing up to the bi-partisan Bowles-Simpson plan, ignoring the fact that Ryan then offered his own alternative while the president did not lift a finger to either implement Bowles-Simpson or offer a realistic alternative. (For the record, the president did offer his own “deficit reduction” plan a year ago, and Congressman Chris Von Hollen could be seen waving it around yesterday at the Democratic convention. But even its supporters have to concede that it would not meaningfully reduce the deficit during the short period of time in encompasses.)

This might be good politics, and it might even get the president reelected. But if we get four more years of the same, it will be mainly the people that the president claims to care about most who will be the most hurt by a continuing bad economy. When Barack Obama was elected four years ago, it was a triumph for hope and change. Unless he demonstrates he has learned something from his first term, his reelection would mean a triumph of hope over experience.

Letting the Chips Fall

During the year I spent in Chile as a student, my landlady was very protective of me. One of my weekly pleasures was going to the city center on a Friday evening and buying a bag of French fries from a little stall. (In Ireland it would be called a chipper.) They were greasy and delicious. My landlady was never happy about me eating those fries. She was continually warning me that I was going to get food poisoning from those chips. After a full nine months of patronizing the chipper, I did finally get sick. I got a bad case of what was apparently dysentery.

As I lay suffering in bed, delirious with a fever, my landlady minded me like Florence Nightingale. But she couldn’t resist leaning over me and lecturing, “Aha! I told you those papas fritas would make you sick!”

Of all the things I ate and drank in the days leading up to my illness and of all the other things I was exposed to in the air and in the water, how could she be certain that it was the chips that made me sick? Especially when they had caused me no trouble at all the previous nine months? Because she had been predicting it for so long that her mind made reality fit the prediction.

Some people on the political left sound my dear Chilean landlady when they talk about capitalism. They point to the financial crisis of 2007-2008. Aha! they say, see, this shows that capitalism doesn’t work—or at least capitalism as practiced by the Republican party.

That’s an interesting conclusion to draw. The financial crisis clearly grew out of the housing bubble. And the housing bubble clearly grew from a bi-partisan government policy over many years of pushing money into the mortgage market through the government-created entities Freddie Mac and Fannie Mae. Yes, that is an over-simplification, but the fact is that no serious analysis can credibly paint the financial crisis purely as something caused by capitalists gone wild.

President Obama’s take on the causes is particularly interesting, and I confess that I don’t completely understand it. He holds the crisis up as proof that Republican policies don’t work and that we need to go back to the policies of the Clinton administration. The irony is that a lot of conservatives actually agree. As Democrats repeatedly remind us, Clinton left the country with a balanced budget and a thriving economy. Part of this was through luck. There was a reduction in military spending due to the wind-up of the Cold War as well as an influx of tax revenues generated by the tech bubble. But it also had a lot to do with reform of a major entitlement (welfare) and tightening of government spending. Fiscal conservatives liked that, although they credited the Republican Congress more than President Clinton. And they didn’t care for the way Clinton’s successor signed a new entitlement (for prescription drugs) that wasn’t paid for. (It is amusing to hear Democrats criticize Bush on the same grounds, even though most of them, including Obama, fought to spend even more money on the unfunded program.)

Even while invoking Clinton, the current president goes in a direction that is completely opposite to Clinton’s. Obama has spent four years ballooning government spending and has given only lip service to entitlement or tax reform. He has put nothing concrete on the table and criticizes Representative Paul Ryan, who has. This may make the president look more compassionate because he doesn’t want to reform Medicare, but it is a false compassion since everyone knows that the status quo is untenable and beneficiaries will suffer more if the system goes broke than if it is reformed. If the president has a better plan than Ryan’s to save Medicare, he should say so. I would love for him to put forward a better plan, but where is it?

The only solution he offers is to raise taxes on the highest earners. This is what he means when he says that “our plan worked.” He is talking about the policies of the Clinton years. Tax levels were indeed higher under Clinton. But he confuses cause and effect. There was less resistance to raising taxes in a booming economy. In a weak economy, higher taxes tend to drive up unemployment because less money is available for investment and capital. In fact, the president himself said so when he agreed to extending the so-called Bush tax cuts.

The government is spending quite a bit more than it is taking in, and this is not sustainable. The president’s solution is simple: raise taxes. He seems to see it as a simple matter of transferring money from one place (the pockets of the wealthy) to another (federal coffers). But it’s not that simple. For one thing, it won’t bring in nearly enough money. More importantly, changes in tax policy result in changes in human behavior and, under the current conditions, that’s a change that will result in slower or negative growth and higher unemployment. Historically, the most reliable way to get more tax revenues is to create conditions that enable people to make more money. The more money they make, the more people who will be employed, directly or through investment, and the more taxes they and everyone else will pay. But if everyone is to make more money, that will include the wealthy. And the idea of the wealthy making more money seems anathema to the president.

Bill Clinton has always understood this. But he is a good soldier and will say whatever he needs to help get the current president reelected. What is not clear to me is whether Barack Obama understands this or whether, like my Chilean landlady, he sees only what fits his preconceived notion.

Golden Moment

I am not exactly what you would call a sports fan.

In fact, my attention span has always become incredibly short on the rare occasions when I find myself plunked down in front of a television and obliged watch some sporting event. My main childhood memories of the Olympics are of my father and brother glued to the idiot box for what seemed like the entire summer, while I seethed with resentment that the TV was off limits for anything else in the interim.

As I grew up, there was the further problem that, in those days and in the circles I traveled in, the rampant nationalism engendered by the quadrennial event felt unseemly. The way the U.S. and Soviet Union competed to win the most medals felt like an extension of old imperialism.

But as my life brought me for periods to other countries, I came to see the Olympics in a different way. I became aware that, in most countries in the world, enthusiasm over the Olympics was all about people supporting their own as they tried to make their mark on the world stage. Whereas Americans and Soviets were hoping to win more medals than anyone else, people in Chile and Ireland were just hoping to win a medal—full stop. And while Americans would take their athletes (especially ones with compelling personal stories) to their collective heart, in other smaller countries people were supporting their athletes as virtual family members.

The Irish are particularly endearing when it comes to international competitions like the Olympics and the World Cup. They always seem convinced that their athletes or their team is going to come back the big winner—against all realistic odds. And they are crushed when they don’t. One forgets just how small a country Ireland is (a bit under 4.5 million in the republic), and you really do get the impression that everyone feels that they know everyone else in the nation.

It’s been years since I’ve paid much attention to the Olympics, but now things have come full circle. Decades have passed since I had to negotiate with my father and brother for the television, but now I am in contention for control of the satellite box with a 12-year-old. And she has been mad to follow the Olympics. And so I have seen a fair amount of them this year. My main impression is to wonder how American viewers put up with all the time shifting and commercials that NBC inflicts on them. Of course, this year Ireland has the advantage of being in the same exact time zone as the games. In fact, Irish interest is so keen, you would think that they were being held at the Royal Dublin Society. But even in other years when the games have been halfway around the world, the national broadcaster transmits the competitions in real time and people who care about them simply adjust their schedules, watching in the middle of the night if they have to. This is one of about two advantages I have come across of having the government in charge of your television broadcasts. (The other would be reasonable limits on how often and for how programs can be interrupted for commercials.)

Anyway, I understand that my native country has clinched the race for most medals won in the 2012 Olympic Games, and I do actually take some pride in that—even though it has absolutely nothing to do with me personally. But I suspect only family members and close friends of the American medalists have actually felt the same level of sheer joy and exhilaration that the entire Irish nation felt on Thursday when a 26-year-old woman from Bray, County Wicklow beat Russia’s Sofya Ochigava by two points in women’s lightweight boxing to claim a gold medal. It is the first gold medal Ireland has won since 1996. Crowds in Bray, who had turned out to watch a giant outdoor TV screen went wild (or “mental,” as one media outlet had it), as did frankly the Irish TV commentators. They gushed and replayed the match and the award ceremony so much that I finally couldn’t take it anymore and I switched over to BBC to watch some Englishwomen in bowler hats doing some kind of horse dancing thing.

What was lovely about seeing Taylor win was her humbled reaction to her victory and to all the fuss lavished on her afterwards. What was also striking was the fact that, among all the people she thanked and acknowledged in those first moments of triumph was Jesus. That’s not a name you often hear over the airwaves in overwhelmingly (and largely nominally) Catholic Ireland. But it turns out she isn’t a Catholic. She’s a self-identified born-again Pentecostal Christian.

While moved by Taylor’s story, I still haven’t been converted to being a sports fan. But witnessing it has reinforced in me the idea that nationhood is something stronger and deeper than merely what your birth certificate says or the passport you carry.

Taxing Credulity

The silly U.S. campaign back-and-forth over tax rates reminds me of the old story (apparently apocryphal) about Winston Churchill.

As the story goes (some variations substitute the likes of Oscar Wilde or George Bernard Shaw for the British prime minister), Churchill is at a dinner party and says to the woman next to him, “Madam, would you sleep with me for five million pounds?”

Replies the woman, “My goodness, Mr. Churchill. I suppose I would.”

Churchill then asks, “Would you sleep with me for five pounds?”

Indignant, the lady exclaims, “Mr. Churchill, what kind of woman do you think I am?”

Comes the reply, “Madam, we’ve already established that. Now we are haggling about the price.”

Mr. President, we have already established that the wealthy should (and, in fact, do and always have) pay a greater share of their income in taxes than everyone else. All you are doing is haggling over exactly how much more than everyone else they should pay.

If the wealthy find this line of political rhetoric annoying, it’s because the president keeps implying that the wealthy are paying less than everyone else. This is neither true in dollar terms nor in percentage terms. The thing is that people (even greedy rich ones) actually don’t necessarily mind that much paying more in taxes, but they don’t particularly enjoy being attacked for being freeloaders when they are already footing the vast majority of the taxpayer bill. Those of us who don’t care for deceptive rhetoric from our national leader don’t care much for it either. The president implies that the lower and middle classes are somehow paying more because the wealthy aren’t paying enough. But they don’t.

The fact is that the lower half of earners in the U.S. pay no tax at all, so the upper 50 percent carry the entire load. The maligned top one percent pay 40 percent of the taxes. That doesn’t mean they shouldn’t pay an even higher percentage, but it’s fundamentally dishonest to frame the argument as if the bulk of the burden currently lies on the backs of the lower and middle classes. Their main burden is a bad economy, and higher taxes on the wealthy won’t fix that problem—and could make it marginally worse in the short term.

How is it that the lower half pay no taxes? I blame George W. Bush. To get his famous tax cuts (every time current tax rates are extended, they are to this day referred to as “the Bush tax cuts”), he cut a deal with Democrats to raise the lower threshold for getting caught in the tax net, thereby freeing millions of people from having to make a net contribution to the U.S. treasury at all. Speaking strictly mathematically, this was a disaster. Shrinking the tax base deprived the treasury of much more revenue than any tax cut for the rich. That’s because, collectively, the middle classes earn much more money than the wealthy. Politics aside, it makes much more sense to draw those people back into the tax system than to raise taxes on the wealthy—if you had to choose between the two, which you don’t. (You could do both and raise even more revenue.)

But expanding the tax base isn’t something that is likely to happen. Nobody wants to alienate the middle class because there are too many of them. The Democrats, in particular, don’t want to because, if they can define themselves as the party of no taxes for the lower half, that puts them in reach of a theoretical critical mass of having a perpetual electoral majority. Once you get to the point where 51 percent pay no taxes (or have no “skin in the game,” as the president likes to say), you have a potential situation where that 51 percent can elect the government and tax the other 49 percent as much as they like.

That may make great politics on paper, but it is also a great way to drive an economy into the ground. Personally, I don’t want to be in the position of defending the rich from tax increases. But I do want the president to stop the distraction of campaigning on tax rates (which, in the end, make little difference in terms of the country’s economic problems) and to at least try to do something about fixing the economy. That means tax reform and entitlement reform.

Yes, everyone knows that nothing can get done on such big issues so close to an election. But the problem is that the president has had nearly four years to do something about them (with big majorities in Congress the first two years), and he never bothered even to try. Instead, he and Congress made things worse by piling uncertainty on top of uncertainty with short-term stop-gap measures on taxes (instead of permanent rates that would allow long-range business planning) and a major healthcare bill (adding yet more uncertainty for business planning) that most people want repealed.

Is there anything to suggest that he would be any more effective in a second term?

Betting the Bank

Are bankers just inherently evil?

It sure seems like it sometimes. Especially if you follow the news in Ireland and the UK. A few days ago Séan FitzPatrick, former chairman of Anglo Irish Bank was arrested and charged (finally) for activities in 2008, which involved a scheme to lend money to investors who, in turn, invested the money in Anglo Irish to artificially inflate its share price. Before that, Barclays (Britain’s second largest bank) admitted that it manipulated the interest rates at which banks lend money to each other (the London interbank offered rate, or Libor) to inflate its profits. And, of course, everyone knows about the dodgy mortgage practices that went on in both Ireland and the United States that led to housing bubbles in both countries and precipitated the financial crisis and resulting recession.

You probably don’t need to follow the news to have a low opinion of banks. Many of us have our personal experiences to draw on for that. Mine go back to the year I went to France as an exchange student and a local banker advised me to buy traveler’s checks denominated in Swiss francs. Needless to say, the U.S. dollar only went up in relation to the Swiss franc during that year. To add insult to injury, when I deposited the left-over un-cashed traveler’s checks in my account after returning home, the bank somehow managed to put the money in the wrong account. More recently, when I sold my condo after moving to Ireland, Washington Mutual (where I had gotten the mortgage) somehow managed to show a lien on it even though the mortgage had been paid off years before—nearly causing me to miss the deadline for closing the sale. I can forgive people making mistakes, but what I don’t forgive is an unwillingness to even sort out the problem. Washington Mutual had sold my mortgage on years before and had absolutely no interested in tracking down any records for me. I managed to solve the problem without their help, and I considered it karma when Washington Mutual became a casualty of the financial crisis.

The fact is, though, we need banks and that is why they exist and why almost all of us do business with them. They perform a necessary function in a modern economy by allowing the work done by people (and converted to currency through salary and profits) to be made available to other people (in the form of loans) for starting new businesses or making major purchases. When the financial crisis caused lending to freeze up, we saw what it did to the economy and just how much we needed the banks to be lending.

Let’s be adult about this and acknowledge that, of course, most bankers aren’t evil and that they provide a necessary service. At the same time, let’s be realistic and acknowledge that handling so much money is an irresistible temptation to some and there will always be some level of crooked activity.

How can we keep the crooked activity to a minimum? That’s a complicated question, but in general there are a couple of major things that seem obvious. For one, it was clearly a mistake to repeal the 1933 Glass-Steagall Act in 1999. That act was a firewall between commercial banking and investment banking. Personally, I don’t mind seeing investors losing their money. They accept that risk when they get into the game. But it is neither fair nor logical for investment losses to affect other bank customers, who only want a safe place to keep their money. For another thing, the government clearly got too lax about allowing bank mergers, and that needs to change. I don’t mind seeing banks fail if they are poorly managed. Deposits are insured, so at least regular customers are protected. But when banks become Too Big To Fail their collapses can affect the overall economy, forcing the government to bail them out which, in turn, only encourages more unhealthy risk on the part of large banks. Clearly, a lot of huge bad bets were made in the years leading up to 2007 out of a realistic expectation that there would be a bailout in a worse-case scenario.

Congress’s solution to problems like these is often to enact more regulation. Politicians do this so often that they actually seem to forget that it’s already been done before. I’m always amused when Democrats rail against the financial “deregulation” of the George W. Bush administration when one of the most onerous financial regulation laws, the Sarbanes-Oxley Act, was enacted in 2002. This was in reaction to the Enron scandal, and it clearly didn’t solve anything. If anything, it made things worse by adding more paperwork burdens to companies with no discernible benefit. Similarly, the Dodd-Frank Act of 2010 added yet more paperwork requirements. No one seems very happy with that bill, either because it was “watered down” by lobbyists or because it adds more costs to doing business. The fact is that large businesses don’t mind extra regulations because they have plenty of staff on hand to deal with it. It’s middle-sized and small businesses that go under or don’t expand because of regulatory burdens.

Having said that, make no mistake, financial regulation is extremely important and necessary. In the end, it is our only hope to avoid more economic messes like the one we are in now. But it is the quality of government oversight that matters, not the quantity. When politicians pile a new regulatory framework on top of already existing ones, there is a law of diminishing returns. If you have ever worked in a large organization, then you know that the more overlapping responsibilities people have, the more time they tend to spend making sure someone else gets blamed for a foul-up than they do trying to prevent the foul-up in the first place.

One of the most outrageous and criminal financial operations in recent times was the scheme operated by Bernie Madoff. His victims were not stupid or unsophisticated. They included banks and charities run by serious professionals. They also included such well-known individuals as Larry King, Jeffrey Katzenberg, Kevin Bacon, John Malkovich, Sandy Koufax and Zsa Zsa Gabor. Most of these people were not dumb by any stretch of the imagination, but somehow they missed the simple fact that Madoff’s numbers made no sense. I have to wonder if they were lulled into complacency by the belief that nothing improper could be going on because, surely, the government simply wouldn’t let it happen.

This may be the true downside of too much regulation. We all might do a better job of looking after ourselves (and doing our own math) if we don’t succumb to the false hope that the government is out there always looking out for our interests.

Gimme Shelter

Politics ain’t beanbag. We have heard that expression lots of times, usually when a campaign spokesman has been asked about some underhanded tactic used by his own campaign or someone else’s.

But I think the general way in which a politician runs a campaign says a lot about him. Sure, they all are going to make cheap shots from time to time or tolerate cheap shots made by others working on their behalf. I’m not Pollyanna. I understand that. But when basic arguments made by a candidate are consistently and fundamentally dishonest, it makes it hard for me to support that candidate.

When Barack Obama ran for the presidency four years ago, he ran a generally positive and forward-looking campaign. Of course, it was easy then. He had hardly any record to defend politically and, as a non-incumbent, only had to criticize the job done by President Bush and the Republicans (conveniently downplaying the fact that Democrats were already in control of the House of Representatives).

Things are different this time. Now, finally, Obama actually has a record to defend and it includes persistent and historically high unemployment. He has little choice but to go negative. Actually, he did have a choice. He could have instituted policies that would have resulted in a better economy. He didn’t have to listen to Republicans to do that. Bill Clinton, who presided over a very strong economy, could have guided him. But there is no time left to change things around now, so he has no real choice but to go negative on Mitt Romney.

The best way to confront Romney would be to come up with a better plan than Romney to fix the economy. Romney has endorsed Paul Ryan’s budget, which puts him on the defensive because it provides plenty of specifics to attack. But Obama refuses to endorse any plan. He talks vaguely about a “balanced approach,” which essentially means raising taxes on the wealthy. There’s nothing wrong with that, but it will make precious little difference to the deficit and will not help the economy very much. Middle-class tax increases (including people who currently pay no net income tax) would go a lot farther in shrinking the deficit, but that would be political suicide.

The president’s lack of action on the economy since his last stimulus failed is enough reason to think twice about reelecting him. He appears to have no more ideas or maybe he will feel safe in putting them forward only when he doesn’t have to face another election. So instead, he pretty much spends all his time campaigning. And the way he campaigns gives more reasons to think twice about voting for him.

The Irish media took note the other day when the BarackObama.com web site cited Ireland as a tax haven. This comes as a surprise to people living—and paying increasingly higher taxes—in Ireland. The web site has a chart that shows assets that Romney has (or has had) in Ireland as well as Bermuda, the Cayman Islands, Luxembourg and Switzerland. Most of these boxes on the chart include a line that reads, “Value: Not disclosed in tax returns” as well as the applicable local tax rate. (The 12.5 percent rate listed for Ireland is the business tax rate and probably lower than the applicable one in Romney’s case, which seems to be a blind trust investment fund.) The implication is that something underhanded or shady is going on. And that Romney is somehow avoiding paying taxes to the U.S. Treasury.

I have been filling out tax returns for decades and none of them has ever asked for the value of my accounts. The IRS only wants to know what my income is so that it can tax it. U.S. law—and this is something I know all too well—requires U.S. citizens to pay taxes on all income, no matter where in the world they are living, earning money or investing. If these accounts appear on Mitt Romney’s tax returns (and the chart tells us they do), then that means he is paying the full U.S. tax rate (at the very least) on any income they are earning for him. If the local rate is higher than the U.S. rate, then he would also be paying to the difference between the two rates to the other country.

One of the privileges of being a U.S. citizen is that you cannot legally avoid paying income tax to the U.S. government no matter where you live or invest. Just ask Facebook co-founder Eduardo Saverin, who has given up his U.S. citizenship to live in low-tax Singapore. That the Obama campaign does its best to imply otherwise shows not only desperation but a lack of honesty.

The way Romney’s tax returns have been twisted and manipulated in a blatant attempt to vilify him solves the mystery (if there ever was one) of why candidates hate to release this information and usually don’t until they absolutely have to.

Is the larger point the fact that Romney is a parasite who sucks wealth out of America and sends it abroad? The president would like you think so. But the two most salient points are these. First, Romney clearly knows how the economy works and how to generate wealth. Second, wealth has a tendency to flow from high-tax countries to low-tax countries. If those two facts make you want to keep living with high unemployment, then your choice in November will be simple.

Perhaps the most dishonest aspect of the way the president is running his campaign so far is that he wants to make it a fight over wealth that has already been generated. If the country’s overall standard of living is not to slip further, he needs to start focusing on generating new wealth—instead of trying to reallocate the shrinking wealth that is already out there.

Courting Disaster

Speaking of distractions...

During the seemingly endless months leading up to the Supreme Court ruling on Obamacare, the focus was primarily on the individual mandate. Now that we finally have the ruling, the focus continues to be on the mandate, I mean, the tax.

Now, I am as amused as anybody about the way the pundits’ predictions on the outcome were totally wrong for months and how politicians on both sides have shown their hypocrisy by reversing their supposed principles on what the Supreme Court should and shouldn’t do. Conservatives, who usually rail against courts that overturn duly passed laws, were fiercely disappointed that the court didn’t overturn this law. Liberals, who can frequently be heard bemoaning 5-4 decisions as proving the justices’ partisan motives, were this time praising the court’s integrity. And the president, who swore up and down that the mandate did not constitute a tax on the middle class and who ridiculed George Stephanopoulos for looking up the word “tax” in a dictionary, gratefully accepted (without acknowledging) the court’s definition of what a tax is.

But to my mind, this has all been and continues to be a distraction from what is really important. The question of whether Congress can order citizens to buy a product is certainly a very interesting one, as is the way it all finally got interpreted by the court. But personally, I have never particularly agreed with those who see the individual mandate as some sort of enslavement. Our personal liberty is limited in all kinds of ways by the government. What makes it okay is that the government has to answer to the voters, so these limits on our liberty are enacted indirectly by ourselves. If we don’t like what the government is doing, we can vote it out of office. That is what elections are for. No, the problem with the ironically named Affordable Care Act was never the mandate. It was the fact that, as it finally emerged from Congress, it pretty much guarantees that health care will continue to get even more expensive and out of reach for more, rather than fewer, people.

It attempts to “help” people get healthcare coverage. And it does it in the same sort of way that Fannie Mae and Freddie Mac were meant to “help” people to buy houses and government-subsidized student loan programs were meant to “help” people get a higher education. And the result of all that help has been to contribute to a vicious circle of those things becoming ever more expensive and people needing ever more “help” from the government. Think about it this way. Creating a healthcare mandate (of, if you prefer, tax penalty) to get more people to have health care is sort of like trying to end poverty by passing a law to require people to have money.

Yes, I understand that the idea is for those who can afford health insurance (including the young and the healthy who otherwise might not buy it) to pay into the system to provide more and better care for those who do need the health insurance and for those who cannot afford it. Requiring people to have insurance is not unreasonable, but it will only work if marketplace forces are allowed to keep costs down so that people can actually afford it. And the law, in all its volumes of text, never dealt with the factors that actually drive up health care costs. As a study cited in Time back in March (for example) notes, Obamacare makes no difference to the projection that health care costs will eventually exceed a typical family’s income. And with Obamacare in place, it will only be rational behavior for more and more people to give up and let the government subsidize their care rather than to keep working.

The president’s chief of staff, Jack Lew, made the Sunday talk show rounds in the wake of the court’s ruling, and I never saw anyone more anxious to change the subject from what was ostensibly a victory for his side. It just reminds people of all the laughable claims that were made about the Affordable Care Act while it was being fought over: that it was a “jobs bill,” that it would reduce the deficit, that it would bring costs down. Other Democrats in various panels (Donna Brazile on ABC’s This Week was one), when pressed about the illogic of how the whole thing was supposed to work, ultimately conceded that their preference was never really Obamacare but single-payer.

And that seems to be the president’s plan. If he can just get through the election, then when the healthcare situation worsens, he can put it forward that single-payer is the only solution. He’d be right insofar as it would be better than what is in place now. But it’s hard to see how, even if he is reelected, he would have enough support in Congress to put that through.

Unless the public collectively takes a firm stand, one way or the other, on the healthcare issue by giving the White House and a sizeable majority in Congress to one party or the other, we are liable to see two or four or more years of things getting worse and the two parties doing their best to attach the blame to each other, since there won’t be anything else they can do.

A Different Kind of Recession?

If we compare the current economy to history, it’s a pretty open-and-shut case that this has been the most disappointing recovery in six decades. Previous recessions have always been followed by much more robust recoveries. The current recovery is indisputably an anomaly in its weakness and longevity.

Well, you might say, the 2008 recession was much worse than most. That’s why this recovery is much more difficult, right? Well, no. The pattern has always been that the steeper the downturn, the steeper the subsequent upturn. Even taking into account the severity of the 2008 recession, this recovery is an anomaly. The 1981-82 recession was actually deeper than the 2008 one and unemployment had gone higher. Yet by the end of 1984 the recovery was strong enough that Ronald Reagan won reelection in a historic landslide.

The bottom line is that, four years after the 2008 recession began, real per capita gross domestic product is lower and unemployment is higher than when the recession began. That has never happened before in the post-World War II era. Beyond all the numbers, a lot of people are really hurting. You have to work really, really hard to explain this economy as something that was inevitable and beyond the power of any administration to ameliorate.

Okay, you say then, it’s like the Great Depression. President Obama frequently says that this was the greatest economic crisis since then. In other words, the 2008 recession was a once-in-a-lifetime economic event that is different from most others. The Great Depression took a decade for the country to get over. We just have to have that kind of patience with the current economy.

And you do hear this argument being made by some Democrats. When someone mentions that this recovery compares unfavorably to virtually all other recoveries, they answer that it’s because the 2008 recession was a “financial recession,” that is, it was a recession that stemmed from a financial crisis, and those always take a lot longer to recover from than your run-of-the-mill recessions, they say.

This notion as pretty much knocked down in a piece by former U.S. Senator Phil Gramm and former congressional budget staffer Mike Solon in The Wall Street Journal in February. As it happens, there were a number of major economic downturns (called panics in the jargon of the day) in the years before the Great Depression. None of them had such drawn-out recoveries as the one following the Great Depression or the current one. Specifically, Gramm and Solon point out that the Panic of 1907 stemmed from a major banking crisis and stock market crash. In other words, it was clearly a “financial recession.” Yet within two years the economy came roaring back.

It is clear that the 1930s and the 2008 recession are the two outliers in terms of recoveries. So what do those two events have in common that is different from all other economic downturns? Well, for one thing there was a marked increase in federal expenditures on a scale not seen in the other cases.

Does that mean that big increases in federal spending cause recoveries to drag out a lot longer? Obviously, it’s more complicated than that. But unless you believe that the laws of economics have somehow changed and the rules are now different than ever before in modern history, there is more than enough cause to lay responsibility for the bad economy at the feet of the Obama administration. Actually, to be fair, blame has to be apportioned between the two major political parties over many years, but the current administration has definitely given a major nudge in the wrong direction. The languishing Simpson-Bowles plan, or even the Ryan budget, would be a (admittedly painful) move in the right direction.

All reasonable people would agree that the government needs to provide a certain level of services and a social safety net. But we need to seriously examine why federal spending for 2012 is at an estimated 24.3 percent of GDP (higher than any time in history, excluding World War II) compared to 18.2 percent in 2000. The growth in spending—which has resulted in the government coopting more of the economy—is certainly motivated by compassion. But it appears that we may have reached a point where the more we spend in the name of helping those who are less well off, the more people there are out there who are made less well off by a bad economy—and who are thus added to the numbers of people who need to be helped.

If an individual—instead of a society—were doing this, it would be considered a disease and would be called Munchausen by proxy syndrome.

The Restaurant at the End of the Economy

One thing I love is a good simile. It’s a great device for making something clearer or for enabling people to see something in a different way.

In a speech to supporters last week, President Obama used a simile to explain how it was not fair to accuse him of running up deficits: “It’s like somebody goes to a restaurant, orders a big steak dinner, a martini and all that stuff, then just as you’re sitting down they leave and accuse you of running up the tab.”

There are a couple of minor tactical problems here. First, if you’ve been labeled for years by your opponents as a tax-and-spend liberal, you probably want to stay away from metaphors that portray your understanding of government as spending money on extravagant meals. Second, if you accuse your opponents of figuratively dining and dashing, then make darn sure that, for the next several days at least, that in any restaurant you go into the literal bill actually gets paid. Pundits had a field day with the fact that the very next day the president had an early Father’s Day dinner with some ordinary guys and no one on his staff (and certainly not the president himself) took care of the restaurant tab.

Smart-alec pundits have written that the president’s restaurant simile was incomplete because it doesn’t include the much bigger dinner that he ordered up after he sat down at the table. Some wondered if the previous customer had eaten the dinner or left it for the president.

There are, however, more substantial problems with the president’s simile. His point was that the current record-breaking deficits were run up because of the 2008 financial crisis and resulting recession, which were not caused by him. It is absolutely true that Barack Obama did not cause the financial crisis and the recession. But the reason the deficit has become so mind-boggling large is directly the result of a stimulus package that the president put forward and which, he assured the country, would spur a recovery. Recoveries are a good antidote to deficits because they result in a growth in tax revenues.

There was indeed a recovery, but it was so weak that ever since, when people are polled they indicate that they still think the country is in a recession. I’ve gone into the reasons for the weak recovery before, but the bottom line is that the hundreds of billions of dollars spent were wasted in the sense that they did not have the promised result. The president and his supporters argue that things would have been even worse if not for the stimulus package, and maybe that’s true. But that’s an assertion that cannot be proved or disproved. But what cannot be disputed is that, judged by the forecasts made by President Obama’s own economic team, the stimulus was a failure in terms of its stated purpose. The president’s response to this fact? They say they just didn’t realize how bad things really were.

The fact is, though, while it is worthwhile to analyze the causes of the financial crisis to find ways to avoid a future reoccurrence, most people really don’t care who should be blamed for what happened four or more years ago. They want to know who knows what to do to get unemployment down. As a challenger, Mitt Romney has the easier job of making a case. He only has to make promises. The president has a track record and needs to explain how things will be better if he gets a second term. The only concrete plan he offers is raising taxes on the wealthy (something most economists and Bill Clinton think should wait until the economy is stronger) and passing the American Jobs Act, which is essentially another stimulus but on a much smaller scale. Unless he has more ideas he’s not telling us, a second Obama term looks to be more glacial recovery, if not another recession caused by looming global factors.

I’ll tell you what really worries me about the president’s restaurant simile. He uses the restaurant as a metaphor for the economy, but in his metaphor he is not even the manager of the restaurant. Or the owner. He is a customer. And a rather petulant customer at that. He is annoyed to find an unpaid bill on the table where he has been seated. In that situation in a real restaurant, the newly seated customer is not on the hook for the bill left for a previous customer; the restaurant is. The president’s simile does not give any indication that he has any responsibility for the deficit. He’s just some guy yelling at the staff to do something about someone else’s problem.

Doing Fine?

Every politician at one time or another makes a gaffe. This is usually an isolated comment that begs to be taken out of context. An example of this is Mitt Romney’s statement in January that “I like being able to fire people.” He was speaking specifically about liking to be able to drop one health care provider and switch to another, but the sound bite was too irresistible not to repeat multiple times. And it dovetailed nicely with the image of Romney as a vulture capitalist.

Another type of gaffe is the one defined by journalist Michael Kinsley thusly, “A gaffe is when a politician tells the truth.” An example of this is President Obama’s comment on Friday, “The private sector is doing fine.” No one took that bite out of context. Its meaning was clear. The president was saying that his main focus was on the cutbacks in the public sector, which is shedding jobs, and less on the private sector, which is adding jobs—although at a rate that will take ages to bring the country to anywhere near the employment level of the Bush administration. Many media outlets reported that the president “backtracked” or “walked back” his gaffe, but that’s not really accurate. In his clarification four hours later, he emphasized, “Listen, it is absolutely clear that the economy is not doing fine.” Now, that is a quote no president really wants to have coming out of his own lips, but he said it anyway to make sure people knew he was not out of touch. But he purposefully did not take back his comment that the private sector was doing fine. The president’s original comment should not be treated as a gaffe but as a clear indication of where his priorities are.

This is similar to Romney’s “gaffe” in February when he told CNN, “I’m not concerned about the very poor.” Just as Obama was making the point that one group presented a more urgent situation than other, so Romney was emphasizing his concern for the middle class. There may be valid reasons for this emphasis, but it never sounds good politically when you say you’re not concerned about the very poor. Similarly, if you’ve been laid off by a company, it cannot be very comforting to hear the president say that the private sector’s doing fine. Does the president really want to be seen favoring one group of workers (public employees) over another (private sector employees)—especially when the group he is favoring represents only eight percent of the workforce?

Any damage to Obama from this particular remark goes beyond the fact that people out of work may resent him for not feeling their pain. It betrays a faulty understanding of the economy. After all, if the private sector were “doing fine,” then it would be producing enough tax revenues so that state and local governments would not have to be laying off employees. Moreover, there is an all-too-easy rebuttal for Republicans to make. Yes, local and state entities are shedding jobs faster than the private sector but, even so, unemployment in the government sector is still at only 4.2 percent (according to the Bureau of Labor Statistics) compared to an overall 8.2 percent unemployment rate. So on what basis would the president be singling out government employees for special concern?

Think about it. If you work for a private company, you are helping to earn profits that pay for your salary. Moreover, you and your employer are paying taxes that pay for public employees’ salaries. On the other hand, if you have a government job, you may be doing something very worthwhile, but you are not helping to generate profits. You might be collecting taxes or fees, but overall you and your fellow public sector employees collectively are not bringing in enough to pay your own salaries.

You may ask, what is the difference between being paid a salary out of company profits and being paid out of taxes or fees collected for government services? It is true that services like education and law enforcement are ones that people would willingly pay for in the marketplace if they were not provided by the government. You can think of teachers and police as being hired by their local districts or cities and that the taxes and fees that pay their salaries as being little different from the profits earned by private companies. And those particular jobs nearly approximate the private sector because citizens theoretically have some control over them as services because budgets are subject to elections and bond levies. But the more that funding for these services comes from the federal government, the less like a marketplace it becomes. And keep in mind that we are speaking of public services that people value. We are not even talking about the federal bureaucracy which, in spite of any public good it does, is a net drain on the economy moneywise.

This is not to say that employees in the public sector do not provide necessary services. But employees in the private sector only get paid as long as it makes economic sense to pay them. When the economy turns bad, they are at risk of losing their jobs. When those workers lose their jobs, there is less money for paying workers in the public sector.

Morally, a national leader shouldn’t distinguish between workers in one sector and another when it comes to showing his concern. And economically, it makes absolutely no sense to favor public employees over private employees. After all, you need people in the private sector to be working so that you can pay people in the public sector. The president’s position is a bit like addressing a food shortage by saying the farming sector is doing fine and we should be worrying instead about supermarkets.

Che's Ghost

In a strange way, since I have moved to the west of Ireland, I have come to feel like Che Guevara is a neighbor of mine.

I don’t mean that he is literally living here. That would be one heck of a scoop. But I’ve felt his presence in a strange way.

Almost immediately after we moved to our rural location, I found myself regularly accosted for a chat on the road by a neighboring farmer. He is a man in his early sixties, although he looks older. He lives with his brother in the same house that their parents lived in. The two of them are bachelors. During our occasional chats, I have come to realize that he has never been more than a few miles from home but, not surprisingly, he knows the local area very well. During one of our meandering conversations, he mentioned an old estate house on a nearby shore of Lough Corrib. It belonged to the Lynch family, he said. He added that a daughter of the Lynch family emigrated to Argentina and became the grandmother of Che Guevara.

I had known that Che had roots in the west of Ireland. At the 2003 Galway Film Fleadh I saw a stunning short film by Anthony Byrne called Meeting Che Guevara and the Man from Maybury Hill. It was a fanciful riff on 1950s film noir and science fiction, and included actual footage of an interview Che gave in 1964 to RTÉ’s Sean Egan when weather forced an unscheduled stopover at Dublin Airport. As Cuban Minister for Industries, he was en route from New York to Algeria, and he can be heard in the film speaking of his grandmother’s Irish roots in Galway. As best as I have been able to determine, it was not actually Che’s grandmother who emigrated from Ireland but rather his great-great-great-great grandfather, Patrick Lynch. Patrick was born in Galway in 1715. He relocated in the 1740s to Bilbao, Spain, and then to Río de la Plata, Argentina. His great-great granddaughter Ana Lynch became the mother of Ernesto Guevara Lynch and grandmother of Ernesto “Che” Guevara. (Other accounts have Che’s forbearers coming from Clare or Cork.)

The history of the Lynch family in Ireland goes back to 1185 when William “le Petit” de Linch settled in Galway. The clan was one of the fourteen Tribes of Galway, merchant families who dominated Galway’s political, economic and social life from the 13th century onward. As time went on there were several branches of the Lynch family. My farmer friend’s story notwithstanding, the branch that had the house near me did not produce Argentina-bound Patrick Lynch. He seems to have come from Lydican Castle, near Claregalway, some five miles east of the city of Galway.

The link between Che and Ireland endures. There is an oft-repeated quote from Che’s father telling of “the blood of Irish rebels” that flowed in his son’s veins. Also, one of the most iconic images of Che—and the one that may have most contributed to the marketing of his radical chic image—was the work of an Irishman. In 1968 Dublin-born Jim Fitzpatrick created the ubiquitous two-tone portrait of the revolutionary from the famous photo (called Guerrillero Heroico) taken by Alberto Korda in 1960 of Che in a black beret at a memorial service for victims of a ship that exploded while munitions were being unloaded in Havana. Fitzpatrick printed a series of posters of his portrait. Last year he announced that he would belatedly copyright the image—which was intended for free use by revolutionary groups—and hand over the rights to Guevara’s survivors in Cuba. In one of the many ironies about Che, that un-copyrighted image has generated a lot of money from a lot of capitalist merchandise. Fitzpatrick, who would go on to produce artwork for Thin Lizzy, Sinéad O’Connor and The Darkness, says on his web site that he actually met Che, while working as a barman in a hotel in Kilkee, County Clare when the revolutionary made (another) unscheduled stop in Ireland in 1962, this time at Shannon Airport. (Other sources say that stopover happened in 1961.)

Che’s ghost began haunting Galway again earlier this year when Labour Party City Councillor Billy Cameron proposed erecting a monument to the revolutionary, who died in Bolivia in 1967. At least some of the funding would be coming from the embassies of Cuba and Argentina. Reaction has been heated on both sides of the issue. As Cameron put it, “We’re honoring one of our own from a distance.” The most eloquent objection came from Yale professor and National Book Award winner Carlos Eire. A Cuban of Irish descent, Eire wrote in a letter, “Che was my neighbor in Havana, and I actually saw him in the flesh several times. He lived in an opulent mansion just a few blocks from my very small house, and also ran the prison of La Cabaña, where some of my relatives ended up being tortured and murdered.” Interestingly, The Irish Times declined to print Eire’s letter, but a local Galway paper did.

Eire ended his letter with a tongue-in-cheek suggestion. If a monument is built for Che, he wrote, then there should be one right next to it for Oliver Cromwell, one of the most hated figures in Ireland. Explained Eire, “Like Cromwell, Che proclaimed himself a liberator and felt justified in committing thousands of atrocities in a land other than his own, all in the name of a higher cause.”

There is a lovely symmetry to Eire’s suggestion. After all, the Tribes of Galway (including Che’s ancestors) had their properties confiscated by Cromwell in the 17th century. In fact, it was Cromwell himself who came up with the name “Tribes of Galway,” as a mark of his contempt for them.

The ironies abound. In the wake of the brouhaha over the statue, there has been some criticism of the annual Che do Bheatha festival held in Kilkee to commemorate Che’s visit there. But it’s not political, explains Kilkee Mayor Elaine Haugh Hayes. “His name was famous and we just worked off that to create a festival where we can get people in to help local business.”

The fact is, Che the man disappeared long ago. All that’s left is a dashing visual image that is one more tool for greasing the gears of commerce.

Liars Figure

I worry that people are going to think that I’m obsessed with Paul Krugman. But he keeps showing up on TV saying the most ridiculous things. And I cannot figure out why the people who are sitting next to him are not staring at him as if he has two heads—like I am.

He was back at it on Sunday on ABC’s This Week with George Stephanopoulos arguing that the economy is so bad because the government has essentially been following Mitt Romney’s economic policies for the past few years. I’m not kidding. Go to the ABC News web site and watch it yourself.

Krugman’s reasoning is that Romney is advocating “austerity” and that the country has been enduring “austerity” for the entire length of Barack Obama’s presidency to date. Note: I have decided to put the word “austerity” in quotes any time it is used by a politician or a pundit. This is to highlight the fact that different people use the word to mean different things, which only confuses things. Some people use the word to mean private sector austerity, which translates to higher taxes. Other people, like Krugman, use it to mean public sector austerity, which translates to reductions in government spending.

So Krugman is arguing that, under President Obama, the government has been cutting spending. And he even has a chart to illustrate this, and darned if it doesn’t show a huge drop in public spending during the past three and a half years. But his chart—which I discussed in April and which he brought out again on Sunday—is hugely and ineptly deceptive. By combining state and local spending with federal spending, it masks the huge increase in federal spending. The fact that it shows overall public spending going down just reflects how bad the economy is. State and local governments have cut spending because they have run out of tax revenues. So, like a lot of people, Krugman is disappointed in Obama, but in his case it’s because Obama has been cutting government. I suppose that’s indirectly true, but it’s completely untrue when speaking of the federal government.

Krugman is not the only one trying to argue that the president is miserly with public monies. A couple of weeks ago global commentary editor Rex Nutting wrote on MarketWatch.com contended, “Of all the falsehoods told about President Barack Obama, the biggest whopper is the one about his reckless spending spree.” He supported this assertion with a chart showing the annualized percentage growth in spending during each presidential term going back to Ronald Reagan’s first one. According to the chart, the biggest spender was Reagan (in his first term) followed by George W. Bush (in his second term). So the Reagan years weren’t the era of greed and government cutbacks after all!

This was a clever trick on Nutting’s part, but as plenty of others (including fact check columnists and web sites) have pointed out, how much spending has gone up or down from one term to another doesn’t really tell you how much spending happened during a term or how much the deficit was added to. Comparing deficits under each president is a much better way to compare spending policies. Even better is to compare deficits stated as a percentage of gross national product, that is, how much of the U.S. economy is in hock to creditors. At the end of Reagan’s two terms, this percentage was 52.6 percent. At the end of George W. Bush’s two terms, it was at 74.1 percent. At the end of 2011, it was at 99.7 percent—by far an all-time high. In other words, the money owed by the federal government is now very close to the value of the country’s entire economy.

If the percentage increase in spending under Obama comes out low, it is only because the baseline for his spending was the emergency stimulus authorized by Congress in the last days of the Bush administration. What should have been a one-off jump in spending simply became the plateau for even more spending growth. There’s your economy-killing “austerity,” Professor Krugman. What drives me crazy is that people like Krugman and Nutting, who manipulate numbers to create false impressions that don’t fool anybody, are very intelligent people. So they clearly know that they are misleading (or trying to, anyway) people. What I can’t figure out is, why do they do it? And why don’t more people laugh at them and stop inviting them to be on news panels?

Implicit in this manipulation is this argument: Obama isn’t as bad or, at least, any worse than other presidents when it comes to spending. You often hear the president’s defenders point to the fact that George W. Bush and a Republican Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act without paying for it. They also point to Bush’s two wars that he didn’t pay for. And you know what? They’re right. He did exactly what they say. What they don’t explain is how this justifies even more federal spending, by several magnitudes, that also isn’t paid for. It’s like the guy who pours gasoline all over the living room blaming the guy who left the burning cigarette in the ashtray.

Whatever you think of the stimulus packages that were passed in 2008 and 2009, they did have bipartisan support at the time and were worth a try to boost the economy. Unfortunately, the larger one (2009) did not spend its $831 billion in a very stimulative way. And it was eclipsed by the business uncertainty that derived from, first, a prolonged fight over the Patient Protection and Affordable Care Act and, second, the looming provisions and inevitable cost increases of the act itself.

When it comes to the economy, both Republicans and Democrats have let the country down. Voters may feel justified in punishing one party or the other or both. But the only question that matters is which presidential candidate is more likely to move things in a better direction. Mitt Romney has endorsed Paul Ryan’s budget. If he sticks with that, there will be plenty to attack him on because it is very detailed and guarantees significant pain. But it would, over time, reduce the deficit.

What is Obama’s alternative? We don’t know because he speaks only in generalities and criticizes the House of Representatives for not passing bills that would make little difference anyway. The president’s problem is that people have to be wondering if he even has a plan. After all, if he did have a plan, wouldn’t he, as a sitting president, be implementing it already?

Chile, in Perspective

So, after spending a few weeks reminiscing (starting here) about the time I spent as a student in Pinochet-era Chile, what are the lessons to be drawn from the experience?

I did some moral wrestling before I even went to Chile. It occurred to me that the act of accepting a fellowship to live and study in the country could be construed as a form of support for the Pinochet dictatorship. I asked myself if I should decline the fellowship on that basis alone. But as a candidate for a master’s degree in journalism, who had written for a number of student and community newspapers, I considered myself a journalist. And no self-respecting journalist would refuse to visit a country because he disapproved of its government. In fact, that would be a reason to go.

After I began living in Chile, I came to appreciate that it was not a black and white situation morally. As with other countries under dictatorship (the USSR, Franco’s Spain, Cuba, probably even North Korea), the vast majority of people were just getting on with their lives and loved their country. And there was strong support for the government. There was also fierce opposition, but that necessarily remained in the shadows or abroad.

During those years there was a concerted campaign to make Chile an international pariah. But my experience living there had the effect of making me skeptical about boycotts and sanctions against countries, even ones with clearly immoral governments. The problem is that, to the extent that they have any effect, they mainly inflict hardship on average citizens rather on than the government. Apartheid-era South Africa was treated similarly, and it is worth remembering that, if musician Paul Simon had adhered strictly to the cultural boycott of that country, we would not have gotten the album Graceland a quarter-century ago.

It is relatively simple (and easy) for a North American like myself to criticize the Pinochet regime for the violent means it used to take and maintain power, for the killings, the torture, the lack of democracy and the human rights abuses. But there are a few factors that mitigate judgment of (not excuse) the regime. Clearly, the junta and its many supporters saw the actions of September 11, 1973 not as a coup but as a counter-coup and ultimately a civil war. President Salvador Allende had clearly decided to ignore the country’s constitution with some of his actions. The Supreme Court had unanimously declared that Salvador Allende’s government represented a “disruption of the legality of the nation” for ignoring judicial rulings. The Chamber of Deputies passed a resolution 81-47 to demand that Allende stop ignoring the constitution. When the military made its move, its power was overwhelming, but Allende’s supporters were not exactly hapless victims. Allende had a coterie of personal bodyguards (led by a Cuban-trained commando), of which 46 were killed in battle. The Revolutionary Left Movement (MIR) also fought against the military on that day and after. Among the military, there were 34 casualties on September 11 and a further 162 during the following three months. For years the two sides would argue over whether Allende was killed or had taken his own life, but a year ago an exhumation and autopsy finally established once and for all that he had killed himself with an AK-47 that was given to him by Fidel Castro. Official investigations after the return of democracy would put the number of the junta’s victims at (at least) 2,115 dead and (at least) 27,265 tortured.

Frankly, the argument that, if not for the September 11 coup, Chile would have become a Cuban-style dictatorship is not without merit. Does that justify the coup and the human rights abuses? For a lot of Chileans at the time, it clearly did. But as time has passed, succeeding generations have had to come to terms with the violence of the 1970s. You can see this in the country’s popular culture, such as in films like Andrés Wood’s Machuca. In 2006 Michelle Bachelet was elected president of Chile. Significantly, in the 1970s she had been arrested, tortured and subsequently spent a few years in exile, and her election was seen as symbolically healing.

Another major factor that complicates a blanket condemnation of the Pinochet regime is the fact that his government transformed and modernized Chile’s economy. Studiously following the economic policies of Milton Friedman, the government tamed the out-of-control inflation of the Allende years and led the country to prosperity. It is a record that flies in the face of the usual patterns of dictatorships. Usually, a lack of democracy breeds corruption and abuses and a need for the regime to perpetuate its own power. Pinochet’s regime certainly engaged in terrible abuses, but it also led the country to a bright economic future and kept its promise to step down and reinstall democracy at the end of the 1980s.

Morally, we can only condemn the Pinochet’s overall role in Chile’s history. On the other hand, when compared to someone like Fidel Castro in Cuba, in completely relative terms, he doesn’t look all that bad.