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Comments on American Politics

Prof. Peter Morici - 11/24/2011

I. Super Committee Fails but Obama Campaign Machine Rolls On


President Obama and his supporters are portraying the failure of the Super Committee to slash the budget deficit by $1.2 trillion over ten years as endangering the already weak economic recovery. This is absolute sophistry.

A deal acceptable to Democrats would have raised taxes on the wealthy and corporations by $25 to $50 billion, annually, and cut spending, disproportionately on defense but some other programs too by $50 to $75 billion, for a total savings of about $100.

Apparently, according to liberals, raising taxes on folks they believe the government spoils—millionaires and corporations—and cutting spending they deem unnecessary—defense and other civilian programs—doesn’t reduce overall spending by consumers, businesses and government, and hence, demand and GDP. Nowhere in the textbooks or journal articles economists read, is such a proposition demonstrated. In fact, the reverse is true: Super Committee spending cuts and tax increases would have slowed growth.

In the next breath liberals argue the failure of the Super Committee to reach an acceptable compromise ensures Congress will not extend the two percentage point Social Security tax holidays beyond the end of the year, and that endangers prosperity too.

The Social Security tax holiday is a separate legislative issue and could still be enacted, but let’s suppose it is not. Had the Super Committee succeeded and the holiday consequently extended, spending would have been cut and taxes raised for some people—slashing demand—and the taxes cuts extended for others—boosting demand. Overall, the net impact on GDP is close to zero.

What is really going on is the President is about his old tricks. The economy is not performing and unemployment remains too high—and with conditions in Europe as they are, the whole global economy may be headed for another recession in 2012

Europe notwithstanding, structural problems—the trade deficit with China and on oil, Wall Street banks that won’t lend and the Dodd-Frank reforms don’t reform, health care reforms that didn’t lower costs but instead raised them, and a federal regulatory apparatus that drives investment and jobs offshore, together, handicap the U.S. economy beyond all recognition by the Oval Office and its allies on Capitol Hill.

President Obama never intended for the Super Committee to succeed. He and Speaker Boehner created it in a compromise last August, but he never demonstrated any leadership or intention to negotiate seriously. The President never moves off his soak the rich and scapegoat oil company campaign message.

Now, he can blame the failure of the Super Committee on Republican unwillingness to tax millionaires, and urge voters to blame the GOP for a lousy economy, when he bears considerable responsibility for high unemployment.

Sadly, Speaker Boehner is outclassed. He negotiated a bad deal—and gave the President a winning hand—when he agreed to the Super Committee last August, and he continues to let Mr. Obama out-speak and out-maneuver him.

The President spends all his time campaigning, while the nation’s economic problems go unaddressed. For Mr. Obama, the fact of his presidency is more important than solving the problems he was put in office to fix.

II. Obama Outplays Republicans, Romney at Home and on the Road


It’s the economy stupid—maybe not. President Obama with the help of Congressional allies has turned the key issues to his advantage.

Economists agree growth is slow and jobs scarce, because demand for what Americans make is weak. Consumers are spending and businesses are investing again; however, too many dollars go to imports but do not return to buy exports—a huge deficit with China and on oil are to blame.

President Obama effectively articulates those problems, and seeks to move China off mercantilism with diplomacy and wean Americans from fossil fuels with alternative technologies. However, neither reasoning with the Middle Kingdom nor windmills and electric cars effectively enough addresses those problems. Moreover, the President flat out rejects that a federal regulatory system out of control and rocketing health care costs are driving businesses and sending jobs abroad.

Instead of fixing what’s broke, he campaigns across America for quick fixes that would make voters feel better until after the election and paints the GOP as callous defenders of the rich.

Democrats in the Senate serve up one proposal after another—aid to states, public works and job aid for veterans, each financed with a new tax on millionaires. Recognizing the economy needs structural solutions, Republicans block those ploys but then the President exclaims Republicans would rather protect the richest one percent than keep teachers and firefighters on the job, invest in America’s future and help unemployed veterans.

The President has turned liabilities—high unemployment and failed policies—into assets—the fairness and responsibility issues.

It’s working—according to the most recent Quinnipiac Poll, President Obama leads Mitt Romney, Rick Perry, Herman Cain, and Newt Gingrich and his advantage is growing.

For Republicans, it doesn’t help the field has not thinned—the messages of those top tier candidates are partially drowned by the cacophony of second tier hopefuls whose viability is extended by the endless cavalcade of entertaining network debates.

Also, it doesn’t help that Perry, Cain and Gingrich offer vague, thin, and doctrinaire economic prescriptions. And Perry comes off a bumbler, Cain is handicapped by sexual misconduct allegations, and Gingrich is an amusing senior statesman but is just too much the professor to win the brass ring.

The likely Republican nominee, Mitt Romney has a comprehensive program to right the economy—on trade, energy, regulation, and health care—but has failed to effectively articulate for voters what’s broke and demonstrate how what he offers will fix it. It doesn’t help that he is not exciting or charismatic—Lyndon Johnson proved a president doesn’t need those to be highly effective, but John Kennedy set the tone for TV era campaigns by demonstrating how those qualities can trump.

Mr. Romney has been in politics long enough to recognize his communications strategy is failing and those close to him can attest to his persuasive personal qualities. It remains a puzzle that he has not improved his messaging and found a way to compel more attention to the strength of his ideas and character. He must do those do those things to demonstrate he has the intelligence and vigor for high office.

On the road—the campaign trail—and at home—Washington in Congress—Mr. Obama keeps winning because he effectively defines the terms of the debate to suit his advantages, and the GOP has not offered voters a credible and exciting alternative.

The President is simply outplaying his opponents on all venues. If Mitt Romney indeed emerges as the Republican nominee, he must expose President’s tactics, and convince voters he offers something that is better and will solve the nation’s problems, and that he is strong enough and smart enough t o get it done.

III. Mr. Cain’s Time to Exit


Herman Cain is losing luster among Republicans. After initially holding up well in polls in the face of unproven accusations of sexual misconduct, his favorability ratings are starting to fade. His campaign may survive this controversy but it may be time for Mr. Cain to exit.

Revelation two women received cash settlements from the National Restaurant Association more than a decade ago, after complaining that then CEO Cain acted in sexually inappropriate way, is not enough to disqualify him for the presidency. Well intended Equal Employment Opportunity Commission rules for employers can encourage unwarranted finger pointing that little serves genuine victims or innocent defendants. Often, cases are settled to avoid high legal costs.

That said, Herman Cain’s responses to charges raises concerns that he has something to serious to hide, or at least that he is not yet ready to be the Republican candidate.

When confronted that two women had come forward, at first he claimed no clear recollection of misconduct charges, but later reversed himself and offered his account of what one woman alleged. Importantly, he first claimed no financial payouts were made, but subsequently recalled at least one financial settlement.

It is unlikely the merits of these two complaints will ever be known. Even with a waiver available from nondisclosure clauses in the settlement agreements, these women have not been willing to identify themselves, detail their allegations and confront Mr. Cain—it’s tough to evaluate the veracity of claims without those.

Sexual harassment is a scarlet letter. Just as victims never forget, men accused without cause don’t forget either, making Mr. Cain’s lapse of memory inexplicable. And a CEO, whose organization cashes out complaints for allegations about his own actions, should be aware of settlement agreements unless he is simply not doing his job.

And those are not Mr. Cain’s only gaffs.

Mr. Cain’s 9-9-9 tax proposal makes great economic sense but when pressed, he cannot explain why it does or how it would work. For example, when asked about how the nine percent sales tax would treat imports, he doesn’t know—this despite the fact that European countries have extensive experience with this issue, economist and lawyers have studied those issues ad nauseum, and the treaties the United States and EU have signed permit applying sales taxes to imports and refunding the same on exports to maintain neutrality in competition between foreign and domestic products.

If Mr. Cain indeed has economic advisors, they are either negligently incomplete in their briefings, or he is disinterested in relevant details. Instead, Mr. Cain throws around 9-9-9 like a Pizza promotion, and expects us to accept he will figure things out if we elect him President.

Recently, Mr. Cain appeared with Newt Gingrich in a two-man debate that resembled a town meeting—the format afforded to each opportunity for long elaborations of positions. When Mr. Cain was asked how he would restructure Medicare, he paused, gazed to the ceiling and said “You go first Newt.”

If the GOP is united, arm-to-arm that Obama Care must be repealed or radically altered, then whomever it nominates should have a plan for controlling costs and trimming federal health spending. Those absolutely have to begin with restructuring Medicare and Medicaid, but Mr. Cain is not prepared to detail his approaches on those reforms.

At this juncture, to clean up the most pressing economic problems—health care, education, domestic energy production, regulatory overreach, and the huge budget and foreign trade deficits—men and women seeking the presidency should be able to present and defend clear plans to address those challenges.

After the missteps of Messrs Obama and Bush, it should no longer be satisfactory for presidential aspirants to exhort the government must lead, or tax cuts and deregulation is the tonic for whatever ails the nation.

The government is going do a lot of spending, taxing and regulating no matter who is president. Candidates must explain how things are broken and how they plan to fix them.

Surveying the Republican field, Romney, Gingrich and Huntsman have adequate answers, but some others, in particular Mr. Cain, do not.

Mr. Cain has a list of accomplishments most of us would be proud to possess, but he has not yet adequately prepared to run for president.