Saturday, April 28, 2012

What we can learn from comparing the U.S. and European economies

One of the biggest issues of this campaign should be how to grow the economy.  Both candidates will likely speak in small terms, using symbols to send their messages, but it would be nice if they actually went to the heart of the matter and discussed their very different macro views of the role of government and the economy.

At the heart of the Republican view is the idea that the U.S. needs to cut spending and reduce regulations and let the economy grow as a result of the freedom it is given if left to do so by a government that just stays out of the way.   

At the heart of the Democrat view is that the federal government needs to inject stimulus spending into a depressed economy to provide temporary demand that will keep the economy going, and create jobs, so that the economy can recover and start to grow on its own without the extra stimulus from the government.

Of course, the conversation devolves immediately into accusation and demonization because the hard right sees government spending and regulation as attempts by the intelligentsia to take over the country with massive socialist endeavors that empower themselves and steal power from the entrepreneurs and business. 

And, of course, the hard left devolves just as quickly into accusation and demonization because it sees cutting spending and reducing regulation as nothing more than ideological cover for heartless exploitation and greed of the few (the 1%) at the expense of the many (the 99%).

Interestingly, Fareed Zakaria on his Global Public Square show last Sunday tried to inject some objective data into the debate.  His point is that these two approaches are currently being tried: one in Europe and one in the U.S.

In Europe, the austerity approach is being tried, and the results are terrible.  Governments are cutting spending, rather draconianly, in Brittain, Greece, etc.  The results are the tiny growth of about 0.8% for the EU, with the economies most subject to austerity actually shrinking.  Why? because austerity shrinks the economy and lays off people, reducing demand, which ends up with not only a worsening economy but also an ever increasing deficit.  It doesn't look like austerity is working in Europe, and there is no reason to think it will work in the U.S., other than to those whose secular religion is the ideology of tax cutting, spending cutting, and austerity.

In the U.S. the stimulus approach was tried, and the results are moderately good.  The growth rate is about 2.2%, not as good as we would like, but quite a bit better than those countries following the austerity mantras of the Right. Of course, Republican outrage has stopped any future Keynesian stimulus, but  I think that Obama and the Democrats are correct when they say that it has helped.  Plus, I firmly believe that much stronger regulation of the financial industries is necessary because Wall Street has proven to me that they cannot be trusted to run their businesses in any way other than to take ever greater risks to make huge personal fortunes, while they know that the federal government will absorb their losses and keep them from failing, and will keep them out of jail if they do.

So, I am in the process of changing my mind.  Up to now I have thought it was obvious that with our huge deficits and debt we needed to both cut spending and raise taxes.  I still think that is largely true, but I am thinking that the spending cuts can be moderate and should focus largely on the military superstructure as well as entitlement reform, the tax raising is best in the form of a major tax reform that takes away the government giveaways to interest groups, and active government stimulus and regulation are vital to the creation of a newly robust economy.  

So, raise taxes, increase regulation, Keynesian stimulus spending, and spending reform (entitlement and military cuts leaving room for infrastructure, education, and research support) - the four pillars of economic growth.  My new mantra.  So far.

Saturday, April 21, 2012

Tribal politics

We think we choose our politics based upon dispassionate reason, or at least some of us like to think so.  However, market researchers have a different view of the electorate:  we are members of cultural tribes.

If you read the NY Times or Washington Post, drink congnac, brandy, gin, or Heinekin, drive a hybrid, Suburu, or Audi, browse the internet for personal ads or dating, or do job searches, eat at Popyes, White Castle, or Church's Chicken, watch Lifetime, Bravo, CNN, or MSNBC - you are in the tribal demographics more likely to vote Democrat in elections.  And you will likely be targeted by Democrats to get your vote.

If you read the Washington Times or the Wall Street Journal, drink Amstel Light,  Michelob Ultra, or Canadian whiskey, drive a Land Rover, Isuzu, or Lexus, browse the internet for sports updates, financial services, or weather, eat at Cracker Barrel, Macaroni Grill, or Schlotsky's Deli, watch Fox News, the Golf Channel, or the History channel - you are in the tribal demographics more likely to vote Republican in elections.  And you will likely be targeted by Republicans to get your vote.

Here are some fascinating results of this kind of marketing research:

One of the things I find interesting in the above data is that Republicans apparently use the internet more than Democrats.  Who knew?

So, where does that leave the upcoming election?  There is an interesting thought that the opening of the campaign financing to superpac money will have the odd result of moving the campaigns more to the center.  The idea is that when campaign money is tight, both Democrats and Republicans need to focus almost all of their money on their base - to hybrid buyers or Land Rover buyers, for example.  But, now that Citizens-United opened up the money coffers, there may be so much money available for campaigns that each side might go after venues that are populated by those in the middle - those who watch ESPN, read USA today, drink Bud Light or scotch, drive Chevrolets or Fords, browse the internet for movie listings, use email, eat at McDonald's, Wendy's and Subway, and watch TNT and the Animal Planet.

There is hope for us after all.

Wednesday, April 18, 2012

Is the negotiation with Iran working?

Don't look now, but there is a pretty good chance that increasingly severe economic sanctions on Iran are actually doing a good job of moving that country into a workable negotiation on their nuclear program.  

It looks like a big moment came when Iran's Supreme Leader Ali Khamenei swore not to commit the "grave sin" of building a nuclear weapon.  I took that at the time as normal stalling tactics to give them time to finish the job, but David Ignatius of the Washington Post points out that both sides are finding ways to create face saving moves to avoid confrontation over Iran's nuclear program, with Iran forgoing the building of nuclear weapons.

The key to negotiations is how the moves are framed.  

Iran can perform "confidence-building" measures to demonstrate how serious a moral issue it is to Khamenei not to build nukes.  These measures require "reciprocity" from the West.  If this step by step negotiating process can proceed quietly a deal may really end up happening.

"Confidence building" by Iran would be to ship Iran's low-enriched uranium abroad and receive back 20% enriched fuel, for "isotopes" for "medical research."  In addition, Iran would stop working on their underground enrichment facility near Qom, which would no longer be needed.  This would be acceptable, one hopes, to Khamenei as long as the West accepts Iran's right to peaceful nuclear energy.  Viola, Iran backs down but saves face under the umbrella of Khamenei's moral declaration that nukes are a "grave sin."

"Reciprocity" by the West would be to accept Iran's right to nuclear power and an easing of the sanctions.  The key date is apparently the beginning of July when the U.S. and Europe's sanctions are to take full effect.

Another key to this seems to be that the U.N. Security Council, meaning China and Russia, has "signaled" that Iran's nuclear program aimed toward building nuclear weapons is too dangerous.

I think that Obama's foreign policy, aided by the apparently very skilled Secretary of State Hillary Clinton, is working pretty well around the world.  And keeping Iran from building nukes, and keeping Israel from attacking Iran, is a huge accomplishment, and is best achieved at the levels of diplomacy and statesmanship rather than grandiose and bellicose showmanship wanted by some.

It's worth a prayer or two that they, no ... that we, succeed.

Wednesday, April 11, 2012

What is it about Massachusetts' governors?

Now that even Rick Santorum concedes that Romney will be the Republican nominee for president, I notice an odd thing:  Romney reminds me of another former governor of Massachusetts governor, Democratic presidential nominee Michael Dukakis.  Both seem to be cold, calculating, data oriented analysts, but seem to be missing the warmth factor.  

Dukakis famously made a pretty big mistake in a presidential debate by telling CNN debate moderator, Bernard Shaw, that he would not favor the death penalty if his wife, Kitty, had been raped and murdered.  He answered as an ideologue, as an analyst, about how the data showed that the death sentence does not deter violent crime.  There was no human response to the abhorrent suggestion that his own wife had been subjected to such a degrading death.  He seemed to be a robot, a man with only a brain and without a heart.  He didn't have to change his position on the death penalty, but he could have shown a beating heart if he had said he would want to find the bastard and kill him himself, and then reaffirmed his principles.  But, he was just a cold fish policy wonk and it hurt him pretty badly in the election, which he lost, of course to Bush I.  

Patricia Murphy of the Daily Beast, makes the same kind of observation about Mitt Romney:  that he lacks a certain sense of humanity.  

Dukakis spoke in ideological terms about the government policy, rather than about people.  Romney speaks as a CEO about the economy in abstract data driven arguments and doesn't speak in terms of people's lives.

Of course, Romney's good luck is that he is not running against Mr. Warmth.  Obama has the same remote, cool, data oriented temperament.  One of the things I find so fascinating about this election is the likeness of the two candidates on a temperamental level - cool, remote, analytic, dispassionate.  Two Dukakises running for president, odd actually.

Friday, April 6, 2012

What the campaign should be about

Romney won the nomination after the first primary in Iowa, the rest has been about the theatrics of party politics.  Now it should be obvious to all that Romney will be the Republican nominee.  I have a dream - what the campaign should really be about:

The deficit - Romney should say that we need to follow the blueprint of Simpson-Bowles and both cut government spending and raise taxes.  He should say Obama and the Democrats are only talking about raising taxes and won't talk about cutting spending.  Obama should say that we need to follow the blueprint of Simpson-Bowles and both cut government spending and raise taxes.  He should say Romney and the Republicans are only talking about cutting spending and won't talk about raising taxes.  Both would be right - both raising taxes and cutting spending are necessary to keep the country's economy and government from collapsing under the weight of the deficit.

The terrorist wars - both should say that we need to protect the country from terrorists, but we should do everything we can possibly do to avoid sending troops into the toxic tar pit of the Middle Eastern religious and civil wars.  I hope there is no real dispute.

Health care - the debate is over, health care reform became the law.  We need to improve it.  Romney will want market mechanisms to improve it, Obama will want government oversight to improve it.  Both would be right.

The economy - blah blah blah, the economy will grow if pretty much left alone.  Leave it alone.

The Culture Wars - Obama should leave them alone.  Romney should leave them alone.  Let Fox News and MSNBC fight it out as a gladiator spectator sport to get their little niche audiences, and the candidates should get on with running the country.

Of course, many Democrats, and many Republicans will run campaigns based on the nonsense that those in the other party are demons from hell and hell bent on destroying everything sacred in This Great Country of Ours.  But, I have a dream that the two presidential candidates will run as who they really are, not ideologues, but as pragmatic problem solvers, one with more reliance on the marketplace and one with more of an emphasis on the government, who will do their best in dealing with a very complicated world.

I can dream...