The President’s re-election

I recently had dinner with some good friends and they greeted me with the exclamation: “Aren’t you elated that Obama won.” I looked at them and said: “I am relieved, but not elated.”

I am relieved because while it is true that we would have avoided the fiscal cliff if Mitt Romney had been elected, which was the rationale for the endorsement of Romney by the Des Moines Register, who posed the question as, “Which candidate could forge the compromises in Congress to achieve these goals?” meaning avoiding the cliff, and concluded: “When the question is framed in those terms, Mitt Romney emerges the stronger candidate…”

Of course, for Romney there would have been no need to compromise. He would have embraced the program of the Tea Party, with only a Democratic Senate (which was in doubt until the results came in) standing between him and his cohorts gaining a complete victory.

The likelihood of falling off the cliff has certainly increased as a result of the Presidents re-election. But the result of capitulation, while possibly less frightening in the short run, would have dire consequences in the long run, as I outlined in my blog posting entitled "The Election." The consequences of just the domestic sequester staying in place is ably outlined in an article in the New York Times entitled "White House Details Potential Effects If Automatic Budget Cuts Go Through" which I urge the reader to read.

So we are caught on the horns of a dilemma. Holding firm risks going over the cliff, i.e. if automatic spending cuts go into force and all the Bush-era tax cuts expire, then according to the nonpartisan Congressional Budget Office, the nation would slip into recession next year and unemployment would rise to 9.1 percent, from October’s rate of 7.9 percent. But simply canceling those deficit-reduction measures would risk a financial crisis that would make matters worse …” according to this watch dog. See here.

And looming just behind the fiscal cliff is the debt ceiling. The Treasury Department said Wednesday that the U.S. probably will hit its $16.4 trillion borrowing limit by the end of the year, at the same time that Congress will be grappling with the automatic tax hikes and large government spending cuts scheduled to kick in Jan. 1. See here. Republicans, as they did last year, are talking again about refusing to raise it, which would force the US into default and bring into serious question its invaluable credit worthiness. Last time around even the threat of default caused Standard and Poor's to lower the rating for the US from AAA to AA+ See this CNN Money article wherein Standard and Poor's is quoted as giving the reason for the downgrade as: “The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed."

The lower rating fortunately had no effect on the markets, with US securities remaining in large demand and continuing to sell at interest rates at all time lows.

But then there was no default, only the threat of one.

In any case with these frightening potential developments, is it any wonder that I find myself less than elated? I will be elated when the President succeeds in navigating these currents and works out a compromise that very substantially increases revenue, while protecting our safety net, not from some cost saving reforms, which are inevitable, but from having them undermined. I do not find Paul Krugman’s argument as set forth in his November 11 column  persuasive. Krugman says: “Contrary to the way it’s often portrayed, the looming prospect of spending cuts and tax increases isn’t a fiscal crisis. It is, instead, a political crisis brought on by the G.O.P.’s attempt to take the economy hostage.”

I take it from this that Krugman would be perfectly happy for taxes not to go up, even on the very rich, as the President wants, because while he doesn’t specifically say so, he argues that the larger the deficit the better. Of course, what he really wants is for there to be no changes in Medicare and Social Security, writing in his column of November 15 entitled: "Life, Death and Deficits":  “… right now the most dangerous zombie is probably the claim that rising life expectancy justifies a rise in both the Social Security retirement age and the age of eligibility for Medicare.” He makes some cogent arguments to support this, but fails to propose any reasonable alternatives, such as having a different retirement age for the relatively affluent and well-educated, and a different one for Americans in the bottom half of the income distribution, who aren’t living much longer. (He doesn’t cite any actuarial tables) and does not even propose closing the Social Security budget gap by raising the Social Security tax ceiling for the affluent.

As for Medicare he argues against raising the eligibility age with which I agree, and argues that the way to control costs is to “… give Medicare the ability to bargain over drug prices. Let the Independent Payment Advisory Board, created as part of Obamacare to help Medicare control costs, do its job instead of crying “death panels.” With which I also agree, but in making these arguments isn’t he implicitly recognizing that we can’t just ignore deficits.

But as can be seen from the above, the re-election of Obama has not magically solved our problems. We have a tendency to think, as we did four years ago, that as long as we elect a good man/woman to the Presidency, we have solved the nation’s problems. That is true only in the fantasy world that so many on the Left in our nation inhabit.

The fact is that in order for the President to be in a strong bargaining position with Republicans, he must signal a willingness to go over the cliff if Republicans are too intransient. Or as John Cassidy writes in the New Yorker: 

“Fiscal discipline, equity, and economic experience all point toward a return to the top tax rates of the Clinton era. In order to get there, though, Obama is going to have to demonstrate that he is willing to leap off the fiscal cliff, and that he isn’t bluffing. Anything short of an ironclad commitment to let all the Bush tax cuts, including the ones that affect the middle class, expire on December 31st if an agreement isn’t reached, will be exploited by the Republicans, who otherwise don’t have many cards to play. 

“Basically, this is an exercise in brinksmanship—the logic of which is well understood. If Obama’s threat is perceived to be credible, he almost certainly won’t have to go through with it. But if the Republicans think he is likely to back down—as he did in 2010, when he initially opposed extending the Bush tax cuts—they will stonewall, figuring that the White House, at the last minute, will offer them a compromise along the lines Boehner is suggesting. Don’t forget, this is a G.O.P. that hasn’t agreed to a rise in tax rates for more than twenty years. In the current House of Representatives, all but six of the two-hundred-and-forty-two Republicans have signed Grover Norquist’s pledge “to oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses.”

Whether the President needs to be that demanding and that uncompromising is open to question, but that he must signal a willingness to take the plunge is an absolute sin qua non to successful negotiations. But that means that we run the danger of, as the CBO has stated, of the nation slipping into recession next year with unemployment rising to 9.1 percent, from October’s rate of 7.9 percent. That is why I am not elated at the outcome of the election. We are far from out of the woods.

Of course, if the House of Representatives had gone Democratic, we would have a totally different landscape, and then I would have been elated. But despite the fact that Democrats “won one million more votes than Republicans” for the House, they did not win a majority due to very effective gerrymandering. This, in my view, represents a clear violation of the Equal Protection clause of the US Constitution, which says: “No State shall make or enforce any law which shall … deny to any person within its jurisdiction the equal protection of the laws.” However the US Supreme Court in 2003 in Vieth v. Pennsylvania upheld by a vote of 4 to 4 a lower court ruling that gerrymandering was not unconstitutional. The four justices holding gerrymandering constitutional were Scalia, Rehnquist, O’Connor, and Thomas. Justice Anthony Kennedy agreed that no justiciable standard existed and affirmed the district court’s opinion, joined in dismissing the claim, but would not go so far as to say all partisan gerrymandering claims are nonjusticiable. Justices Stephen Breyer, Ruth Bader Ginsberg, David Souter (joined by Ruth Bader Ginsberg), and John Paul Stevens dissented from the plurality, with each dissent proposing a new test for federal courts to adjudicate partisan gerrymandering.

And so we have the ridiculous situation where Democrats gain more than a million vote majority in the House, but Republicans gain far more seats and we end up with a political crisis.

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