Reality Check!!

In the wake of the re-election of Barack Hussein Obama there is elation in liberal and Democratic circles and soul searching in the Republican folds.

The focus is on the fact that “Democrats have won the popular vote in four out of the last five Presidential elections — including the 2000 race in which Al Gore got 500,000 more votes than George W. Bush nationally, but wound up losing the electoral vote by two votes, courtesy of the Supreme Court.” See here. Of course, at the same time it overlooks that Obama, is the only Democratic President since F.D.R. to be granted a second term by a popular majority. See here.

But the first part sounds good! Makes for good headlines! Even has Republicans eating crow. Thus Governor Bobby Jindal in the most dramatic words of any Republican spokesperson said:  

We’ve got to stop being the stupid party… It’s time for a new Republican Party that talks like adults. It’s time for us to articulate our plans and our visions for America in real terms… We are not the party of big business, big banks, big Wall Street bailouts, big corporate loopholes or big anything…We must not be the party that simply protects the well off so that they can keep their toys.

So is it a whole new ball game. Have Republicans seen the light? Or in the immortal words of Yogi Berra, is it  “deja vu all over again".

It is a mere six years since I posted an article on my blog entitled "Euphoria and Reality" in which I pointed out that despite the big win in mid-term elections, the ability to govern was far from our grasp. After 2008 euphoria was even greater, but it was still a very big slog to get real reform enacted. To get the stimulus enacted, three Republican votes had to be found to overcome a filibuster, and the three votes were bought by diluting the crucial funding of state governments, leading to enormous job losses in the state’s public sectors, and a drag on job creation in the private sector.

But now in the elation of 2012 we seem to have forgotten what happened a mere two years ago. That was a real drubbing. As a result in 25 of the 50 states Republicans have complete control of all three branches of government, and 30 of the 50 states have Republican governors.  This came at a very propitious time for them since it followed the 2010 census, allowing them to redraw Congressional and even state legislative lines so as to assure them of a majority in State legislatures and in the House of Representatives into the indefinite future. See here. As of this year Democrats will hold complete sway in only 13 states. See here.

But what of the new Republican awakening as outlined by Jindal? Just recently he introduced into his state legislature a plan to “eliminate Louisiana's income and corporate taxes and pay for those cuts with increased sales taxes…” which according “to the Institute onTaxation and Economic Policy, would end up cutting taxes for the wealthiest Louisianans while raising taxes on the bottom 80 percent of Louisianans. So much for “We must not be the party that simply protects the well off so that they can keep their toys.” The talk has changed! The reality has not!

And is Jindal this new Republican moderate on other issues? According to Raw Story he favors "allowing creationism to be taught in biology classes, opposes abortion in all cases, votes against expanding federal funding for stem cell research and supports a constitutional ban on marriage equality."

So what does he mean when he says we have to stop being “the stupid party"? He means that they have to be better at obfuscation.

The fact is that the shift in state taxes from income to sales taxes, increases the burden on lower incomes, and decreases the burden on upper incomes, and it is happening in Republican controlled states, through out. For example Republicans in North Carolina are pushing such a plan. Kansas, which cut its income tax significantly last year, may trim further. Oklahoma, which tried to cut income taxes last year, is expected to try again. See here.

But far more ominous are Republican attempts to fix not only congressional elections by gerrymandering, but fixing the electoral votes by changing the rules.

They tried to suppress the vote in the last election. It didn’t work, or at least it didn’t work well enough. As the Washington Post wrote, now Republicans:

...who have control of states that went for President Obama in the 2012 election are pushing for their states to change how they award electoral votes. While almost every state awards electoral votes on a winner-take-all basis, Republicans want these states to instead award one vote to the winner of each congressional district. 

The other two electoral votes that each state has likely would be given to the statewide winner, as they are in the two states that currently employ this method: Maine and Nebraska. 

The new system would allow Republicans to consistently win electoral votes (and quite possibly a majority of electoral votes) from states like Michigan, Ohio, Wisconsin, Pennsylvania and Virginia, regardless of whether they win the statewide vote. 

All five of these states went for Obama in 2012. Michigan, Wisconsin, and Pennsylvania have consistently gone blue at the presidential level, and Virginia is tilting in that direction, which would make winning any electoral votes in these states a victory for the GOP. 

Why does it matter? 

It matters because the congressional district method gives the GOP a much better chance of winning, since a strong majority of U.S. congressional districts lean Republican. 

In fact, if every state awarded its electoral votes by congressional district, it’s likely that Mitt Romney would have won the 2012 presidential election despite losing the popular vote by nearly four percentage points. See here.

They are talking about a new party. They are talking about being more inclusive. About courting the Hispanic vote by supporting legalization of the 11 million illegal aliens in the US. Watch what they do, not what they say. It is already no legalization until the borders are secure, and of course we have been trying to make the borders secure for decades. They will never be secure enough to suit these pretend converts. They are owned lock stock and barrel by a majority of Caucasians, mostly rural, who founded this country on slavery and will never, never, accept the idea that they may no longer be the majority. They will do whatever it takes to keep the vote in their hands. Charles Krauthammer writing in the Washington Post speaks for them. “There is an obvious solution: enforcement first.” Even if somehow Republicans in the Congress agree to legalization, i.e. Green Cards, the will never agree to citizenship. Would they really allow 11 million more non-whites to vote, particularly if they are more then likely going to vote Democratic? I think not! Or as the Christian Science Monitor explains: 

In addition to sinking $1 billion into the failed "virtual fence," the US government has spent $2.6 billion for 650 miles of solid border. This wall doesn’t deter people – but it does defy the laws that protect the land.

As for the idea that the illegal aliens have to go to the end of the line before being considered for legalization that is the biggest hoax of them all. As was pointed out in a recent article in the New York Times:

If we really want to tackle unauthorized migration, we need to understand why it exists in the first place. The most important cause is our system of allocating green cards, or visas for permanent residency, which stipulates that no country may have more than 7 percent of the total each year. With an annual ceiling of 366,000 family- and employer-sponsored visas, the per-country limit is 25,620. 

“In practice, this means it is easy to immigrate here from, say, Belgium or New Zealand, but there are long waits — sometimes decades — for applicants from China, India, Mexico and the Philippines. These four max out on the limit every year. When critics admonish prospective immigrants — as well as the 11 million plus undocumented migrants currently in America — to “go to the back of the line,” they should realize that for many people the line is a cruel joke.

Republicans may go along with allowing illegal immigrants, who in the words of Senator McCain are, “… individuals to mow our lawn, serve our food, clean our homes and even watch our children, while not affording them any of the benefits that make our country so great, … I think everyone agrees that it’s not beneficial to our country to have these people hidden in the shadows.”

Republicans may allow them to come out of the shadows, but I predict that giving them citizenship and the right to vote is something that they will fight to the bitter end.

For a history of attempts at immigration reform, see here.

Marco Rubio, a descendent of Cubans, who won his Florida Senate seat, by less than 50% of the vote because his opposition was split, has been touted as the great immigration reformer. Is he? See here.

The cry of  “no amnesty” may no longer be the rallying cry, but citizenship and the right to vote is another matter all together. Of course that “no amnesty" cry was always phony, for we have statutes of limitations for every crime except murder. Why would we not have a statute of limitations for aliens having come here illegally decades ago?

But people who have made lives for themselves in this country, who have been here for decades, who have families here, are entitled to not only come out of the shadows, but to have full participation in our Democracy. Nothing else can or should be accepted.

Comments, questions, or corrections, are welcome and will be responded to and distributed with attribution, unless the writer requests that he/she not be identified.

We Interrupt this Debate for Some Timely Comments.

As the impending fiscal cliff moves ever closer, some timely observations appear to be in order and they will follow soon.

For now, however, I find it imperative to urge the reader to spend their time reading an article that appeared in Newsweek before the election. I find it always more interesting to read a predictive article after the fact than before, because with hindsight we can see, ever so clearly, whether the article had a clear vision.

The article is entitled: “President Obama: The Democrats' Ronald Reagan” (Click on title or here)  It also had the alternate title “Welcome Back to the White House Mr. President”, and it was published as early as September 24, 2012. 

I consider it must reading!! Read it on the screen or print it out, but read it!!

Allow me to quote from a portion of the article at its end.

I could be dreaming, I know. No doubt, my hope will be mocked as another dewy-eyed, liberal big-media fantasy. But I wore a Reagan ’80 button in high school for the same reason I wore an Obama T-shirt in ’08—not because their politics were the same, but because they were both right about the different challenges each faced, and both dreamed bigger than their rivals in times of real crisis. 

The hope many Obama supporters felt four years ago was not a phony hope. We didn’t expect miracles, but a long, brutal grind against the forces and interests that brought the U.S. to its 2009 economic and moral nadir. I’ve watched this president face those forces and interests with cunning and pragmatism, but also platinum-strength persistence. Obama never promised a mistake-free presidency, or a left-liberal presidency, or an easy path ahead. He always insisted that he could not do for Americans what Americans needed to do for themselves. In his dark and sober Inaugural Address he warned that “the challenges we face are real, they are serious, and they are many. They will not be met easily or in a short span of time.” 

But in a first term, he ended the Iraq War on schedule, headed off a second Great Depression, presided over much more robust private-sector job growth in his recovery than George W. Bush did in his, saved the American automobile industry, ended torture, and saw his own party embrace full marriage equality and integrate gays into the military. If those liberals who voted for him in 2008 think this is somehow a failure or a betrayal, in the context of the massive crisis he inherited, then they could not have been serious about real change in the first place. But some of us were—and still are. We understood that real change meets real resistance. In fact, you only know it’s real when the resistance is so strong. And the proper response to that resistance is not to fire the president who made this Reagan-like first-term progress in a far worse economic and fiscal climate, but to redouble on the Obama promise, to insist that America’s profound problems can only be addressed by a compromising president making bipartisan deals. And which ticket is likelier to compromise with the other party: Obama–Biden or Romney–Ryan? The question answers itself. 

Just as Reagan became an icon only in his second term, Obama needs four more years to entrench and build upon the large, unfinished strides in his first term. That’s why, if you backed Obama in 2008, as a liberal wanting change, as an independent wanting pragmatic solution-seeking, or as a conservative hoping to drag the GOP back from Palin-style insanity, it makes no sense to bail on him now. Because this is when the payoff of the long game really kicks in, when stronger economic growth will put a wind at the president’s back, when a bipartisan deal on debt could lift business confidence and accelerate recovery, when universal health-care reform becomes irreversible and health-care spending is slowed, when the last soldier leaves Afghanistan, when millions of illegal immigrants can come out of the shadows and help build the next economy, and when the spiraling emotions of religious warfare can be calmed, managed, and handled, rather than intensified, polarized, and spread more widely.

This was always Obama’s promise. He has not betrayed it. And we—yes, we—-deserve a chance to fulfill it.

For the whole article, which I urge you read in full even though it is long double click here.

The President’s re-election (Discussion)

I posted my last commentary "The President’s re-election" on November 18.

As coincidence would have it, I received an inquiry from one of my subscribers that relates to it even before I posted my commentary, so allow me to share that exchange with you.

The inquiry came from Barbara Valentino Crowley Baptiste Moreus, of Port St. Lucie, Florida, who asked:

How does one rebut Senator Marco Rubio’s comment that: there isn't much point in raising taxes on the wealthy because they have the money to hire people who would help them get out of paying taxes. The billionaires and millionaires that are going to be impacted by higher rates, they can afford to hire the best lawyers, lobbyists and accountants in America to figure out how NOT TO PAY those higher taxes. Obama's approach will fail and therefore the problem of the huge annual deficit still remains. The President doesn't seem to understand that he is not going to get the "Bang for the Buck" by taxing the wealthy.

To which I responded:

“This is true as long as we have a tax system that has a million loopholes that clever lawyers can exploit. We really do need to close the many loopholes that are now in the tax system, e.g. look at my post "Romney is worse than I thought!" and look at the loopholes that Romney exploited. These need to be closed. Republicans are right that this kind of tax reform probably would raise more revenue than raising tax rates. But are they really prepared to eliminate them. I don't think so. The biggest loophole is that taxes on capital gains are taxed much lower than ordinary income. This needs to be changed. There is absolutely no reason why income from working should be taxed higher than income derived from investment. If we believe in the work ethic then we shouldn't punish people who work and reward those who get passive income by investing. But Republicans are adamant against this change.

But look at the many other loopholes that Romney exploited. When he gave assets to charity, he got a deduction for the value of the assets at the time of the contribution, rather than the price he paid for them, thus avoiding even the smaller capital gains tax. That is wrong. He should have to pay the capital gains tax when he gives to charity, as though he had sold the asset.

Inheritance tax. Aside from being too low under the Bush tax rates they allow a decedent to escape capital gains taxes altogether, since the law now says that assets of a deceased are exempt even from the very low capital gains taxes.

I can go on and on. Yes, Republicans are right that there is more money there than in increased tax rates, but they are phony when they suggest that they really favor tax reform. They will not support any of these reforms.

Extending the Bush tax cuts on the wealthy on the basis that at some time in the future we will have real tax reform is offering a bird in the bush. (No pun intended.) They will never let it happen. But if they have specific ideas along this line, I would like to hear them, and so would the President.

However Rubio is right about how much simply extending the Bush tax cuts for the wealthy will bring. 

To make a real dent in the deficit we would have to extend The Bush tax cuts for all, as Allan Greenspan has been advocating. If none of the Bush tax cuts were extended the deficit would be reduced by approximately $3 trillion over a decade, but extending them, in accordance with Obama's plan, only for those making more than $250,000 per couple, $200,000 for singles, would increase revenue by only 3/4 of a trillion over ten years, not nearly enough. But politically Obama can't be for extending all because he has made a pledge not to do so, and at this point in the recovery, it is not desirable. After we have recovered it would make sense. See here.

The amount that Obama is seeking in additional revenues is 1.6 trillion. See here. The 3/4 trillion achieved by the proposed elimination of the cuts is less than half of what we need in additional revenues. So not extending the Bush cuts for the wealthy gets us less than halfway there. Additional revenue beyond that must be found. The article, which I referenced in US News, is not realistic as to other sources.

This addresses the point made by Rubio.

The other points generally made are that taxing the rich will hurt job creation because it hits small businesses. This is not true. Small businesses and the wealthy are not the same. Please read the article which you can find here.

Finally the argument that taxing business at all will hurt job creation is also nonsense. There is a super abundance of cash in businesses, large and small, that is not being invested. Having more is not going to make a difference. There is only one reason businesses are not hiring, and that is that they have no need for additional employees because there is a lack of consumer demand. When consumer demand picks up, they will start hiring. It is well established that 70% of the economy comes from the consumer. That is why putting money into the hands of people who will spend it on consumer goods is by far the most effective way to move the economy. The stimulus worked, despite all the denials. Look at the figures. Before the stimulus, jobs were being lost at a rapid clip. Right after job losses declined rapidly, and then jobs started being created at an ever faster clip. It is true that the stimulus was too small and did not last long enough, but that is not Obama's fault. The size of the stimulus was the best that could be gotten out of Congress. 

Republicans are right that the best way to deal with the deficit is by growing the economy, but wrong about the way to grow the economy. The economy grows from the bottom up, not from the top down, i.e. consumers drive the economy, not supply side economics. Compare the economy under Bush I lower taxes, Clinton's higher taxes, and with Bush's II lower taxes.

Joel Wiener of Boca Ratan Florida, had this observation:

I found Krugman's earlier column (November 8th - Let's Not Make a Deal) on the Fiscal Cliff interesting, especially his conclusion:  

“Meanwhile, the president is in a far stronger position than in previous confrontations. I don’t place much stock in talk of ‘mandates,’ but Mr. Obama did win re-election with a populist campaign, so he can plausibly claim that Republicans are defying the will of the American people. And he just won his big election and is, therefore, far better placed than before to weather any political blowback from economic troubles — especially when it would be so obvious that these troubles were being deliberately inflicted by the G.O.P. in a last-ditch attempt to defend the privileges of the 1 percent." 

"Most of all, standing up to hostage taking is the right thing to do for the health of America’s political system. So stand your ground, Mr. President, and don’t give in to threats. No deal is better than a bad deal.”  

I just don't think the Obama has the nerve to see what happens. I recall that in the third debate, when asked about the Fiscal Cliff, he said: "It will not happen." That was before the election, however.

To which I replied:

In a sense this is like the confrontation with the Russians in the Cuban Missile Crisis. Don't act too tough; don't overplay your hand, but be tough and offer the other side some kind of concession.

The military wanted Kennedy to immediately order the invasion of Cuba. Kennedy said NO! That would definitely lead to war. But he ordered a blockade. He then contacted Kruschev and said take your missiles out of Cuba and we will take ours out of Turkey.

That’s what we need here. Tough and a signal that we are willing to face disaster (falling off the cliff if we have to) but not so tough as not to offer concessions and to make a deal unlikely.

                       

No deal may be better than a bad deal, but what is the definition of a bad deal. Is a bad deal any that makes painful concessions?

I trust Obama's judgment. This is where Krugman and I part. He does not.

And Rick Pereira of North Adams, Massachusetts chimed in with:

I totally agree with you that gerrymandering continues to be, if not the primary, then at least the fundamental, cause of our perceived political instability. It may well be part of why we have effectively only two parties. In my belief, it will take one or more states to take action against gerrymandering as a political message against it and to raise public awareness of it.  I have long complained of the lack of the words "accountability" and "transparency" in politics (national as well as state) and although I'm encouraged by Cuomo's efforts, I've been very disappointed in New York's lack of transparency in its election laws.  Furthermore: if there is any contingent of citizens concerned enough about this issue, one strategy may be to promote enlarging of political districts in the name of saving money, because technology is now easily able to handle larger districts. This should obviate gerrymandering on a zipcode-by-zipcode basis.

To which I responded:

We need to revise the Constitution as difficult as that may be. We are spending too much time on elections, so that as soon as one election is finished, fund raising begins for the next. I would suggest that both members of the House and the Senate should be elected every four years to coincide with Presidential elections and that state elections for Governor and state legislatures be held at the same time. One election every four years is more than enough and the Presidential election brings out more people voting, so the results are more democratic.

An override of United needs to go with it, saying specifically that the Congress shall have the power to regulate the manner of raising and spending money in elections and the extent to which the government shall finance it. Fewer members of Congress and larger districts are desirable. 

Then Congress needs to legislate how Districts are to be drawn, setting forth the criteria, e.g. contiguous, no more population variation than 5%, geometrically concise such as a square, etc. and that these criteria are to be fed into a computer by the US Census Bureau. That may not be perfect, but I can't think of a better way. The type of voting machine to be used and how many voting machines per registered voter also needs to be mandated.

As for state elections, the above will improve these, but under our federal system, anything beyond this will have to be a state matter, though I would like to see a mandate that judges must be appointed by the governor and not be elected.

And finally I had an extensive exchange with Roger Streit of West Orange, NJ who opined:

I do agree with Paul Krugman’s argument as set forth in his November 11 column  “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.” 

Why do you “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 … he doesn’t specifically say so”? 

From previous columns, it is very clear that he is in favor of raising taxes on the rich. He doesn’t have to make that point in every column. He was debunking the right’s supposed concerns of reducing the deficit. He identified the hypocrisy and also pointed out that they have been consistently wrong in their prescriptions and predictions. 

In short, you have to read Krugman on a consistent basis in order to appreciate his columns. I suggest that you read his blog as well as his columns before you criticize him. IMO, he has been right much more often than not. See also here.

To which I replied:

It is both a fiscal crisis and a political crisis. As I pointed out in numerous posts, the deficit is a phony issue when Republicans raise it, because they are totally insincere. Ryan's budget doesn't even attempt to close the budget gap. All it does is to destroy the safety net and all kinds of other governmental functions and cuts taxes on the higher incomes.

                       

But that doesn't mean that the looming deficit, which is a Bush creation, having inherited Clinton's balanced budgets and surpluses as far as the eye could see, isn't real. The Supreme Court's denial of the election to Gore was one of the greatest tragedies in American history.

                       

It is real. Not immediately. But down the road, but we can't wait till it is an immediate problem. That is too late. We need to put a long-range plan in place now. The President has been trying to do that for quite a long time with his proposals of tax increases and cuts, but the G.O.P. has been adamant for no revenue increases. That has changed. Now it is only how much and how. But cuts must be and will be part of the equation.

                       

Yes, Krugman wants taxes to go up, but he undermines the need for this when he argues that the deficit is irrelevant. If it is irrelevant, then we can just meet the nations needs without tax increases and let the deficit keep going up.

                       

Krugman is simply sloppy in writing his column and columns. Look back on my blog where I have time and again criticized him for undermining our President. He has no sense of political realities, and he is too often more of a polemicist than a thoughtful economist. I hope he does a better job in teaching his economics classes.

And then added:

Roger, let me add that I agree with much of what Krugman says. Erskine Bowles would be a terrible choice for Treasury Secretary, but I am not aware that he is being considered. When he says, "the deficit-scold movement was never really about the deficit. Instead, it was about using deficit fears to shred the social safety net," I agree with him, and I have been saying that all along. But when he says they "don’t even deserve a seat at the table." that is downright silly. The President can't deal with the "fiscal cliff without dealing with 'deficit scolds' in Congress!! To say they shouldn't have a seat at the table is ludicrous. Just because he rightly advocates for  ‘Keynesian economics’ as I do, doesn't give him a license to say silly things.

To which Roger replied:

I agree with you that you have to negotiate with the crazies, but you don’t have to give their arguments any credence. President Obama has given much too much weight on deficit reduction and has not focused enough on reducing unemployment. As Krugman has pointed out, the U.S. can borrow money for free and we have massive unemployment. Why not focus on putting these people to work?

And my rejoinder was:

That is an old but dangerous argument. Our debt has to constantly be refinanced. Three years from now interest rates may suddenly go up sharply, and will if the debt is large and growing. Then we are suddenly faced with a major crisis. We cannot just focus on now. We must also look to the future.

Comments, questions, or corrections, are welcome and will be responded to and distributed with attribution, unless the writer requests that he/she not be identified.

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.

Comments, questions, or corrections, are welcome and will be responded to and distributed with attribution, unless the writer requests that he/she not be identified.

The Nation Escaped a Bullet

It is with a sigh of relief that I celebrate the reelection of Barack Hussein Obama.

However, I must warn my readers not to make the same mistake they made four years ago, when they thought the election of Obama would immediately and irrevocably bring in a new era. That since Obama had spoken of a nation that does not consist of blue states or red states, but only the United States, that he would bring in an era of bi-partisanship.

That since he was the first black American to achieve the Presidency, he represented the beginning of a post-racial era.

That since he had indicated that in the way that Ronald Reagan had been a transformational President, he too hoped to be a transformational President, and bring in a new era of governmental responsibility.

It was not understood that these were aspirational ideas, that might one day be achieved, not promises that would be achieved on day one, or after one year or after one term or maybe not even after a decade.

But I tried to disabuse my readers after the election in 2008 when I wrote my essay with the tongue in cheek heading "Obama Walks on Water." I don’t think many paid attention.

Now as we come into the President’s second term I hope people have more realistic expectations. We are a nation that takes great pride in its checks and balances. We don’t want our President to be a dictator. We want our President to have to look to Congress for legislation, to pass our budget, to confirm appointments, etc. and then when the President is hamstrung by the system and by an opposing party that brooks no compromise, we wring our hands and feel our President has let us down. I have said before and I say again, the President has no magic wand.

It is also a fact that no President should be held responsible for what happens in the first nine month of his Administration. During those nine months the President is working with his predecessor’s budget, with his predecessors appointees, and with the effects of his predecessor’s policies. Thus the campaign attacks, as mirrored by the media, were totally misplaced and unfair. If we look at the graph of job creation which I published in my blog post "We are Americans!" and we delete the job losses of the first nine month of the Obama Administration, the wild number of job losses vs. job creation look quite different, as would figures on how large the deficit was to be attributed to the Obama Administration and how much to the outgoing Bush Administration.

                                   . 

Some may say why dig up old history? But it is not old history in the sense that it illustrates how the media fails to enlighten, and in fact acts as a medium for obfuscation and deception, and those who have been reading my blog post know how upset and angry I am with an institution that has a primary responsibility to elucidate and inform.

Please reread my blog post "The Media in General and the New York Times in Particular" where I refer the reader back to other blog posts criticizing the media and elaborate on recent sins of omission and commission including sources I most respect – PBS Newshour and The New York Times.

But even since then I have watched with dismay as the Romney campaign flagrantly distorted what the President said on job creation. The Romney campaign attacked the President for ostensibly saying: “If you’ve got a business -- you didn’t build that.” (See here for examples of how the Romney campaign extensively distorted this.) The media in their typical attempt to find equivalency in everything equated this so-called faux pas with Romney reference to the 47%. But in fact there was no faux pas on Obama’s part. What Obama had said was: “If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business -- you didn’t build that.”  It was more than obvious that Obama was referring to roads and bridges when he said you didn’t build that. Where was the faux pas? Only in the fact that Obama did not foresee that the statement could be taken out of context. Is that the same as Romney talking with contempt about 47% of the American people? Nothing taken out of context.

For that matter the media also equated the 47% comment by Romney with Obama’s comment about “Guns and Religion” which he made four years ago. For example, Mary Bruce of ABC News asked “How are Romney’s comments any different from what the president said?," ignoring both the time lapse and the fact that Romney was talking about most Americans and his own constituency, while Obama was talking about a much smaller segment and people who hate his guts. But the media is always looking for equivalencies no matter how false.

How did we get here? To be sure, as the media likes to point out in its defense, poor biased reporting was common at the early years of our Republic. But we had a much more responsible press not so long ago, though few would remember it. An Op-Ed article in the New York Times deals with this in part. (Yes, the Times gives us some excellent editorials and excellent columns –its news pages are often lacking) The article correctly points out that, “…In 1985, the conservative organization Fairness in Media, backed by Senator Jesse Helms, tried to arrange a takeover of CBS and “become Dan Rather’s boss.” It failed, but two years later conservatives set the stage for an even bigger triumph. For decades, radio and television broadcasters had been required to present multiple viewpoints on contentious public debates on the grounds that they were stewards of the public airwaves. But in 1987, members appointed by President Ronald Reagan to the Federal Communications Commission abolished this ‘fairness doctrine.’ The change facilitated the creation of conservative talk radio and cable outlets to combat perceived liberal bias. Liberals followed suit with programming (albeit less effective) of their own.…most news organizations (with notable exceptions) abandoned their roles as political referees. Many resorted to an atrophied style that resembled stenography more than journalism, presenting all claims as equally valid. Fact checking, once a foundation for all reporting, was now deemed the province of a specialized few.”

But there is even more to the story. While Jesse Helms failed in 1985, eventually the networks were taken over by large multi-national corporations, e.g. NBC is owned by General Electric. CBS is owned by Westinghouse Electric, which has renamed itself CBS. ABC is owned by Walt Disney Company, and of course Fox is a new huge conglomerate.

What does this mean for news coverage? Most importantly the old networks used their news division as loss leaders. News divisions were not expected to make a profit. Their new owners demanded that all divisions make a profit. This meant two things. The news operations had to seek the largest audience possible which led to yellow journalism, and they had to keep expenses as low as possible which led to inadequate resources. But that was fine with Jesse Helms and his Right wing cohorts.

Finally, in 2007 a Bush revamped FCC (Federal Communication Commission) “lift(ed) a 35-year-old ban on companies owning both TV stations and a local newspaper in the country's top 20 markets, saying it was no longer needed… Looser cross-ownership rules would benefit companies such as News Corp. NWSA +1.61% and Tribune Co., which already own newspapers and TV stations in certain big markets and have long operated with waivers of the cross-ownership ban. News Corp., for instance, owns the New York Post and two TV stations in the New York market. (News Corp also owns The Wall Street Journal.)”  The results of this has resulted in a concentration of the industry as summarized by Common Cause in a paper entitled: “Facts on Media in America: Did you know?” which I urge the reader to read here.

But to return to the campaign! As the campaign wound down some voices seemed to think that who wins wouldn’t make much difference, e.g. here is a quote from a Letter to the Editor of my local newspaper: 

“Nationally, I know one thing: If Barack Obama wins re-election, I will get up at 6:30 a.m. on Nov. 7, get my kids ready for school and go to work. If Mitt Romney should win the day, I will get up at 6:30 a.m. on Nov. 7, get my kids ready to go to school and head to work. Nothing will change that. It's fun to debate national elections, or even state elections, but much of what transpires afterwards does not help or hurt us too badly. Our success and failure is not reliant on public policy. Never has been. Will never be. Our nation generally speaking, survives and thrives because of the people, and in spite of the government, not because of it."

And the Des Moines Register, a paper that has consistently endorsed Democrats endorsed Romney because they felt he had a better chance to reach consensus with the intransient House Republicans, than Obama would, without examining what such a consensus would mean for future seniors, its health care system, its educational system, the rights of women and minorities, etc. and the country’s future. 

But the fact is that while the country has dodged a bullet we are still faced with what has come to be known as the economic cliff, with a Republican majority in the House pledged not to raise revenues to meet the nations needs and its looming deficit, and willing to force the nation into default and/or shut down the government unless it gets its way, regardless of the election.

Our President has his work cut out in meeting this challenge, which at this moment seems insolvable. A media that truly informs would be of immense help. But the signs don’t augur well. The last time around the can was kicked down the road with a sequester that called for reductions in discretionary defense spending to be cut by 9.4% and nondefense programs to be cut by 8.2%. The idea was that the prospect of this would cause the “super-committee” to work out a more practicable compromise. This failed because without additional revenues the choice became and becomes between such draconian cuts and not dealing with the looming deficit. 

Now with the looming crisis once again upon us they have already begun to demagogue the issue, demanding that the portion relating to the military must be repealed, without offering any means for offsetting this spending cut. Of course the equally draconian cut in domestic spending, which in the compromise was supposed to make the cuts balanced, they want retained, and possibly increased to make up for the elimination of the military cuts.

But again where is the media? They report extensively on the Republican demands and what the cuts would mean for our defensive capability but fail to mention what the domestic cuts would entail, though the White House has released detailed itemization of the consequences. For those who are interested enough, or masochistic enough, to want to read the full 394 page report it can be found here. But that is what we supposedly have media for. To read and summarize such reports. How many have seen such summaries in our media, whether in print, on TV or even in its electronic form. Oh yes, The New York Times gave us the information. But where was information of such great import? Was it on page one where it belonged? No, it was on page 17 under the heading: “White House Details Potential Effects If Automatic Budget Cuts Go Through.” This is worth reading and rather than being 394 pages long it is only two pages long. See here.

But in the final analysis what does the media give us front and center. They tell us about campaign tactics; who’s ahead, whose behind. They turn it into a sporting event. And worse, as the highly respected The Economist magazine tells us: 

The media, meanwhile, and this can't be repeated often enough, is overwhelmingly biased towards producing exciting political races. Horse-race reporting gives the media the collective ability to shape the kind of narrative it needs in order to report excitingly.

We deserve and should demand better!!!

Romney is worse than I thought!

I never thought much of Mitt Romney. He has always come across to me as an opportunist with no principles, and worst, a man who has embraced the worst excesses of the extreme Right.

But I, along with many others, including Cory Booker, the distinguished mayor of Newark, felt the attacks on Bain and Romney’s association with it, were misplaced. Booker said: 

“I’m not about to sit here and indict private equity... If you look at the totality of Bain Capital’s record, they’ve done a lot to support businesses — to grow businesses. And this to me, I’m very uncomfortable.”

I bought into this view when I published my commentary entitled "In Defense of Romney" and said:

But what Mitt Romney did at Bain Capital is quintessentially good, beneficial capitalism. It is the essence of “Creative Destruction” so ably described by Joseph Schumpeter, the conservative Austrian economist. See here. Its essence is that inefficient entities must be made efficient or be eliminated, and in the long run the economy as whole will benefit, and while some jobs may be lost in the process, in the long run more will be created.

Booker and I were right about “private equity“ but we ignored the fact that while private equity does, in many cases, practice, “Creative Destruction“ not all do, and it appears that Bain was and is one that was bent on rapacious behavior, getting profits out of “creative accounting“ and very little creative building.

This was driven home to me when I received an e-mail from a Republican former colleague of mine who became interested when one of the subjects of Bain’s creative plunder turned out to be a former subsidiary of our common former employer Schering-Plough Corporation, Wesley-Jessen. In his e-mail my colleague quoted from a recent Daily Beast article by David Stockman, Ronald Reagan’s Budget Director.

My colleague quoted from the article as follows:

Wesley-Jessen was a small specialist firm that did reasonably well in cosmetic eye-color lenses and toric lenses to correct astigmatism. In mid-1995, when Schering-Plough Corp. put it on the block, Bain Capital invested $6 million and reaped a $300 million profit for itself by 1999—making nearly 50X its investment in the same number of months. On an apples-to-apples basis, however, the company’s operating income rose by only 2X during the same period, by my calculations. The rest of the gain was due to massive leverage, the Greenspan bubble, and accounting moves that can fairly be called myopic. 

Bain employed a hoary old dodge—having its accountants write off every dime of plant, equipment, and intangible know-how, reassigning roughly $40 million to the inventory accounts, and then charging it to income in the immediate two or three quarters. This trick eliminated all future depreciation, thereby magically adding $14 million to the pro forma operating income on Wesley-Jessen’s $100 million of sales. Investors were promptly told to ignore the resulting losses, of course, since these inventory charges were “non-recurring”! In fact, savings from pre-deal “restructuring” actions by the seller, plus the accounting magic, generated $24 million of freshly minted “operating income” before Bain’s turnaround squad even showed up at the company’s headquarters. The alleged “turnaround” of Wesley-Jessen was thus largely an artifact of Bain’s PR machine.

In the fourth quarter of 1996, the company borrowed $70 million to acquire a competitor, Barnes-Hind, from Pilkington plc. Before the ink was dry on the merger contract, Bain filed an IPO prospectus. While Barnes-Hind had an operating loss of $17 million the year before the merger, its results for that period were improved by $23 million owing to Bain’s pro forma adjustments—creating the appearance of another dramatic turnaround. 

During the 12 months ending at the merger date, the combined companies had actually incurred a net loss of $27 million, but it vanished with the help of $50 million in pre-tax adjustments for merger accounting and prospective savings. So its pro forma earnings took on a decisively improved aura; it would have booked a $14 million profit, or about $0.73 per share.  

  

Not surprisingly, the stock market eagerly scooped up $45 million of new shares at $15, or 20X these gussied-up earnings, just in time for the Fed to begin a new round of goosing in March 1997. And that proved propitious for Bain. Almost to the day on which its 180-day IPO lockup expired, it sold its first batch of shares in a secondary offering in a now red-hot stock market at a red-hot price that was up 60 percent from the IPO. 

Wesley-Jessen had not then filed financial statements with even $1 of GAAP (generally accepted accounting principles) net income. But when Bain’s underwriters wired the proceeds in August 1997 the selling price was $23.50 per share. That’s 52X the $0.43 per share it had paid for the stock 25 months earlier. At the end of the day, massive leverage, fancy accounting, and bubble finance, not entrepreneurial prowess, were the source of Bain’s 50-bagger.

I urge the reader to read at least portions of the article because it is replete with other similar rapacious examples. See here.

One comment in the article particularly calls for quoting as follows:

...Mitt Romney was not a businessman; he was a master financial speculator who bought, sold, flipped, and stripped businesses. He did not build enterprises the old-fashioned way—out of inspiration, perspiration, and a long slog in the free market fostering a new product, service, or process of production. Instead, he spent his 15 years raising debt in prodigious amounts on Wall Street so that Bain could purchase the pots and pans and castoffs of corporate America, leverage them to the hilt, gussy them up as reborn “roll-ups,” and then deliver them back to Wall Street for resale—the faster the better.

There is more that no one seems to have focused on. We are constantly told that we must work hard and play by the book. But what about people like Romney? He may have worked hard while he was the head of Bain Capital, but he was there from 1983 to February 1999. For the past thirteen years he has not expended any effort on the firms behalf. He isn’t 65 so he is not entitled to a pension, but without working he received $3,012,775 in salary, $3,649,567 in dividends and another $6,810,176 in Capital Gains, for a total $13,709,606 in income. Not bad for not working.

But the tax code allows him to pay a tax of 15%. Poor Romney, he thinks it is too high.

But there is more that comes from Romney’s released tax return. G-d knows what may be in the hidden ones. The assumption is that he gave most of his charitable contribution to the Mormon Church. But in fact he gave substantial contributions to family trusts. $89,000 to one family trust. One of his charities was The Tyler Charitable Foundation, an anti-gay group. 

The following is a quote from a website whose URL I have lost. I state this to avoid being accused of plagiarism.

He donated Appreciated Low-Basis Stock to a Private Charitable Foundation. Mitt and Ann donated about $1.5 million appreciated low-basis stock (mostly stock in Domino’s Pizza Inc.) to their private charitable foundation (The Tyler Charitable Foundation). This donation provided Mitt and Ann with five interrelated tax benefits:

Legally Excluded 2010 Capital Gains. Mitt and Ann legally excluded from their 2010 capital gains income the appreciation in the value of their donated stock. This legally excluded capital gain must be added back to Mitt’s and Ann’s 2010 reported income to arrive at their total 2010 income. I note that this exclusion saved Mitt and Ann as much as $225,000 in income taxes, assuming that the donated stock was worth $1.5 million and had close to a zero tax basis (tax cost). I used the 15 percent long-term capital gains rate to compute the tax savings on $1.5 million of gain since that is the long-term capital gains rate for both the regular tax and the alternative minimum tax.

Deductions in Excess of Tax Basis. Mitt and Ann deducted the full value of the stock – even though it is likely that their tax basis in the stock was far LESS than the value of the stock at the time they donated it to their private charitable foundation.

Donation Offsets Highly Taxed Income/Computation of Tax Benefit. The $1.5 million charitable donation offsets income that otherwise would been taxed at the 28 percent maximum alternative minimum tax rate. The tax savings associated with the charitable contribution deduction is approximately $420,000, or 28 percent of $1.5 million. This tax savings is in addition to the approximately $225,000 in tax savings arising from legally excluding the $1.5 million gain from income. Thus, the total tax savings is $645,000, as follows:

Exclusion of Gain on Disposition of Stock    $225,000

Charitable Contribution Deduction            $420,000

Total Estimated Tax Savings                  $645,000

Delayed Contribution to Final Recipients. Mitt’s and Ann’s private charitable foundation contributed $648,500 to various charities, including $145,000 to the Church of Jesus Christ, Latter Day Saints. The foundation held the balance of the $1.5 cash contribution – over $800,000 – at the end of calendar year 2010. Thus, although Mitt and Ann received a charitable contribution deduction of $1.5 million, less than half of that money was contributed to final recipients by the end of calendar year 2010. In contrast, Americans who cannot afford to set up private foundations must complete their contributions to final recipients by the end of the calendar year to take their charitable contribution deductions.

Contributions to Final Recipients Equals Approximate Tax Savings. I note that the $648,500 in total grants made by Mitt’s private charitable foundation in 2010 approximately equals the estimated tax savings of $645,000.12

Foreign Tax Credit. About 8 percent (about $1.5 million) of Mitt’s and Ann’s income came from sources outside the United States. To avoid double taxation, Mitt and Ann received dollar-for-dollar reductions in their United States tax liability for income taxes paid to foreign countries. In 2010, Mitt and Ann used the foreign tax credit to reduce their income taxes on foreign income by $129,000. They did this (1) by paying $67,000 in income taxes to foreign countries in 2010 and (2) by utilizing $62,000 of unused foreign tax credit carryforwards from prior years.

END OF QUOTE

It appears to all be legal. But that is the disgrace. WHY IS IT LEGAL!!! WHY DOESN’T ROMNEY TALK ABOUT ELIMINATING THESE EXEMPTIONS! All we hear about is lowering tax rates. DOES ANYONE REALLY BELIEVE THAT HE WILL ADVOCATE ELIMINATING THESE WONDERFUL MEANS FOR ESCAPING TAXES? BUT HE HAS ALREADY MADE CLEAR THAT HE DOESN’T PROPOSE TO INCREASE CAPITAL GAINS TAXES AND DIVIDENDS, EXCEPT FOR LOW INCOME PEOPLE WHO RARELY HAVE THEM.

YES, WE HAVE PEOPLE WHO ESSENTIALLY DON’T PAY TAXES. BUT IT IS NOT THE POOR OR THE ELDERLY!!!

And worse of all, these ill-gotten-gains then start an aristocratic dynasty through inheritance tax laws, which not only allow most of the ill gotten gains to be passed on to their heirs for generation after generation, but even forgive the few capital gains taxes incurred by the decedent.