Sunday, June 29, 2014

Beware of political pundits run wild

The political pundits are running wild.

Recent primary elections have produced some unexpected results, unleashing cosmic speculation about the future of American politics.  Most of their supposed insights, which could condition voters’ behavior, is likely to turn out to be completely wrong.

A lot of the “wisdom” results from the Republican primary in a single Virginia congressional district.  U.S. House Majority Leader Eric Cantor was toppled by a Tea Party conservative.

The “experts” claimed that such an upset was unprecedented in modern times.  That’s plain untrue.  In 1994, House Speaker Tom Foley, a Washington State Democrat, lost his seemingly assured re-election.

Cantor was thought to have lost as the result of a couple of votes, when he was willing to compromise rather than to see his party get the blame for dire results like a government shutdown.

Somehow, those votes made him a “liberal.” despite his adherence to a brand of conservatism that put him to the right of Speaker John Boehner.  But his opponent said he failed to take a “my way or the highway” approach often enough.

Another explanation was his constituents thought he paid too much attention to his role as a congressional leader and too little attention to their more parochial interests.  That has happened to others in Congress who had enjoyed the national spotlight.

Or perhaps Cantor’s primary, like most such races, involved only a relative handful of voters, party activists and those strongly motivated by ideology.  When that happens in primaries, extreme views are often overrepresented.

It’s possible that happened in Maine’s second district congressional primaries in which the more liberal Democrat Emily Cain and the more conservative Republican Bruce Poliquin won.  Both Cain and defeated Republican Kevin Raye favor seeking compromise.  The general election could show if voters favor confrontation or compromise.

In the Virginia race at least, one conclusion may be money doesn’t automatically translate into electoral victory.  Cantor massively outspent his rival, but not enough to drown him out.  
In fact, too much money seems to have made Cantor’s campaign embarrassingly wasteful.

The same conclusion can be reached about a Maine race.  Without any precedent in memory, a Democratic primary challenger in the Cumberland County race against incumbent Kevin Joyce spent on his own and with the help of an outside fund far more than Joyce’s normal spending level.  Still, Joyce won.

The results in both Virginia and Maine may show that while money may buy election results, that’s more likely in major campaign than in those closer to the voters.

From Cantor and a few other isolated races, the pundits jumped to conclusions.

They see even more Washington deadlock (is that possible?), because Republicans will resist any compromises making them look the slightest bit moderate.  They ignore any successes of non-Tea Party candidates in the primaries and the resounding defeats of some Tea Partiers.

The pundits also warn that, for the same reasons, President Obama will have no success in the getting his legislation passed.  All hope for immigration reform is gone, simply because Cantor supported some truly modest measures.

And, they say, the fact incumbent GOP senators fended off Tea Party challengers who would have made weak candidates against the Democrats increases the likelihood the Republicans will take control of the Senate after this year’s elections.   

These forecasts could as easily turn out to be wrong.

Who knows about intervening events?  Would anybody have forecast a few weeks ago Iraq would be falling apart and the government there, having sent the U.S. packing, would be begging for American help?  Or the U.S. talking with Iran?

There have always been moderate Republican voters.  Where will they go, if the extreme right continues to gain control of their party?  When, if ever, will party loyalty give way to their desire to see government work?

Will the GOP unwillingness to pass immigration reform on which both parties largely agree stimulate support by Hispanics for Democrats?

And, though the chances are slight, will Obama provide a sense of leadership restoring a degree of optimism in the country, which, as President Ronald Reagan showed, can overcome political inertia?

Months of political campaigns are ahead.  They may move enough swing voters to show the country is deeply conservative or there is a premium on moderation.  If Republicans move more to the right, Democrats could try to come across as centrists.  In short, much can happen between now and the November elections.  

So beware of pundits.  Voters are likely to be influenced by events and campaigns, probably even more than by the “wisdom” of pundits.

Security, environment trade-offs on the table

The time has come to consider major trade-offs.

The Ukraine crisis is turning out to have far wider implications than whether that country leans more toward to Russia or the European Union.

In seeking to signal Russian President Vladimir Putin they disapprove of his takeover of Crimea and his efforts to undermine the Ukrainian government, Europe, the United States, and Canada have run into trouble.
Western Europe depends heavily on natural gas from Russia.  It has learned to go easy on Russia or run the risk of a major energy problem, if Putin cuts off the flow.

Russia is clearly willing to use natural gas exports as an instrument of its foreign policy.  If Europe doesn’t accept Russian actions, it may be left in the cold.

The situation is much like 1973, when Arab countries in the Middle East placed an embargo on oil shipments to the United States and some European countries, because of their support for Israel.

The effect was immediate and sharp.  There were long lines at gas stations.  And the price of oil shot up.

The embargo ended, because the exporting countries needed the revenues earned from petroleum sales, and the United States and other countries convinced Israel to pull back in Sinai.  They also launched energy policies designed to make them less dependent on Middle East imports.

Now, the Ukraine crisis is causing a similar reshuffling of the energy deck.

Putin has seen Western Europe begin to reduce reliance on Russian supplies.  European countries are considering how to develop more aggressively their own resources, including renewable resources, and to create more energy links with the United States.

Last week, Germany, which is closing all of its nuclear power plants, said it would now push fracking – pushing deep gas to the surface by water pressure – to increase domestic natural gas supplies.  That’s one trade-off.

Having understood the Ukraine crisis will mean the loss of Russia’s captive European market, Putin did his own trade-off and quickly accepted a long-term agreement to supply China, after a decade of unsuccessful negotiations.  There’s little doubt he retreated on pricing to get the deal done.

These developments create opportunities for the United States.  It can play a far more important role in European economies, strengthen its political ties with Europe, and develop significant new export markets.

Here’s where the American trade-off comes in.

Strong and legitimate environmental concerns surround the increasing use of natural gas supplies developed by fracking or “dirty” oil from Canadian oil sands transported by the proposed Keystone XL pipeline.

There are good environmental arguments for imposing much tougher standards on fracking and preventing the pipeline development.

If that’s done, environmental concerns would get higher priority than economic and political needs and opportunities.  U.S. foreign policy options would essentially be limited by environmental issues.

The United States could more fully introduce an “all of the above” energy policy of pushing hard on expanding wind and solar sales to replace Russian natural gas imports and Chinese-made renewables in Europe.

At the same time, as part of a balanced American political compromise, Washington could allow the Keystone deal, capable of making the United States a major oil exporter, and pleasing Canada, one of our most valued allies.

This policy would place environmental concerns in a framework requiring them to be judged not only in terms of the positive qualities they promote but also in light of the political and economic situation.

The political benefit could mean Europe would be better able to adopt the same kind of independent policies toward Russia and China as the United States favors.

Tightening U.S. economic and political links with its northern neighbor is also important.  At the recent G-7 meeting of major industrial powers, only energy-independent Canada stood with the U.S. in urging a tough position in dealing with Russia.

While the Cold War is dead and should remain dead, the world is beginning to understand we are now in what might be called the Commerce War, in which China and Russia seek economic domination and, through it, political influence at the expense of the United States and Europe.

By the end of this decade, China, now with the help of Russian natural gas, will have the world’s largest economy, displacing the United States.

The Ukraine crisis and the growing economic power of China should send Americans, Europeans, and Canadians a clear message about the challenge to their national security and their place in the world.

Of course, sound environmental policy should have high priority, but it should be considered in a wider context of America’s national interest.

More power for states could break federal deadlock

One of the lessons of the Ukraine affair is how difficult it is to put together a country composed of divergent groups.

For long periods, Russia dominated a country composed of both Ukrainians and Russians, and the current crisis is the result of the breakdown in Russian control in the face of Ukrainian opposition.

The result is likely to be a loose federal country with each group able to make its own decisions.  The eastern part of the country will lean toward Russia, and the rest will gravitate toward Europe.

All across Eastern Europe, countries have split into smaller states.  The Soviet Union composed of 15 “republics” yielded 15 separate countries.  For example, Estonia, Latvia, and Lithuania, once independent, recovered their freedom.

Czechoslovakia saw “the velvet revolution” result in a peaceful split between its two parts.  Yugoslavia totally splintered.

Even in Western Europe, Belgium, divided along language lines between French-speakers and Dutch-speakers, created a federation in which each side gained more independence.
In Great Britain, both Scotland and Wales have increased their autonomy and this fall, Scotland will vote on becoming a separate country, which would break a union with England dating from 1707.

Smaller countries not only allow people with similar backgrounds or interests to have their own government, but their reduced size makes it less likely they can drag others into a major war.

Of course, this is not a worldwide development.  China, the largest country, shows no sign of breaking up.  India, in second place, has large states with real power.

What about the United States?

This country has a balance between the states and the federal government, though Washington has gradually gained authority while states have less discretion than they did 200 years ago.

To some degree, that trend has been necessary to promote the growth of a strong national economy and to assure individual rights throughout the country.  But when Washington is divided by deep political differences, as we see now, the entire country suffers.

States have retained real powers.  They control education and compete with one another to attract industry and investment often through the use their tax laws and environmental requirements.

It’s tempting to think the political stalemate could be lessened if states were even more able to act.  That does not mean constitutional rights could be cut in some states or that interstate trade barriers could be built, but states seeking to innovate would not be limited by the need to find a national consensus.

Let’s take the example of health care.  The Affordable Care Act – Obamacare – turned out to be a complicated and controversial program, because Congress could not find a bipartisan compromise between a system run entirely by insurance companies and one run entirely by the government.

The result is a hybrid far less efficient and cost saving than had been the goal.  Could the states have done something different?

What if some states wanted to try the single payer system, while others wanted to stick with the traditional insurance model?  The federal government could have required that whatever the state system, it would cover virtually everybody.

A national system is not necessary to have successful program.  The Canadian single payer system was launched in a single province, Saskatchewan, which had fewer people than Maine.  When it worked there, it was extended to other provinces. 

States have been called “laboratories of democracy.”  The Supreme Court justice who came up with that phrase in 1932, explained, “a state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country."

Maybe allowing states to play this kind of role, especially on controversial issues where federal action seems impossible, could be away around the prolonged deadlock in Washington.
States in a region could work together if they chose to do so.  The Constitution allows for interstate “compacts,” essentially treaties among the states.  Perhaps Congress could promote such accords, which it must approve.
Some states might choose to impose tougher environmental standards than the national minimum.  Or they could develop a regional energy policy in light of the failure of the federal government to come up with one.
Instead of a rush for federal tax cuts, there might be greater support for government funding if some of it were coming back to the states where the voters might exercise more control.
Maybe that kind of interstate competition would be healthy.  And maybe thinking regionally might get the engine of government working again.

“Rock star” economist attacks income gap

There’s a lot of talk these days about the income gap between the rich and the not-so-rich.  

At the top end, salaries and bonuses are measured in the tens of millions, while the minimum wage remains at $7.75 an hour, where it has been since 2000. 

Nowhere among advanced countries is the gap greater or growing faster than in the United States.  Reducing the gap is one reason for the drive to increase the minimum wage.

Some see a growing income gap as giving the wealthy economic and political power to dominate the lives of the rest of the population.  Such an outcome could undermine democracy and lead to bad decisions on matters ranging from the environment to health care, they say.

Along comes Thomas Piketty.  Chances are you have never heard of him, but he is one of the hottest thinkers around these days.  He’s a French economist with a rock star’s reputation.  He focuses on the increasing gap between the wealthiest and the poorest people.   

The income spread could be reduced by increasing pay at the bottom.  That could help, but Piketty’s best-selling book goes much further.

Because the wealthiest people receive incomes greater than they need for a good life, they save some of what they make.  Their savings go into investments producing even more wealth, gained without their having to put in any more work.

The rest of the people must live on their incomes, so have little or nothing to invest.  The result is their incomes grow slowly, dependent on pay raises and not much on income from investments.

After World War II, the gap between the wealthy and others declined in the United States, because of extremely high tax rates on those with high incomes.  They had less money available to make themselves wealthier.

But, since then, changes in tax rates have benefited the wealthiest people more than any other group.  While a considerable number of workers now mainly pay payroll taxes and little or no income tax, the amount of their tax relief is small compared to the cuts for the rich.

The top tax rate for the wealthy has fallen from 94 percent to 39.6 percent of their taxable income.

Piketty believes the income gap should be reduced and proposes two solutions.
You could reduce the gap between rich and poor, if you took away some of the wealth of the rich.  Piketty suggests a wealth tax, kicking in at about $1.4 million, should be levied.  By taking money away from the wealthy, you could reduce the gap and their clout.

What would be done with the revenues?  It could fund a higher minimum wage for the millions working for governments at all levels.  It could funnel more help to those at the bottom of the ladder. 

In short, Piketty’s wealth tax might lead to income redistribution.  In a country where virtually any government service may be branded as “socialist,” the American income gap is unlikely to be reduced by redistribution.

Money will not go from the investment accounts of the wealthiest into the paychecks of low-income workers.

The advocates of amassing great wealth say the wealthy will make investments in companies creating jobs for many others.  But those companies may create jobs in China or, through technology investment, reduce their need for labor.

Piketty’s alternative solution may be more practical.  He sees the wealthy also having more of a form of capital than the less fortunate – education.  In his ideal formula, higher taxes on wealth could fund greater access to education.

With more and better education, people could develop their own businesses or become qualified for new technological and higher paying jobs.  In other words, they would begin to have the kind of opportunities now more readily available to the rich and, in the process, reduce the income gap.

While the wealth tax idea is likely to go nowhere, at least in the United States, the proposal for improving education is both reasonable and possible.  And it pays off.  There’s plenty of proof that the better educated you are, the higher your income.

In some respects, this country is already moving on this point.  A high school education is no longer enough.  Community colleges are booming, because they produce graduates trained to meet the most current needs.  Maine’s are a great example of this.

With his wealth tax, Piketty may not understand how America works, but, with his emphasis on education, he does have a good idea about how to get America back to work.