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Posts Tagged ‘debt’

On What I Don’t Like About Barack Obama

October 1, 2012 4 comments

This is part 1 of a 3-post, pre-debate series on my feelings about each candidate and why I am voting the way that I am voting this November. Part 2, “On Why I am Not Voting for Mitt Romney,” can be seen here. Part 3, “On Why I am Voting for Barack Obama,” can be seen here.

This post could actually be much longer than many would expect, so I’m going to try to limit it to some bullet points with a short explanatory paragraph (or three). I think these might be in order of importance, but if you were to ask me tomorrow, the order might be different.

Health Care

This is a common complaint about the President, but my issue here is not the reform law itself. Assuredly, I think it is a flawed piece of legislation but it will do much more good than harm, and my opinions on the legislation could fill an entire post (and probably will later). But what I take issue with is the timing of and decision to pursue this bill. In my opinion, that decision has tainted and derailed Obama’s entire presidency.

In short, the economy was bad and the stimulus was a step but it was not a jobs bill. The country was in crisis and the Democrats had a lot of political capital. They could have passed a bill very similar to Obama’s jobs bill that was deemed too little, too late before dying in Congress. They could have passed some proposals mentioned by Bill Clinton, as well as others, to reduce the friction between the unfilled jobs and unemployed workers. They could have passed any number of bills that would get the economy moving. And once the economy moved, they would have the political capital to do other things.

However, Obama and the Democrats passed a health care bill that doesn’t fully go into effect until 2014. They passed a health care bill that was a legislative battle played out in the public. And they spent every ounce of political capital that they had to do so. Even if it does well, the results will be too far down the line to re-earn any of that lost capital. If the biggest legislative achievement of 2009 led to a better economy in 2010, then the Democrats likely could have passed whatever health care bill they so chose when they continued to pick up seats. Instead, we have a controversial bill that is the rallying cry of the opposition and a slower-than-possible recovery.

The Treasury/Federal Reserve

I have now read enough about the financial crisis to know that there were, in fact, many credible economists, regulators, and even bankers who understood that the subprime mortgage bubble was going to be a problem, and who had been trying to get the attention of everyone they could to warn about it. In the wake of the crisis, Obama opted for continuity and insider knowledge in his Treasury and Federal Reserve appointments instead of for fresh faces who would bring a brand new philosophy. I cannot understand walking into a mess, finding out who watched over the mess being made and then asking them to watch over the clean up. I was very disappointed with this.

Indefinite Detention

I don’t think that I need much of an explanation here. Obama signed a law allowing indefinite detentions, along with a statement that he would not use them. A lot of good that will do when someone else is in charge and the law of the land now allows such great potential for abuse.

Leading from Behind

This oft-quoted and repeated phrase (I believe John McCain said it first) generally is considered nothing but a right-wing talking point. However, I sort of agree. My outsider observation is that especially in the first 2-2.5 years, Obama liked to stay “above the fray” on several controversial issues, allowing the fight to play out in Congress. Then, Obama would swoop in and try to reconcile what seemed to be irreconcilable differences. This allowed Obama to appear as the adult in a room full of children, but it also allowed for a heightened tone of division and tensions both in Congress and in the media. Eventually, as the grown up in a room, you want to get to the point where the kids are breaking up their own fights; that can only happen with superior leadership. I understand that the congressional Republicans are obstructionists. I understand that they announced in 2010 that the top priority was to make Obama a 1-term President. But I think there is a form of leadership that would have worked better over the past 3.5 years than the one Obama took. I think Obama too often let the fights go too far before stepping in.

Drone Strikes

I have mixed feelings about this. I applaud the ability to win on the battlefield with minimal risk to American troops. But if we’re going to make liberal use of such technology, we better be certain that we can keep our own skies 100% safe by the time our enemies get similar technology.

The Campaign

This campaign has been ugly. The Obama camp has been as grossly misleading as the opposition on several occasions, and therefore, lost the ability to more forcefully call out the similar ugly moves and out-of-context statements made by the Romney camp.

The Debt

I fall into the category of thinking that complaining about the deficit during a recession is akin to complaining about the water bill while putting out a fire (I think I got that line from Paul Krugman, but I can’t be sure). So I understand that the debt was going to rise through this time period. However, I cringe when I hear “deficit reduction,” because by definition, it does not go far enough. The deficit must be eliminated in order to reduce the debt, and that’s more where my heart is. I don’t think that’s even on the to-do list of an Obama administration. And so while I understand much of the failings in this regard during the first term, my inner debt hawk won’t let this issue go unmentioned.
Read part 2, “On Why I Will Not Vote for Mitt Romney,” here.

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On the Debt Limit

It appears that the necessity to raise the debt limit is again becoming a looming issue for Congress, and just like the last time, I think this whole debate is stupid and easily avoidable. Just to get the simplest points out of the way, here are a few things I feel are obvious and true about the debt limit:

  • Not increasing the debt limit leads directly to a failure to pay obligations to which Congress and the United States Government have already agreed.
  • The budget (and associated appropriations bills) determine and authorizes government expenditures, while the debt limit simply allows us to pay for those expenditures which have already been approved and allocated.
  • Due to inflation and economic growth, as long as the debt limit is given in terms of a dollar amount, that limit will always have to increase, ad nauseam; always.

Let’s address that last bullet. First of all, history shows that this is accurate. Under Ronald Reagan, the debt limit was increased 14 times in eight years.  Under George W. Bush, it was increased seven times over eight years. Sometimes, it was a pretty big Congressional fight, to be sure. However, the brinkmanship of the 2011 debt limit fight appears to be fairly new. Also new is the idea that raising the debt limit should be conditional upon spending cuts. As I said in my second bullet point, when crafting a budget, spending levels are determined and authorized. A failure to increase the debt limit accordingly only means that you are failing to meet the financial obligations that you have already approved.  (You, in that case, being any Congressperson). So the debt limit has always needed frequent increases, and will always need frequent increases. Making it a big fight seems very counterproductive in the most literal sense–as fighting over the debt limit literally takes time away from accomplishing anything else in Congress (such as passing a budget).

Fighting over the debt limit and using brinksmanship has other counterproductive results, as well. For instance, by creating a serious doubt as to whether or not the United States will repay its debts and pay its interest on time, the credit rating of the United States Government was downgraded by Standard and Poor and by a Chinese ratings agency for the first time. Such a move could, in theory, lead to the United States being charged higher interest rates on its borrowing, therefore increasing government spending on interest payments and actually working counter to the desire to decrease the debt. And just to be clear, it was not the level of debt held by the United States that led to these downgrades. It was the scare that the debt may not be paid for and the incompetence of Congress, as specifically stated by Guan Jianzhong, the chairman of the Chinese ratings agency:

“The squabbling between the two political parties on raising the U.S. debt ceiling reflected an irreversible trend on the United States’ declining ability to repay its debts. The two parties acted in a very irresponsible way and their actions greatly exposed the negative impact of the U.S. political system on its economic fundamentals.”

So I think we have established here that the debt limit will always have to increase when it is listed as a dollar figure, that it historically has been increased several times, that attaching spending cuts to the increase is a new phenomenon that should be handled during negotiations on the budget, and that fighting over its increase is highly counterproductive to U.S. interests. Now for the most frustrating part: the solution is simple. I mean, it’s really simple. I can’t take any credit for thinking of it, because several countries already use such a system. Here it is: The debt limit should be set at a percentage of Gross Domestic Product (GDP). This way, as inflation increases, the debt limit does not have to be changed by Congress. As the economy grows, the debt limit does not have to be changed by Congress.

The simple solution actually makes so much sense that you have to wonder if Congress has avoided it because they particularly enjoy their infighting. It’s pretty clear that many Republicans are operating under the confused notion that standing up against the debt limit increase is the same as standing up against the debt. However, as has been repeatedly stated, they are only standing up against meeting already-agreed-upon financial obligations.

Recently, the level of U.S. central government debt surpassed 100% of GDP. This is of course troubling news, and especially so when you look at research performed by economists from Harvard and the University of Maryland that states that reaching 90% of GDP begins to be problematic even in advanced economies. Obviously, a defender against debt would want to see that number lowered, so any proposed debt-to-GDP ratio could be imposed such that it is realistic in the short term, but could be walked down to a more tenable number in the long-term.

I would suggest that a limit of 105% could be imposed with that number beginning to decrease by one or two percentage points per year in a couple of years until it reaches 70%. Yes, that is around a twenty-year plan. The most current estimate I can find for debt-to-GDP is 101.5%. It figures that it would take afew years to slow the growth of that number responsibly, and from that point on, once growth is restored to a lagging economy, there should be a focus on reducing that percentage. By putting the gradual reduction into one plan, however, the near-annual debate in Congress could be tabled for quite some time.

Personally, I would target an actual debt level of 60% debt-to-GDP, with a limit of 70%. If a country spends too close to its limit when times are good, there is little or no wiggle room when times get tough. This sounds unrealistic, though, to believe that Congress would ever have the foresight and discipline to spend less than their mandated limit. That would require a level of Congressional competence I haven’t seen in my short adult life. One can only dream, I suppose. But getting rid of this whole embarrassing fight about whether or not to pay our nation’s bills on time? That, I think, even the simplest of Congresses should be able to handle.