Economic Reality Check

Our budget deficit is rising, along with government debt. Greece’s economy lay in tatters for having rampant budget deficits which led to incredible levels of government debt. And there are those that have found it fashionable to declare the United States is destined to turn out just like Greece. They say Obama’s economic plan in the first year of his presidency, which did add to the debt, was wrong headed. How true is all of this? Not nearly as true as many pundits would have you believe.

Why We’re Not (nor going to be) Greece

Let’s first looks at the obvious. The Greek economy is largely unnecessary in the eyes of the world’s investors, which makes it prime for a run. The United States is the strongest stilt in our delicately held aloft global economy. Could investors make a run at the US? Sure, but that works to their disadvantage in what could be cataclysmic ways.

Second, our debt to GDP ratio was at 83% in 2009, this is compared to a Greek debt to GDP ratio at 115% in 2009. Now this isn’t something to aspire to match, but we have a ways to go before we get to the same level.

Third, Greece can’t print money. Being part of the euro seemed like a sweet deal for a number of lower-income European countries, but it dramatically limits a country’s options to deal ballooning debt interest rates. The US could print more money if faced with a similar situation. Would this lead to inflation? Yes. Is this a desirable path? No. However it is a path that would prevent default, and a path Greece simply doesn’t have access to.

Fourth, let’s look at the bond market. Investors buy bonds for certain governments, which are essentially bets that a country’s economy will or won’t get better. The “price” of the bet is best described by the interest rate the market demands to take the bond. The higher the interest rate, typically, the less confidence the market has in the country’s future economic growth prospects. As of today, US 10 bonds were fetching 3.23%. Greece bonds are trading at 7.89%. Again, not something to aspire to, but it’s a bit apples and oranges at this point.

Was Deficit Spending in 2009 Wrong Headed?

You know this is a delicate question with lots of different things to consider, but I think I have to go with HELL NO! Did all these pundits go through the new Texas social studies program? This is really basic economic stuff here. Back in the 1920s a guy named Hoover thought the markets could pull themselves out of the tailspin. He believed the invisible hand would pull the economy up by the bootstraps. The result: Great Depression.

We didn’t have another Great Depression and part of the reason is because Obama’s economic team said, rightly, in the short term to hell with budget deficits. When the private sector is crouched in survival position and unable or unwilling to restart the great engine of our economy, it is the responsibility of the government to try and get things restarted. Contrary to what you might have heard, you can’t just do with this tax credits. You gotta spend money to make money as the adage goes and that’s what the stimulus bill should have been. Unfortunately political will was about as weak as my will to not eat that second piece of cake.

Obama’s team did absolutely the right thing in embracing short-term deficit spending. Within the next 18 months we will need to discontinue that practice, but our economic recovery is not robust enough to allow a complete abandonment of short-term deficit, though political will seems to be getting weaker as the weeks go by.

I’ve got more to say, like why we can still blame President Bush and the Republicans for our deficit, but that’s going to have to wait for another post. At this point, it’s safe to say the sky isn’t falling, President Obama and his economic team acted responsibly in handling the economic crisis, and while our long term debt prospects are not rosy at the moment, we aren’t destined for Greek style riots or threats of default.

On Tuesday Night: Against the Grain

In the days leading up to Tuesday’s primary and special elections, the convention wisdom coalesced around the notion that incumbent defeats would be proof of an anti-incumbent mood in the country. According to this reasoning, the anti-incumbent attacks would harm both parties but pose a greater danger to the Democrats because they currently hold the majority. It is easy to look at the surface of Arlen Specter’s defeat in the Pennsylvania Democratic Primary, Rand Paul’s victory in the Kentucky Republican Primary, and Blanche Lincoln’s forced run-off in the Arkansas Democratic Primary as evidence of just such an anti-incumbent mood. A closer look at these and other races should cause us to question this line of conventional wisdom.

In Pennsylvania, 5 term Senator Arlen Specter was defeated by 2 term Congressman Joe Sestak for the Democratic nomination for United States Senate. Specter notoriously enjoyed a 30 point lead over Joe Sestak a year before the primary only to lose by nearly 8 points. Many were quick to highlight the Democratic Party’s endorsement of Specter, his longtime incumbent status, and his moderate stances in exclaiming his defeat as emblematic of a year dangerous to the establishment, incumbency, and moderates. Yet, Specter’s defeat by Sestak is more readily explained by Pennsylvania Democratic voters rejecting a Democrat-cum-lately. Specter served all but one year of his 5 terms in the United States Senate as a Republican. Rather than run as an anti-incumbent, or anti-establishment, retired US Navy Admiral and 2 term Congressman Joe Sestak painted Specter as Republican, embraced by (and embracing of) the Bush Administration. You might point to the seeming rise of an anti-incumbent sentiment and Sestak’s closing a 30 point gap as cause and effect—but a likelier cause is that Sestak was little known state-wide a year ago and Specter, having served 5 terms as a Senator, had incredible name recognition.

Also in Pennsylvania, the special election for CD-12—to fill the late John Murtha’s seat—was a clear example of the establishment candidate pitted against the anti-establishment candidate. Mark Critz, John Murtha’s District Manager and a close aide, ran explicitly as the candidate to carry-on Murtha’s legacy, he worked for Murtha for 22 years, and he was endorsed by John Murtha’s widow. Critz ran as if he were an incumbent and struck a blow for the establishment by defeating Tim Burns by almost 8 points.

In Arkansas, Senator Blanche Lincoln has been forced into a run-off by Lt. Governor Bill Halter. Lincoln, a 2 term Senator, actually won the primary but failed to meet the 50% of the vote threshold to avoid a run-off. Lincoln won 45% of the vote despite having approval ratings hovering in the high-20s/low-30s. Moreover, Halter, though having spent a long-time outside of the state is not an anti-incumbent populist. Halter worked for the Clinton administration, is the current Lt. Governor, and receives a tremendous amount of support from unions—not a particularly popular stripe of organization in Arkansas. Halter’s having forced Lincoln into a run-off may represent a victory for “party activists” but, given the general dissatisfaction with Lincoln in the state of Arkansas, it can just as easily be explained as folks voting against a Senator they regard as below average.

Finally, in what was perhaps the clearest anti-establishment victory of the night, the Republican Primary in Kentucky says nothing about Democrats or even politics writ-large in the United States. It may serve as a warning to the Republican Party that the fissures between the core of the Party and the populist wing are quite deep—something that Bennett’s earlier defeat in Utah would seem to bear out. Or, it may indicate that Republican voters in Kentucky viewed the Party’s candidate as too close to the much maligned and retiring Jim Bunning—famous for becoming a deficit hawk only when it caused millions of Americans to lose unemployment insurance, and then complaining about missing a basketball game while doing so.

Is there an anti-incumbency mood in the nation? Well, there is no question that people are dissatisfied with Congressional performance. But the American people have been dissatisfied with Congressional performance for a very long time—in fact, the level currently is substantially the same as it was when the current Congress took over in January 2009. I do not think that Tuesday gave us a clear indication as to whether the American people are in revolt against the establishment. Instead, it appears that broad generalizations did not carry the day despite the nice anti-incumbent narrative the bulk of reporters have subscribed to.

Rand Paul, Briefest Electoral Honeymoon Ever

Rand Paul discussing the Civil Rights Act and private business on The Rachel Maddow Show last night here. Dr. Paul believes private business should have the right to deny service to any minority group they so wish.

Ideological purity at the cost of human decency?

DeMint-ed

Republican roustabout and scattered election handicapper Sen. Jim DeMint made a bid for a new nom de guerre, that of Last of the Cold Warriors as the Senate took up consideration of the Obama administration’s “New Start” treaty with Russia. DeMint railed against the treaty claiming it limits America’s missile defense options (which is false), give Russia veto power over consideration of missile defense options (which is false), and “doesn’t render their weapons useless.” (which is true)

DeMint points to text in the preamble of the treaty, where at the behest of the Russians, it is stated the two countries “recogniz[e] the existence of the interrelationship between strategic offensive arms and strategic defensive arms.” Sen. DeMint is concerned this will limit US options for missile defense later, and yet if we’re talking preambles, I haven’t heard of a Supreme Court decision being determined in the affirmative or in the negative by citing the preamble as a restrictive clause.

DeMint also makes note of a statement released by the Russians after the signing of the treaty indicating an objection to the US missile defense program and declaring it will withdraw if they feel the treaty is at odds with Russian national security. This strikes me a pretty boiler plate diplomatic maneuvering, but subtlety is not Sen. DeMint’s strong suit. He claims this gives Russia veto power over US missile defense options, which is frankly balderdash.

It’s also worth noting, both the language in the preamble and the accompanying unilateral statement were responses by the Russians to President Obama’s complete refusal to put binding language into the treaty that limited US missile defense options.

The oddest point of DeMint’s objection is his belief that our current missile defense program would not be capable of stopping, or even severely impeding a full scale Russian nuclear assault on the US. That is a true statement, but I am compelled to ask why we need to spend what could be trillions of dollars to put in an extensive system with a history of dubious results to combat a threat that essentially evaporated nearly 20 years ago?

Sen. DeMint didn’t answer that question, and why should he? He was the one doing the questioning on Tuesday, but it’s a question we should consider. It reflects dangerously outdated thinking. The entire military direction of the United States, at the behest of our military and civilian leadership is realigning to address the military concerns of a post-modern geopolitical system. I would ask that Sen. DeMint join them in a new way of thinking. Yet, that’s like asking a lot from a man who hasn’t had a new thought since the Cold War.

Arab-American Miss USA Draws Conservative Criticism

After a lengthy absence, I am pleased to return to DC Exile! I shall begin by giving a few thoughts on Miss USA 2010, also known as Rima Fakih.

Ms. Fakih, a Michigan resident who lived in Lebanon until the age of seven, has attracted the ire of several conservative writers because she is guilty of the twin crimes of being a) Arab and b) Muslim in America today. Commentator Debbie Schlussel accused the newly crowned Miss USA of being an auxiliary member of Hezbollah. According to the Guardian, the author claimed that she received this information from unnamed intelligence sources.

"Mark my word. Hezbollah is laughing at us, tonight," Schlussel raged. And why? Obviously, because "one of its auxiliary members won the Miss USA title without having to do a thing to denounce them and their bloody murder of hundreds of Americans".

I’m not sure what’s more infuriating; Schlussel's blatantly racist assumption that Fakih is a terrorist because she is Muslim or the blatant lack of research that went into writing this blog post. I shouldn’t have to repeat this in writing, but for the sake of this post, I’d like bring the following pieces of information to your attention:

1. Not all Muslims are Arab (The most populous Muslim country is Indonesia)
2. Not all Arabs are Muslim (Lebanon, Syria, Egypt and Iraq all have sizable Christian populations.)
3. Not all Muslim Arabs are terrorists (And please, stop asking them to apologize for every act of political violence committed in the name of Islam).

It’s rather shameful that Schussel doesn’t even realize how ignorant she sounds. But what’s really sad about this blog post is that the author doesn’t provide one ounce of proof that the newly crowned Miss America is a member of Hezbollah, other than the fact that she was born in Srifa, a Hezbollah stronghold. That Hassan Nasrallah and company are in charge of Fakih’s hometown is just a fact of Lebanese political reality. To accuse someone of being a member of Hezbollah simply because she's Arab is not only racist, it's libelous.

On the real, I can’t help but wonder if Schussel’s hate is rooted in some straight up jealously...

COIN Deficiencies

This year is to be year of the COIN for NATO and the US military in Afghanistan. The much ballyhooed Marja operation was intended to be a prototype of this model, before COIN tactics were employed in a larger, more difficult, Kandahar operation.

Unfortunately, the recent news out of Marja is not heartening: 3 months after the US drove the Taliban out of Marja, families are fleeing in the face of Taliban terrorization. Population protection is integral to successful COIN tactics. A force unable to protect the civilian population cannot win the trust of the civilian population—without trust and cooperation, counter-insurgency operations are bound to fail.

The United States and NATO forces are in a particularly difficult spot in Afghanistan—the United States effectively ignored Afghanistan from late 2002 until 2008, giving the population there good reason to distrust Western statements of long-term commitment.