Saturday, December 24, 2011

Veering from the playbook.

House Republicans, just days after standing their ground, decided instead to head home for Christmas dinner.

So much for the principles that brought them to power in 2010. So much for ending business as usual in the nation’s capital.

But their language changed by the end. Gone was the moral outrage, the appeals to end the mindless spending that was bankrupting the nation. This week, the House Republican talking points led with the insistence that America’s working men and women deserved more than a two-month payroll tax holiday. Somehow, the Tea Party-spawned House Republicans had morphed into demagoguing Proletarian heroes.

But this was an important moment. After all, when the current House majority seized the reins, they were clear that their mission was to curtail spending as the singular path to curbing massive fiscal deficits, while not impeding the morally righteous task of cutting taxes. Specifically, the House Republicans changed “Paygo” rules that had been in effect for many years—whereby tax and spending measures must be budget-neutral over a 10-year period, as scored by the Congressional Budget Office—to provide instead that such constraints should not apply to tax cuts.

This perspective—that deficits are not a function of the mix of revenues and expenditures but rather a function of spending alone—is a odd vestige of the Reagan era, when cutting taxes emerged as the sine qua non of the modern Republican Party and liberated the GOP from its stodgy traditions of fiscal prudence and school marmishness. At the time of the Reagan revolution, when marginal tax rates where high, one could make a fairly reasoned argument of the supply-side premise, that cutting taxes would increase revenues. But that argument was bound up in the facts and economics of that era, and only attained that status of a moral imperative in the ensuing years.

But in the debate regarding extending the payroll tax cut, for reasons that are unclear, the House Republican did not merely forsake their rule that tax reductions are morally self-justifying, they went to the mattresses to demand that they be paid for like any other legislation of Democrat-inspired spending.

Then, suddenly, they got up off the mattresses, changed their votes and went home.

Fast forward to late next year and the implications of the House action looms large. At the end of 2012, the Bush-era tax cuts are set to expire just like the payroll tax cut that was just extended. Under the House Paygo rules, Republicans would no problem demanding that such tax cuts remain permanent, despite the $4 trillion of projected costs over ten-years. But the payroll tax debate should cast the stance of the House Republicans in a new light. This month, for the first time in recent memory, the Republicans took a stand against tax cuts because of the fiscal implications of those cuts.

For the first time in recent memory, Milton Friedman and the Republican Party of my grandfather were redeemed. This was a significant point that should not be lost.

Because the simple truth is that to extend the Bush tax cuts is wrong.

Little if anything has been said in the public debate over those tax cuts to remind the public about why they had an expiration date to begin with. After all, changes in the tax code tend to be eternal, and ability to rely on the rules of the tax system is a bedrock principle of our economy. But the Bush-era tax cuts had to expire if they were going to comply with the fiscal rules in place when the cuts were enacted into law. To meet the ten-year Paygo scoring rules, the Bush-era tax cut legislation provided for rates to return to the levels in effect in 2001 after seven years in order to pay for the largesse that was bestowed upon taxpayers over the period the cuts were to be in effect.

Oddly, in the debate over extending those tax cuts, up until now the Democrats and Republican essentially had to act under different political rules. Democrats, because they are the party of wanton over-spending and fiscal profligacy, had to justify how extending the tax cuts would be somehow fiscally justifiable. Republicans, because their brand includes the long-defunct notion that they are the party of fiscal prudence, felt no such constraint, and they have felt free to argue that the cuts be made permanent, whatever the fiscal impact might be.

The argument in Congress that the Bush-era tax cuts should be extended has given the lie to the notion that Congress is subject to any rules, even the ones it places on itself. The argument that tax rates should not be increased in the face of a recession is utterly disingenuous. Those arguing to gut the 2001 and 2003 tax bills now would be doing so regardless of our economic condition.

Look back at the historical record. Even as the Bush-era tax cut legislation was being considered, Republican leaders assured their base that by 2010 those cuts would be made permanent, as the Republicans pledged from the outset to attack as taxers any who would let the cuts expired. That is to say, even at the moment of the original legislation, those who supported those tax cuts eschewed any intention of adhering to the fiscal rules that Congress had imposed on itself. At the time, the cynicism was breathtaking. But as political calculation, it was prescient.

This month, House Republicans veered from the Republican orthodoxy on cutting taxes without offsets in favor of their Tea Party anti-deficit principles when they demanded spending cuts if the payroll tax cut was to be extended. For the first time in recent memory, Republicans returned to pre-Reagan principles and demanded that tax cuts be paid for.

A cynic might argue that this was not a change from the Republican playbook. They might suggest instead that we have seen the emergence of a codicil to the principle that tax cuts are morally self-justifying that suggests that such cuts must be paid for if the benefit accrues to working class Americans. Or perhaps the House leadership simply got caught up in needing to oppose anything that Democrats supported, and lost sight of the fact that they were in the odd position of opposing a tax cut.

In acting to demand that the payroll tax cut extension be paid for, will the House Republicans apply the same rule to extending the Bush-era tax cuts? That would be a game changer. But it is more likely that the House Republicans will get their act together, and once again the $4 trillion cost—and profound hypocrisy—of extending the Bush-era tax cuts will be subordinate to the higher moral principle of cutting taxes—without regard to cost.

Sunday, December 18, 2011

Neoconservative denouement.

With the end of the war in Iraq, one chapter of the Neoconservative history is ended. Its outcome will not be known for decades to come.

In his famous 2003 interview in Vanity Fair magazine, then-Deputy Secretary of Defense Paul Wolfowitz was forthright in explaining that while their public case for going to war in Iraq was based on weapons of mass destruction, they chose the WMD argument because it was the most salable. It was the rationale for the war, but not the reason.

Some, such as Dick Cheney, saw the war in Iraq was a means to achieve American control over oil fields whose development Saddam was ceding to Russian, Chinese and French companies, and putting boots on the ground within striking distance of both Saudi and Kuwait oil fields, to deter future threats to America’s interests in the region.

Others, such as Donald Rumsfeld, saw Saddam as a proven threat to the region, who would be increasingly allied with international terrorism as a strategic threat to America’s interests. That group—that garnered sympathy in the outgoing Clinton administration—viewed action in Iraq as imperative both to forestall further aggression by Saddam, and to prevent an alliance with terrorist groups that had declared war on America and the west years earlier.

For Wolfowitz and his Neocon brothers-in-arms, however, the motivation was more idealistic. Iraq was an opportunity to bring a reformation to the Arab world—to end centuries of oppression and dictatorship dating back through the Ottoman Empire and the Caliphates, and set it on a path toward modernization, democracy and freedom.

It is ironic that a decade later—after a cost of thousands of American and Iraqi lives and trillions of dollars of total projected costs—the argument that was chosen to sell the war was the easiest to have been proven wrong. For Wolfowitz and his brethren that is OK, because WMD was never really the reason. It was simply the rationale.

Today, as winter sets in following the Arab Spring, it is hard not to reflect on the Neoconservative casus belli. One cannot point to the evolving democracy in Iraq and suggest a direct cause for democratically inspired movements that have shaken the Arab world. The contemporaneous evolution of communications technologies that have been so evident in media coverage of the Arab Spring certainly suggests a range of changes in the world that might have been causal factors. Yet images of Iraqis exercising their new-found rights of suffrage had to have an effect.

The devolution of the Arab Spring as the early excitement gave way to the increasing violence in Iraq should have been anticipated. Even as the commentariat pronounced a new world order, real world factors were bound to counter the idealism of the moment—whether the military in Egypt or the tribalism in Libya, or the Algerian history of one man-one vote-one time that looms in the background as the Muslim Brotherhood and other Islamist parties loom to seize power in a matter of months through the ballot that they failed to achieve after decades of armed struggle.

This is a dissatisfying outcome. In an era of instant news and communication, the notion that it may take generations for new political and social dynamics to evolve is hard to accept. Through the Iraq war, we have created turmoil in the region. We have let the jinni out of the bottle and when things begin to look worse for it—when new regimes become hostile, when women’s rights are suppressed, when all those leaders across the Muslim crescent who graduated from American universities take power and rail against us to play to their local electorate—there will be little we can do.

But we already know that living in a world of increased freedom can pose difficult challenges. We have been down this road before.

If our experiment in spreading democratic freedom across the Muslim world seems like it may have rough moments, we need only look back at our now-decades old experiment in spreading economic freedom, known as free trade.

Just as the Neoconservative vision held that building democratic institutions across the Muslim world was critical to addressing the long-term threats that emanated from that region, Richard Nixon’s openings to China and the Soviet Union began a process of bridging the west and the Communist world through economic engagement as a strategy to mute the risks of military—and ultimately nuclear—conflict.

While we may have to wait fifty or a hundred years to see how the Neocon strategy of democratization of the Muslim world pans out, we are beginning to see the impact of our free trade strategy.

By and large, free trade has worked. At least with respect to the muting of military and nuclear conflict. Russians are now deeply engaged in their own economic and political development, even as they struggle to migrate toward a system based on laws in lieu of tsars and commissars. China, meanwhile, has embraced free trade with a vengeance—or a free trade world to be more specific. A quarter century ago, according to U.S. Census data, our trade with China was negligible. Since that time, through an unrelenting mercantilist strategy China has seized the advantages available to a provider of low-cost labor to become our largest trading partner—and each year our trade deficit and job losses have grown.

The price of our free trade policy on the American worker and middle class was not unanticipated. Most famously, 1992 Presidential candidate Ross Perot described the “giant sucking sound” of jobs that would be drained from this country with the advent of free trade agreements supported by Democrats and Republicans alike. And the economics of his statement were unarguable. Lower labor costs, lower regulation and reduced enforcement of environmental laws had been the basis of the rise of the Sunbelt and the decline of the industrial Midwest domestically, and Perot was suggesting nothing other than the same dynamics would lead to the internationalization of the deindustrialization of America.

But few warned the American people. Across the punditocracy of the time Ross Perot was roundly derided as a crank and a scold. But Perot's followers, the political antecedents of the Tea Party, knew a con job when they heard one.

Many may not care for Paul Wolfowitz and his friends that imposed a bloody and costly war upon the Iraqi and American people. But in his ideological fervor Wolfowitz is part of a uniquely American tradition. Few empires have offered their lives and treasure that other nations might be lifted up. And in that sense, the Neoconservative aspirations were an outgrowth of the highest rhetoric of John F. Kennedy.

With the advent of free trade, America willingly and deliberately sacrificed the livelihoods of its working class as the price of raising people out of poverty from Xinjiang to Sochi. With the Iraq war young American men and women gave their lives that future generations from Mosul to Tunis might see their lives transformed. But like free trade, there will likely be more pain yet to come, and the next chapters of the story will play out over decades. A remarkably unsatisfying outcome.