Thursday, February 28, 2013

The politics of sequester.

My school district client faces a $5 million reduction in federal funding for educational programs if the sequester goes through. That amount represents just under 1% of the total district budget, but of course a far larger share of their annual federal funding.

What will they do? Most programs will be continued with funding backfilled from reserves or other budget reductions, while some will be eliminated. They could provide no estimate of the "body count" impact.

In contrast, the Obama administration has fought the public relations war against sequestration--and in support of tax increases and "loophole closing"--not by planning for how to most effectively deliver services with fewer resources, but instead by painting a picture of the devastation to come. Recently departed Secretary of Defense Leon Panetta boldly asserted that any cuts at all to the Defense budget would necessarily reduce national security. This was an odd and disappointing stance from a man who has spent his life managing the federal budget--as Chairman of the House Budget Committee, Director of the Office of Management and Budget, White House Chief of Staff, and Defense Secretary--and who better than most understands that budgets are choices, and that the Department of Defense budget in particular has been famously larded with programs and systems the Generals themselves have opposed.

The Pentagon and its contractors have famously played politics to great budgetary effect over the years, making sure that each House district feels the benefits of Defense spending. So perhaps it was no surprise that the reaction to sequester was to play the same game. The first thing Panetta and his team propose to do is announce plans to furlough all of the 800,000 civilians working for the Department of Defense, who represent approximately 25% of total DOD workforce. This is not a strategy to manage the proposed 10% cuts seriously, but rather to maximize the political effect.

It would appear to an outside observer that this is the Administration battle plan: Unlike local governments across the country who are making plans to manage for a smaller funding level, demonstrate instead the chaos that will come if Congress does not bend to the Administration wishes.

This is an unfortunate strategy. The sequester may not be a smart way to manage the federal budget, but it may be proving to be the only way to manage the federal budget.

The Department of Defense is the case in point. Over the past decade, the DOD budget has grown by 60% as a share of GDP, from 3.0% to 4.7% of GDP. And this growth has been bipartisan, growing 43% under W. and a further 10% under Obama, and Congress has famously appropriated more than requested in the executive budget. Democrat activists in particular should support the sequester, as the mandated 10% cut in Defense appropriations marks the first reduction in Defense spending since the fall of the Berlin Wall.

It is not conceivable that within the massive DOD planning apparatus, there has not been significant work done to imagine a range of differing spending levels, force deployment configurations and alternative threat response strategies. Simply stated, it is irrational to suggest, as Secretary Panetta has, and as Administration response to sequester implies, that current funding levels are inherently optimal. The historical failure to have any serious management of the Pentagon budget by Congress--with any suggestion for reform or reductions met by charges of appeasement of surrender--makes a mockery of claims that nothing can be cut.

The current situation illustrates why Chuck Hegel was a poor choice for Defense Secretary, rather than former Undersecretary of Defense for Policy Michele Flournoy. The original notion may have been that nominating the Republican Hegel would ease difficult budget discussions with a Republican Congress, but clearly that notion was proven wrong by Hegel's ability to only win four Republican votes for his Senate confirmation. Flournoy, now at the Boston Consulting Group, is a specialist in budget strategies and can talk eloquently about the alternative strategic deployment futures and attendant spending reductions that should be on the table in world of limited resources.

President Obama's sequester strategy may be good politics in the short term, but it is likely bad politics in the long term. The greatest risk to the Democratic Party in 2014 and 2016 is that it fails to demonstrate its ability to manage the federal budget effectively as the economy recovers. Federal impact aid and other stimulus spending efforts were important to filling the void of the deep private sector recession post-2008. However, the stabilization of public sector employment and continued increases in public sector salaries during a period of private sector retrenchment has led to an imbalance that is now hard to reverse. Public sector budgets are now under great pressure as tax receipts in many jurisdictions remain below 2008 levels, while public employees--who were protected by the stimulus program from feeling the deep pain of the 2008-2010 recession felt in the private sector and whose salaries for the first time exceed those of comparable private sector workers--are loath to accept the need for budget cuts as economic growth is returning.

At election time, convincing the voters that your party is best able to manage the economy and the public enterprise remains a critical factor in the ultimate choices made by undecided voters, who tend to be fiscally conservative. For long, historical reasons--that may not be defensible given the disdain of both Ronald Reagan and W. for balanced budgets--this has been part of the Republican advantage in presidential elections. In 2012 this was not as salient a factor, both because the Republicans made an art of offending as many voting groups as possible, and because voters suspended their traditional criterial for assessing economic and fiscal performance in the wake of the deep post-2008 collapse.

By 2016, 2008 will have receded into memory, and once again fiscal administration will be fair game. Last year, the Pentagon spent more money on military bands than the nation spent on public broadcasting. Yet the President and Secretary Panetta continue to suggest that the military budget should essentially be considered untouchable, even as former Undersecretary Michele Flournoy has ably demonstrated that money alone is not the measure of our defense. With the sequester now reality, the Administration strategy should expand beyond escalating political rhetoric to get the funding reinstated, to demonstrating the Administration's ability to manage in an environment of reduced resources. When the next presidential year roles around, Democrats seeking the votes of those undecided voters in the center will need to be able to demonstrate their ability to manage in world of limited resources.

Wednesday, February 27, 2013

The day the music died.

Behind the ongoing political drama surrounding the sequester this week, we may have witnessed the withering denouement of Reagan Revolution. Riven by factional infighting since the November election, the Republican Party has come together to take a stand. It is not in defense of its no-tax pledge, which fell by the wayside last year. Nor is it to defend the Pentagon from deep cuts in spending, as the GOP has indicated that it intends to accept the sequester cuts that will take the largest bite from the Defense budget. And it is not in opposition to gay marriage, as this week dozens of GOP leaders signed on to an amicus brief in support of the constitutional right to marry for gay Americans.

The anti-tax, anti-gay and pro-defense positions have been among the cornerstones of the modern Republican Party, birthed in Barry Goldwater's campaign against Nelson Rockefeller, and brought to full flower under Ronald Reagan. And for a quarter century, the electoral coalition of single-issue voting groups--anti-tax, pro-life, anti-gay, pro-defense, among others--nurtured by Grover Norquist as the steel tip of the Republican spear thrived and vanquished Democrat dreams, pushing Republicans to the right and Democrats to the center.

The irony is that while Ronald Reagan remains the godhead of the modern Republican Party, it is not on his principles that the GOP today is standing its ground, but instead it is on the older conservative roots that Reagan pushed aside, the fiscal conservatism of Calvin Coolidge. For a quarter century, the Republican Party turned its back on its roots. Ronald Reagan's advocacy of tax cuts when marginal tax rates were 70% or higher was transformed into the embrace of tax cuts as a morally self-justifying good, without regard to fiscal consequences. The Party orthodoxy became captive to the unholy alliance of big spenders and tax cutters in its big tent, all the while giving lip service to the old school fiscal conservatives who sat marginalized in the corner. And it shunned, as well, the Party's historic standard of liberty writ large as it embraced a social conservatism that was quick to claim the mantle of freedom and liberty even as it denied the liberty interest of gays and women, among others, by redefining liberty along narrow, parochial lines.

The elections of 2010 and 2012 conspired to expose the deep internal contradictions of Reaganism. The Tea Partiers of 2010 drove a wedge between the tax cutters and big spenders by placing the notion of fiscal prudence back in center stage. They might have imagined that they were acting in the spirit of Ronald Reagan, but in their disdain for deficits their rhetoric was more aligned with Reagan's 1980 adversary, George H. W. Bush--the scion of a powerful traditional Republican family--who famously castigated Reagan's supply side jargon as voodoo economics.

If the 2010 election laid bare the long-simmering disconnect of Reaganomics and traditional conservative economics, the 2012 election confronted the GOP with the hypocrisy of letting social conservatives alone define the meaning of liberty in America. Faced with the new diversity of the American electorate this past November, the Grand Old Party that was created on the principle of liberty for all found itself standing instead for the economic and liberty interests of a shrinking share of the electorate.

The Reagan Revolution of the 1980s marked the end of a quarter century battle for control of the Republican Party. It began with Barry Goldwater's victory for populist, western conservatism over the New England and New York traditionalists. It continued with Richard Nixon's conversion of southern Democrats, who brought with them to the GOP the seething resentments of the post-reconstruction south. And its victory was complete when Ronald Reagan vanquished George H. W. Bush. Reagan's defeat of Bush--and traditional conservatism--was total. Bush prostrated himself before the victors. He ate his words belittling supply side economics, resigned his membership in Planned Parenthood, reversed his moderate stances on social issues, claimed pork rinds to be his snack food of choice, and retreated in humility after one presidential term, banished by Reagan's Maoist progeny for the cardinal sin of raising taxes to balance the federal budget.

Bush's banishment evolved into Shakespearean form with the elevation of his errant first born son from alcoholic playboy to the White House where he would systematically tear down all his father stood for. He would cut taxes and squander budget surpluses to prove his allegiance to his father's bete noire. He would take the country to wars against his father's tempered advice. All to grind into the dirt his father's legacy and his family's conservative principles.

Now, with few years left, George H. W. Bush may yet find redemption. If the destruction of traditional Republicanism took a quarter century to become complete with Reagan's triumph, a quarter century later we are seeing the waning and just decomposition of that movement. The Republican Party--the Party of Lincoln and the party of Coolidge--has a long legacy and a deep brand. And it may be that both the legacy and the brand can survive its half-century of revolutionary foment. If the core tenets of Republican conservatism are limited government and maximizing individual liberty, it may yet emerge from the ashes of its own death as a central force in our politics.

The notion of limited government remains the challenge in the face of budget and constituent realities. Tea Partiers motivated to reanimate the principle of fiscal prudence have never successfully articulated what its constituents are prepared to give up. The great failing of Paul Ryan's budget is that it proposed deep cuts in spending, but would not say from where, and when real programs have been put on the table, there has been no Party consensus on what should go. The stubborn fact remains that small rural red states are the disproportionate beneficiaries of federal spending, and at the end of the day that man who famously cried out at a Sarah Palin rally, "Don't let the government get its hands on my Medicare," willfully missed the point. Increasingly the federal government is Medicare--and national defense. And thus we have come to the Republican embrace of the sequester. Left with no agreement on what to cut, the sequester became the only path forward--and fiscal conservatism the last principle on which the GOP could make its stand.

Fiscal conservatism--the notion that resources are limited and choices must be made, choices between services and revenues, what we want and what we are willing to pay for--was always in conflict with Reaganism as it came to be. Grover Norquist's world was never a construct of moral truths, but rather of electoral strategy. And the core of that strategy--the notion that the no-tax pledge was a morally self-justifying principle--was in direct conflict with the quintessentially conservative notion that governance is about limits and tradeoffs and choices.

Despite the sense of demographic determinism that Democrats celebrated in the wake of the 2012 election, the majorities that turned out for Barack Obama among women, Latinos and Asian Americans are unlikely to be sustained. The graphic below presents a voter matrix reflecting four quadrants across liberal and conservative social and economic voter preferences. Historically--and 2012 was no different--while primary voters are dominated by the upper left and lower right quadrants, the core of the undecided electorate has been in the category of social liberal and economically conservative voters. That was once the sweet spot of New England Republicanism, back when fiscal conservatism was a core Republican value and the definition of liberty was not proscribed by religious conservatives.

Chaos within the Republican Party is not Barack Obama's doing, as John Boehner oddly suggested a few weeks ago. Rather, the last two election cycles have laid bare the untenable contradictions long buried within Republican ranks. With the withering of the old shibboleths, Republicans are struggling to find the common ground upon which they will stand, even as they recognize that it may be years before the Tea Party dominance in the House and right wing control over the presidential nominating process wanes.

There is no small irony that the Party's great hope may rest with Jeb Bush. Jeb, the former Florida Governor and W's younger brother, was always supposed to be the one who would run for president. He may be recalcitrant about the titanic Bush-Clinton clash that looms in 2016, but Jeb Bush is probably the only Republican candidate looming on the horizon who could successfully run the primary election gauntlet, and then as Richard Nixon proscribed, move back to the center--where the votes are--bring his party with him, the Reagan Revolution finally buried in the past.