Gas tax holiday nonsense

There really was not good news last week. Facing the combined impact of skyrocketing oil prices, rising food prices, falling home prices and tighter credit, the American consumer is in a bad mood, and the University of Michigan consumer sentiment index in April fell below forecast level to the lowest level since 1982. In addition, the U.S. economy lost 80,000 jobs in March, the most in five years—bringing the total jobs lost over the first quarter of the year to a hair under a quarter million—and the jobless rate rose to 5.1 percent, the highest level in more than two years.

For the first time in a generation—since the Ronald Reagan pronounced it Morning in America—the U.S. economy is losing jobs and Americans may be facing a real and prolonged recession, not just one of those two or three-quarter slow-downs that have pretended to be economic hard times since Paul Volker ruled the fed and tamed the post-Vietnam stagflation with the harsh economic medicine. How many remember that back in the day, inflation and unemployment each could be measured in double-digits, and the key measure—the Misery Index—was calculated by adding the two together.

Oil, the underpinning of the American economy and American culture for a half-century, has doubled in price over the past three years and increased by 20% in the past few months alone, and sits above $119 per barrel. Normally, hurricanes in the Gulf, political unrest in Nigeria or failing production facilities in Venezuela lead to spikes in energy costs, and lower prices in the futures market illustrate the transitory nature of market unrest. But not so today. Sure, there were some military skirmishes in the Persian Gulf this week—real ones, not just Hillary Clinton’s threats to obliterate Iran—and political unrest in Nigeria was back in the news—but high oil prices look to be with us for a while, as the futures market projects oil above $110 through the middle of the next decade—as far out as futures are traded. At the pump, this means that the $4.00 gas price is not an aberration. Energy markets are spilling over into the supermarket as well, as well, as flour and eggs and other basic foodstuffs are showing the affect of the diversion of 25% of America’s corn crop into ethanol production.

It will be an interesting question to see if the political establishment can rise to the challenge of steering a democracy through the dramatic shifts that are affecting our economy and world. So far, even as President Bush pronounced that help is on the way—in the form of the stimulus rebate checks—one has to wonder if there is not some form of leadership that might be called for other than throwing money—Chinese money at that—at the problem. After all, if $4.00 gas is our lot, perhaps a gas tax holiday, as proposed by Republican presidential candidate McCain is neither sound policy nor responsible leadership.

All pandering aside, shouldn’t a proposal that will: (i) increase gas use, (ii) increase oil company revenues, (iii) increase demand pressures on the price of oil, (iv) increase oil company earnings, (v) reduce government trust fund resources for rebuilding transportation infrastructure, (vi) increase oil company earnings, (vii) increase petrodollar outflow to Gulf states, (viii) increase downward pressure on the dollar, and (ix) not necessarily reduce prices at the pump, be greeted with some skepticism? Somewhere?

It is fair and appropriate for our elected officials to want to do something to help. But faced with the looming recognition that the ethanol subsidies built into the President’s energy program have proven to be a debacle for the consumer—even if a boon to the farmer—perhaps some more thought should be given to the gas tax holiday. After all, the government’s goal should be help the situation over the longer term, and even if you happen to be a Senator looking to a fall presidential vote, policies should stand up to some modicum of scrutiny.

The role of the government is not to prevent markets from working, but to give people the tools and information they need to make prudent and long-term choices. Perhaps our perspective on energy should adjust if the world of energy is itself changing. If energy is going to be a dear and costly commodity in the future, perhaps we are better off as consumers understanding that message. Here is an idea: how about building the subsidies now larded into the budget for each energy source into the price. That is to say stop subsidizing and focus instead on letting markets work, letting the consumer know the full price of what they are using so that they can adjust their choices according.

Internalization of external costs is not a new idea, it just happens to be one that many industries prefer to avoid. The nuclear power industry is loath to pay the cost of insuring against nuclear accidents or the cost of disposal. The oil industry no doubt would hate to see the cost of defending oil resources in unstable countries built into the cost at the pump. But the alternative is that we pay for these things anyway, but by not bearing the full cost when we drive or when we operate our appliances, we simply delay that much further the day when new forms of energy become competitive in the marketplace.  

Would it be a tough sell? Perhaps. But there is only one wallet here. Ours. Assuming of course that we plan to pay back all the money we are borrowing from the Chinese. 

It is all about honesty. Markets are tough, as anyone who has been buying eggs or flour recently can tell you. But markets are where freedom of choice and honesty of consequences are allowed to play out, without regard to political ideology or pandering. So instead of cutting taxes on gasoline, consider a plan to increase them. Slowly, predictable, over time.

Increase taxes or fees on oil or carbon to internalize as much of the true cost as possible. At the same time reduce income taxes in tandem. Return to basic principles: make subsidies transparent, internalize costs, let markets work. And remember that the money all comes out of the pockets of the electorate. The best politicians can do is provide good information, make things as efficient as possible, and get out of the way.

Someone, tell that to John McCain.

Before the Pennsylvania primary

Forget what happens in Pennsylvania tomorrow. It doesn’t matter.

Hillary Clinton will not leave the race for one simple reason. The Democratic Party is heading for a train wreck of catastrophic proportions, and she—for one—is not going to step aside and watch it happen.

The United States of America is not going to elect Barack Obama to be its next president. Not gonna happen. That is what she told Bill Richardson when her long-time friend and her husband’s cigar buddy called to say he was going to endorse her opponent.

Bill. He CANNOT win.

Not you are betraying me and my husband. Not I am a better candidate.

He CANNOT win.

Not an opinion. A statement of fact.

This is not about race. This is not about experience. This is not about who has a better health care plan.

This is not about whether Reverend Jeremiah Wright loves America. Or whether Bill Ayers loves America. Or whether Barack Obama wears a flag pin. Or Whatever. And it sure as hell is not about whether there was a sniper in the woods one brisk morning on the tarmac in Tuzla.

For all of the arguments back and forth—He said, she said. He said she said—this race is about a simple question:

Are American politics going to change fundamentally?

That is the question. Hillary is running as the embodiment of the premise that politics is hardball, it is tough and it is a zero-sum game. There are votes, there are winners and there are losers. This is the way of American politics, from the early years forward. Any suggestion that today’s harsh partisanship is a new phenomenon is a misreading of our nation’s political history.

Barack Obama is running to create a new politics, a politics where people come together and deal with tough problems in a non-partisan way. He is suggesting that the famous injunction of Senator Arthur Vandenburg—that partisanship should end at the water’s edge—should be extended from foreign policy to domestic policy. He is suggesting that instead of extending the politics of division and wedge issues to foreign policy—as we have now successfully done—we should be doing the reverse. Rolling back the tide of partisanship.

As Hillary Clinton sees the world, the tide of partisanship is not going to be rolled back. It is part of who we are. Politics is about winning and losing. That is why we vote. This race is about who will be cared for in the years ahead. Hedge fund managers or single mothers with no health coverage. And it is about the Supreme Court.

Either we win or they win. So you see, the race is not about whether Reverend Jeremiah Wright loves America. Or whether Bill Ayers loves America. Or whether Barack Obama loves America. Or whatever.

But that is what the fall election is going to be about. Because the Republicans know that most Americans want life to be simple, not complicated. Sitting around their kitchen tables, Americans want to be safe. They want to believe that their country is a good country, and that they are a good people. They don’t want erudite speeches. They don’t really want to deal with tough problems, if they aren’t their problem. The American people want lower taxes. They want good jobs. And—Yes, Virginia—they believe in the private sector and capitalism—and by and large they believe that the old saw—I am from the Government and I am here to help you—is in an oxymoron.

Democrats can’t win when they make things complicated. And Barack Obama is making things complicated. Hope is complicated. Change is complicated.

What is shocking is the number of Senators and Governors, and others who should know better, who have endorsed Senator Obama as a response to their children’s conviction. Senators and Governors and others who should know better have been drawn into an idealistic fantasy world.

The Clintons, on the other hand, are adults who see the world for what it is, and will do whatever it takes to keep the Democratic Party from succumbing to all of the self-righteous, self-absorbed idealistic claptrap. Someone has to keep the children of America from leading their parents down a Yellow Brick Road after a Pied Piper on a path that leads nowhere.

He CANNOT win.

Not an opinion. A statement of fact.

So Hillary Clinton is not getting out of the race. No matter what happens tomorrow.

Because as she sees the world, the future of the Democratic Party is at stake.

Confessions of a bitter elitist

Elton John was blunt and to the point: If Hillary Clinton loses, the misogyny of the voters will be to blame. He was not the first to make the case. After all, Robin Morgan’s email—to name one—was a legal brief of the wrongs that have been done to women. Her only failing was in not making the connection as to why that compelled the reader to redress the past by pulling the lever for her woman.

Gloria Steinem took the argument a step further, making the startling suggestion that the reason to vote for Hillary is that Black men have had the vote for a half-century longer than women. Again, both the credulity of the argument and the political conclusion seemed questionable—or as one friend suggested, “And therefore what, exactly?”

I can find many reasons to support Hillary Clinton for president. She is very smart. She knows the issues—domestic and international—inside and out. She is determined. And she will fight to the death for what matters to her. And I have great respect for anyone who has embraced her for her strengths, forgiven her weaknesses and will go to the mat for her. No problem.

But there are many reasons that one might quarrel with the argument that Hillary is most qualified to be the standard bearer for the Democratic Party, and they are valid and compelling arguments for declining to support Hillary’s candidacy now.

Failed Leadership in the Past. Hillary’s record of executive leadership is thin, but the single instance when she was handed the mantle was with health care reform under her husband’s administration. While it is rarely discussed—which is particularly surprising given that her experience with healthcare is central to candidacy—that episode was a debacle. The secrecy and arrogance of her approach led directly to its failure, to the Gingrich Revolution and to her husbands embrace of the Republican welfare reform bill, in order to reestablish is own credibility in Washington.

Ability to Learn From Mistakes. One of the hallmarks of executive leadership is the ability to learn and adapt from mistakes. Indeed, some would argue that failure is as important one’s growth as a chief executive as success. Hillary’s current approach to healthcare—suggesting once again that her plan and her ability alone can deliver results—evidences little learning from her past performance.

The Urge to Power Overwhelms the Urge to Change. It has become a staple of late night comedy that Hillary is finding her voice. At age 60, most politicians know who they are [Mitt Romney is not 60 yet, give him time]. The long time complaint of Republicans against Bill Clinton was that he had no core principles beyond the will to power, and that he would throw anyone under the bus who got in his way. Hillary was always viewed on the left as the principled voice of the Clintons, but that stance ended with her embrace of welfare reform and alienation of Peter and Marion Wright Edelman.

By the end of the Clinton administration, Hillary had embraced welfare reform and the deregulation of the financial system [see Sub-Prime Crisis at Wikipedia] as well as free trade and other initiatives that enabled the Clintons’ to triangulate between the left and the right. This week, Hillary is a churchgoing, gun-toting, working class gal. Just imagine what tomorrow might bring.

If you ask yourself one simple question, it illustrates the quandary with Hillary: What type of Commander in Chief would she be? Would she emulate Maggie Thatcher to prove herself to the military and to the male establishment or would she bring a fundamentally different perspective and set of values to the job? What would trump, her core beliefs or some kind of triangulation algorithm? How does Hillary measure her own success? The differences among the candidates in this regard is significant. One can easily imagine John McCain or Barack Obama losing this race and moving on with their lives. Hillary, and Bill, evince a need to win that is deep and urgent .

Issue of Corruption. Hillary has had a virtual pass on the most troubling issue in the Clinton use of power. The fundraising scandals with Johnny Chung and Norman Hsu have only been the most traditional areas where money was raised and laundered, and favors were granted. The pardons were far more egregious, and none more egregious than the pardon given to Marc Rich. While many would argue that this is old news, it is not. The pardons came on the last day of the Clinton presidency, and most voters likely never gave any of it a second thought. It is, after all, politics.

But the case of fugitive financier Marc Rich was not just politics, but has all the appearances of old-time corruption. The Justice Department was adamant that Rich not be pardoned. Bill Clinton said he was just following the process. When Congress investigated, the participants took the Fifth Amendment. But in the wake of the pardon the Clintons received hundreds of thousands of dollars for the library and the foundation.

Before descending farther into the rhetoric of a right-wing nut, it is important to note that the contributions to the foundation and the library remain sealed at the Clintons’ request. The Colombia trade agreement issue that was just in the center of the news is important not because of who does or does not believe in free trade at the Clinton’s kitchen table. Rather, it is the important issue of how a husband and wife address issues of policy and corruption. Which brings up the final issue.

Mixing Business with Business. Bill Clinton received $800,000 for speeches in support of the Colombia free trade agreement. He then contributed the funds to Hillary’s campaign. He received a $30 million contribution to his foundation—with $100 million yet to come—for helping a Canadian win a uranium contract in Kazakhstan. The use of a tax-exempt foundation to garner benefits from public action —and therefore as a tool of public corruption—first found fertile soil in Philadelphia. The question that has barely been raised in the media is what the rules are for a husband-wife presidency, and how Bill’s activities will be monitored and constrained. He has already said that contributors to both the library and the foundation will be made public after she is in the White House—but only contributors going forward. He has said that he owes a promise of confidentiality to the contributors—a debt that apparently is greater than he owes the voting public.

Manipulation in Pursuit of Power. OK. This one is unfair. After all, campaigns are all about manipulating the public in pursuit of power. But the premise of Microtrends, Mark Penn’s book and central to his political outlook, is that success is achieved by targeting myriad archetypal groups and selling each what they want to hear. And so as the time is winding down on the campaign, Hillary is morphing to each audience. In Scranton, she is the church-going, gun-shooting child of rural America. In Pittsburgh she is the protectionist old-time union activist. In Erie, she is the working class girl who worked the night shift. The problem of with the microtrends strategy is that people have a history—which in Hillary’s case is of being a Hollywood-loving, anti-gun, free-trader, from a middle class family, albeit with enough caveats along the way to give her cover. Microtrends is a demographic theory, and one with great salience for Proctor & Gamble and Saatchi & Saatchi. But for a politician still seeking her voice, it reeks of exigency and a lack of core principles or purpose.

But with her back against the wall, Elton John delivered the message that has become the bludgeon used against Obama supporters: Hillary is only losing because of misogyny among the electorate. This is not delivered as a social critique—a claim that in the privacy of the voting booth people’s prejudices emerge—rather it is an attack on the individuals working for or supporting Obama. This is the ultimate extension of the politics of political correctness: If you don’t vote for her—not a woman, but this woman—it is an indictment of your character.

So we have come full circle. The essence of the political race is no longer about the character of the candidate. It is now about the character of the electorate. If Hillary loses, it will be because of misogyny and unfairness. Forget issues of her own past conduct or performance, forget the manipulations of a campaign of inevitability, forget issues of corruption and conflicts of interest. If she wins Robin Morgan and Gloria Steinem and others who are standing at the barricades with their fists thrust in the air shouting No Passaran should not be surprised if after they have invested their hopes and dreams, Hill and Bill do not turn on them as they have on others whenever it suits their purposes.

The other day, Hillary suggested that only she could end the war in Iraq. On the face of it, it was a preposterous statement. What if she gets hit by a bus? Will the war go on forever? For 100 years? I think not. The world will survive if she is not the next president. And a judgment of whether to support her candidacy can be made fairly and honestly, based on the history that she—and her husband—have made.

If Hillary loses, she and Bill should fully embrace that they were the lead actors in her demise. The media gave her all the advantages of incumbency as they embraced the narrative of inevitability for more than a year—until losing Iowa undermined the premise. It was no Establishment White Man that was her undoing, but a judgment that it is time to turn the page and look forward to a future of new personalities and new possibilities.

China syndrome

After a bad first quarter, the stock market rebounded sharply on April Fools Day. But this week the major market indices fell sharply in the wake of news that can only be described as the same-old, same-old. This time, the news that gave a bad taste to the end of the week was that General Electric missed its earnings targets, and missed them soundly. It was the unanticipated extent of GE’s under-performance that most unnerved the market. Over the past weeks, the market has been struck by new sectors of the economy being infected by the sub-prime mess. First the banks. Then the brokerages. Then the insurance companies. And so on.

GE’s suggestion that it fell short due to the impact of “disruptions in the capital markets” on its financial services businesses should not have been a surprise. But what was shocking was that this company that rarely misses guidance by more than a penny or so should miss the target by such a wide mark. After all, what has made GE an icon for so many years has been its ability to manage both its earnings and investor expectations. The fact that GE directed full-year guidance on earnings growth down from “at least” 10% to near zero was a further wake-up call for anyone who has managed to sleep through the ruckus in the financial markets of late.

Last week’s April Fools Day rally––which came in the wake of optimism that the financial sector had hit bottom and a correction in surging commodity prices––suddenly seems a long time ago. After rallying 6.6% in the prior week, the S&P financial sector dropped 4.6% this week.

This was a significant week in the currency markets, as China’s currency, the yuan—the renminbi to some—rose to new heights against the dollar. The yuan, pegged at 8.2 to the dollar until the Chinese allowed their currency to float in July 2005, has appreciated 16% against the dollar since then.

This is important on the home front for several reasons. First, and most directly, it will make Chinese-made goods more expensive over time—indeed the 16% appreciation acts no differently than a 16% tariff or tax on imported Chinese goods. But more important, an expensive yuan—and the prospect of a more expensive yuan to come—offers the most effective deterrent to the outsourcing of jobs to China.

Trade has been an embarrassing item on the political circuit these days. After all, during the NAFTA debate in Ohio, it should have struck most observers that America is not losing many jobs to Canada. And, I dare say, Colombia is not the risk that it would seem to be from all the press attention to a trade riff between Hill and Bill. It is understandable that candidates have foresworn speeches on the impact of floating currencies on long-term investment and competitive advantage, or for that matter on international stability, but hopefully the surviving candidate’s policies will be better informed than their political strategies.

Like Japan before it, China may be on a trajectory away from being the source of cheap consumer goods. And this has both good and bad consequences that the political class should be focused on. The risk to America in the future will not be a China that is a source of low cost labor, but rather, a China that is becoming a source—and a very large source indeed—of well-educated and disciplined workers in engineering and the sciences. Someday we may wish for the days when we lost our low-end jobs to China.

The American worker listening to pandering politicians and pundits, they should be looking for only three things: portable pensions, portable and affordable healthcare, and affordable and lifelong access to education. Political-speak continues to be dominated by language that views American workers as passive agents. “Government needs to retrain workers… We need to retrain you…” The reality of the world today is that a politician or government worker is increasingly unable to understand the skills, attitudes and aptitudes that any given worker will need to learn to get ahead.

Twenty years or so ago, Peter Drucker described a future in which every worker would be a free agent in a competitive marketplace, with the need to seek out new skills and new knowledge on an ongoing basis to succeed through several careers in the course of their work life. Well, as George Allen—the coach, not the Senator—liked to say, the future is now. It is time for our candidates to talk less about the solutions from the 1950s and 1960s, and try to imagine what solutions will work in the 2020s and 2030s, when today’s children of Pennsylvania will be in the middle of their third or fourth careers.