Wednesday, August 31, 2011

States Rights and Federalism: Are They Synonomous?

If you pay any attention to the political arena today you'll likely hear a lot of chatter from the political elites about the constitution establishing a system of federalism.  But it is often unclear exactly what is meant by the term and many political elites confuse or conflate it with the idea of states rights.  My goal here is to explain what the system created by the founding fathers is and is not as well as breaking the false link between the two concepts.

First, we must ask 'what exactly is federalism'?  The word does not appear in the constitution itself, nor in the writings known as the Federalist Papers authored by James Madison, John Jay, and Alexander Hamilton to persuade New York to ratify the constitution.  The word federalism has taken on many meanings since 1787 and continues to mean different things to different people today.  People on both ends (and in the middle) of the political spectrum claim to believe in federalism and often defer to state and local governments to make many decisions.  In a nutshell, a federal system is one in which formerly sovereign entities, in our case the several states, voluntarily surrender some of their sovereign power to a different entity, relinquishing all claim to that power in the future.  An example of such a surrender of power is seen in the constitution that authorizes the federal government, not the states, to raise an army or coin money or regulate interstate commerce.  In other areas, however, the states retain their sovereignty.  We see this through the issuance of driver's licenses, marriage certificates, and regulation of intrastate commerce.  The federal government has no say in these areas unless the states consent to a constitutional amendment.  In some other areas the states empower the federal government but also retain some power as well.  This is most commonly seen in the taxing power.  The states granted the federal government the power to levy an income tax directly upon citizens by approving the 16th amendment in 1913.  Prior to that time only the states could tax income, if permitted by their own constitutions.  Even today, there are a handful of states that have no state income tax.

Second, does the constitution establish a fixed form of federalism or is it one that changes as the nation changes?  Many conservatives today would argue the former while many liberals argue for the latter form.  Historians have identified two primary strands of federalism that have alternately shaped the nation we know and love today, dual federalism and cooperative federalism.  In a system of dual federalism each entity has separate and distinct powers that are mutually exclusive.  Any attempt by one or the other to breach the barrier between the two entities is viewed as unconstitutional.  In a cooperative federalist system both the federal government and state governments work together to solve national problems.  Both of these differ from a purely national system of government in which all power rests with the central government but may then be delegated to the states or local governments. 

Third, the type of federalist system one prefers often transcends partisanship or ideological conviction and depends upon the issue.  One recent example of this is the debate about what powers states have in controlling illegal immigration.  The issue came to the forefront when Arizona passed a strict anti-immigration law allowing law enforcement officers to request proof of legal right to be in the U.S. if they were stopped for an unrelated offense.  The constitution, however, grants the power to regulate immigration to the federal government alone.  Thus, liberal judges have struck down those portions of Arizona law believed to violate that barrier.  On other matters it has been conservative judges striking down state or federal actions seen to breach the federalism wall, such as the Gun Free School Zones Act passed by Congress in the 1990's.  Schools, the court argued, do not engage in interstate commerce and so Congress had no authority over them or the surrounding area.  Another issue that has traditionally fallen into the purview of the states is marriage.  Yet, there has been much discussion about regulating who can marry whom by amending the constitution or strengthening the Defense of Marriage Act (DOMA).

Finally, what does any of this have to do with states rights?  Not much really.  States rights is more of a political phrase bandied about by those who disapprove of some action taken by the federal government regardless of whether it legally possesses the power to take that action.  A generation ago states rights meant that states should have the right to discriminate against citizens on the basis of race, religion, or gender.  Today it means discrimination on the basis of immigration status, sexual orientation, or marital preference.  So the next time we hear a candidate say they believe in 'states rights' perhaps we should ask exactly what 'right' is meant.  We should also refuse to allow our political leaders to conflate federalism and states rights.  The former is a valid debate for our great nation as we move forward.  The latter is a thinly veiled form of demagoguery.

Friday, August 26, 2011

Towards A New (and better) Constitution

So it begins...every Friday between today and November 11th the undergraduate students in my Honors College class will meet as delegates to a new constitutional convention.  Their task, simply put, is similar to that which was given to the delegates at the convention in revise and strengthen the existing document that created the United States of America.  Some 224 years have passed since the delegates began meeting in Philadelphia in the late spring of 1787.  By the time they finished in September of that year the Articles of Confederation and Perpetual Union were no more.  In their place was a brand new document replete with new (and stronger) governmental institutions than had previously existed.  The ratification debate over the next year would be fierce but in the end the constitution would be ratified by the requisite nine states on June 21, 1788 when New Hampshire assented.  Virginia and New York would follow later that summer and the Congress created by the Articles of Confederation agreed to cease existence on March 4, 1789. 

Now, 224 years later, how has that constitution held up?  Most would argue that it has held up quite well due to adaptation, amendment, and a common political culture committed to the constitution as the supreme law of the land.  That is not to discount the terrible struggles of the 19th century from the nullification crisis in the 1830's to the most destructive war the United States has ever fought, our own Civil War.  Yet, through it all, Americans have hung together, committed to making the system work for all Americans, though it is doubtless that improvements can and should be made.  For if we cannot learn from history we are doomed to repeat it.  Our various political factions alternately accuse each other of violating the constitution, be it by employing 'secret rendition', unauthorized wiretaps, or mandating every American to purchase health insurance or pay a fine/tax.  Obstructionist tactics have risen to new heights as partisans threaten filibusters to prevent legislation from even being considered on the floor of the Senate.  The number of threatened filibusters between 2007 and 2011 is greater than ALL the filibusters over the previous 200 years.  As little as 20 years ago, senators would have to carry out, not just threaten, a filibuster to prevent unwanted legislation.  House Republicans have adopted a new tactic this year to prevent the president from making recess appointments by refusing to allow Congress to go into recess during the annual August recess even though the House has NO role in the nomination and confirmation process.  Senate Democrats did something similar during the final months of George W. Bush's 2nd term, though they were in control of the Senate at that time.  It is unprecedented for the House to obstruct presidential action (and not at all clear if constitutional) for which it has no say in the process. 

Beyond obstructionism, Americans have lost confidence in their political institutions.  Congress' approval rate stands around 13%, the president at 39%, and the Court at near 50%.  Corporations have been declared to be 'persons' with free speech rights, allowed to create 'super-pacs' and make unlimited contributions to them for the purpose of promoting the defeat or election of candidates to the federal Congress.  They spent over $300 million in 2010 doing just that, 2/3 on behalf of Republicans.  Democrats will respond likewise in 2012.  Some $20 million was spent in a special election race in NY early in 2011 and $30 million on recall efforts of state senators in WI in July and August.  Deficit spending has become a huge concern for Americans, as evidenced by the rise of the Tea-Party movement in 2009, though it is unclear how much of that is really anti-Obama politics at this point.  Representatives spend nearly all their time cultivating contacts and raising funds for reelection.  The reelection campaign for the presidency often begins 21 months before the election and nearly a billion dollars will be spent by all the parties involved.  Compare that with the British Parliamentary elections, which run about six weeks and feature free air time for each party to make it's case to the people, followed by a term of up to five years for the victorious party to go about the task of governing rather than electioneering.  Of course, there are drawbacks to parliamentary systems as well, such as little to no voice for the opposition. 

All in all, the time has come for reform and I am giving my students a chance to accomplish it.  It shall be interesting to see what they create, what rights are preserved, what institutional structures remain intact, and so on.  I will write about the results here each Friday as time allows.  Let the convention begin! 

Tuesday, August 23, 2011

Of Liberal Democracy, Constitutional Republics, and Ascriptive Hierarchy

Most Americans assume that the United States is a liberal democracy.  I mean liberal in the classical sense that refers to freedom and the equality of all persons under the law, not in the pejorative sense that some conservatives use the word today.  Indeed, many of the key components of a liberal democracy are found in our history, our institutions, and modern society.  These include the concept of popular sovereignty, the idea that power rests with a free people who consent to be governed by leaders who will protect their lives, liberty, and property, provided those leaders are subject to the same laws and can be replaced by the people.  Thomas Jefferson waxes eloquently about the rights of free people and how they are God given and unalienable in the Declaration of Independence.  Though for all that eloquence, some 235 years has passed and yet the United States has not achieved the full promise of Jefferson's masterpiece.

There is yet another strand of political theory woven into the fabric of our political institutions that is drawn from republican thought, not to be confused or conflated with the Republican Party, as the two are not identical.  The republican model is far more elitist and defers to the learned population, selects its leaders from among that class, and designs its institutions to more or less insulate the privileged from the will of the masses.  We see this in the design of Congress, a bicameral legislature with one chamber elected by the people, the other to be appointed by the state legislatures to represent the interests of the states (changed to direct election by the 17th amendment in 1913, perhaps unwisely).  The requirement that both the people's representatives and the state's representatives must agree fully for any legislation to pass is indicative of the founding fathers' distrust of democracy. 

Further, the president is elected not by the popular vote of the people but by a small group of elites, precisely 538 of them to be exact, though only 270 must agree in order to choose a president.  As of 2000, there is no law binding 257 of these electors to vote for the winner of their state's popular vote.  The remaining 281 electors are bound by state law to vote for the candidate carrying the state's popular vote, except in Maine and Nebraska, where electoral votes are allocated to the winner of each congressional district.  In theory, it is possible to elect someone as president who fared very poorly in the popular vote, though it hasn't happened since 1824 when John Quincy Adams was named president by the House of Representatives after finishing second to Andrew Jackson in both the popular and electoral vote.  And lest we forget, the members of the judiciary are selected by the president and confirmed by the representatives of the states.  The people's representatives are accorded no role in this process, though many would argue, and I would agree, that senators now represent the people of their states rather than the states themselves. 

So we have two theoretical traditions forming the basis of the United States.  Yet neither has fully lived up to its promise.  Over the past two centuries Americans have whittled a way at the republican foundations of the government, slowly democratizing the system by expanding the franchise to all citizens eighteen years and older, save those incarcerated or otherwise ruled ineligible to vote.  As stated previously, senators are now directly elected by the people.  There is even a movement afoot to effectively eliminate the electoral college by binding electors to vote for the winner of the national popular vote.  As of August 8th, nine states and the District of Columbia (129 electoral votes) have agreed to the compact.  It becomes binding when a total of 270 electoral votes is reached.  So we are neither fully a democracy nor fully a republic but rather a democratic republic.

Even then, as Rogers Smith has argued, America has violated her principles time and time again through what he has called 'ascriptive hierarchy', which refers to the fact that throughout our history America has not been fully 'liberal' but rife with competing ideologies based upon race, gender, or other characteristics that excluded some persons from consideration as fully free and equal citizens of the United States.  The argument is fully detailed in his book Civic Ideals: Conflicting Visions of Citizenship in U.S. History.  In a nutshell, Smith points out that though the Declaration of Independence declares all men to be equal and free the reality in America has been vastly different.  From mistreatment of Native American populations to slavery to denial of voting rights based on gender, ideologues have dominated our political institutions at both the national and state levels, using their positions to grant preferences to those in their hierarchical category while denying full citizenship to those deemed to be lower in the hierarchy.  The sad history of the African-American population in America serves to illustrate that quite well.  Though the Civil War Amendments abolished slavery, guaranteed citizenship to freed slaves (and equal protection of the law), and established voting rights for blacks, ideologues in both the south and the north worked hard to relegate blacks to a lower rung on the hierarchy through things such as literacy tests, poll taxes, grandfather clauses, separate entrances for blacks and whites, separate drinking fountains, and segregated schools, all with the assent of the United States government until 1954 (and some might argue well beyond that).  Segregation by race (though not 'officially' sanctioned by state or federal policy) continues today in much of the country, particularly the south where private 'academies' are populated almost exclusively by white children, even those struggling to make ends meet. 

The ascriptive hierarchical system continues today as we assign people to different places on the ladder based on sexual orientation, immigration status, religion, education, and even political viewpoints.  It permeates all aspects of American society as ideologues clamor to deny equal rights to homosexuals, demand that everyone present a photo ID in order to cast a vote (potentially reducing turnout amongst the poor and African-American communities), or denigrate 'liberals' as unpatriotic and haters of America.  Of course, the truth could not be further from the rhetoric.  The liberals I know are not America haters.  Rather, they love America too much.  So much so that their primary desire is for America to finally live up to the ideal standard she has set and proclaimed to the world for 235 years.  May the hypocrisy end and freedom truly begin to ring from sea to shining sea. 

Thursday, August 18, 2011

Why Hello Mr. Perry...Welcome to the Rest of America

Five whole days have passed since Texas Governor Rick Perry announced his entry into the battle royal to become the next Republican nominee for president.  The media has been engaged in an all out effort to figure out just who he is and what his entry into the race means, as seen here, here, and here.  Perry is, it seems, the political flavor of the week.  The media's new toy is a giant plushy in the shape of Governor Perry. 

But the real question is, just who is Rick Perry?  What do we know about him?  How conservative is he?  Does he still think Texas ought to consider seceding from the union?  The governor has certainly been busy tossing red meat out to movement conservatives to bolster his credentials, as seen by claiming that 'a substantial number' of climate scientists have manipulated their data to ensure government funding, or by holding a prayer rally in Houston (is he governor or a pastor?), or backtracking on his remark that New York's legalization of gay marriage is "fine with me."  Pavlov's dogs are salivating. 

Some are asking whether Governor Perry is electable while the first national poll shows him with a comfortable lead of second place contender, former Massachusetts Governor Mitt Romney.  I can't vouch for the polls methodology but Rasmussen is usually semi-reliable.  Of course, at this time four years ago Rudy Giuliani was leading in all the national polls and he never quite made it out of his Florida rocking chair.  What has Perry done to deserve all this attention?  Is he really the savior of the GOP?  Let's take a look.

First, Rick Perry was launched into national stature by the election of George W. Bush as president in 2000.  Perry was Bush's Lieutenant Governor beginning in 1999.  Prior to that Perry served in the Texas House and as Agricultural Commissioner.  Perry is rather unique among modern politicians in that he has never lost an election.  In his first run for governor in 2002 Perry received nearly 58% of the vote in cruising to an easy victory.  Four years later, however, when facing three challengers, Perry's share  of the vote dropped to just over 39% as he received over 1 million fewer votes than in 2002.  In 2010, he easily vanquished a gubernatorial primary challenge by Senator Kay Bailey Hutchison, though combined his GOP challengers managed to pick up 48.9% of the primary vote.  He sailed to victory in November over Houston Mayor Bill White by a 54% to 42% margin.  The sad fact, however, is that fewer than 1 in 3 eligible voters in Texas even bothered to cast a ballot meaning that Perry was elected to a 3rd term by about 1/6th of Texas voting eligible population (Texas has the lowest voter turnout rate in the US).

Second, Mr. Perry has made his case that he ought to be the Republican nominee for president (and the next president) based upon his so-called 'Texas Miracle', a reference to the fact that nearly 40% of the new jobs created in the United States since the beginning of the Great Recession have been created in Texas.  Perry attributes this to his pro-growth policies such as low taxes and less regulation of business.  What Perry doesn't say is that much of that growth has occurred because Texas population has been growing faster than almost every other state as Americans migrate from chilly northern climates to the sun belt in record numbers, as evidence by the results of the 2010 census.  He also doesn't talk about the fact that Texas unemployment rate is 8.2%, currently 25th worst in the nation, and trails such anti-growth states such as Vermont, Massachusetts, and New York.  Governor Perry also doesn't want to talk about the fact that 1/3 of all the new jobs in Texas are government jobs, or that he balanced his state's budget the last four years largely because of $17 billion in 'failed' stimulus funds provided by President Obama.  He doesn't want to talk about the fact that Texas is tied with Mississippi for the highest percentage of the work force earning minimum wage or that Texas just balanced its budget by cutting $4 billion from education in a state that trails the nation in education quality already.  This has prompted some, such as Nobel Laureate Paul Krugman, to proclaim Rick perry's Texas as an 'unmiracle.'

So the question becomes one of who's right?  Is Texas the unbridled economic miracle that Governor Perry claims or is it the disaster that his critics contend it is?  Will 'President Perry' do for America what he has done for Texas?  Do we even want him to try?  Time will tell. 

Monday, August 15, 2011

And Then There Were Three (or four)

Somewhere between 17 and 18 thousand Iowa Republicans showed up in Ames, Iowa on Saturday for a day long political carnival featuring rousing speeches by several of the GOP candidates hoping to receive their party's nomination for president next year.  Following the speeches, the faithful took part in the traditional Iowa straw poll, an indicator of preferences among the partisan base.  The poll also acts as a bellwether of organizational strength.  Former Minnesota Governor Tim Pawlenty invested more than a million dollars in Iowa hoping for a strong showing in the poll.  He finished third in the balloting with 14% of the vote, about half the total received by the top two finishers, Rep. Michele Bachmann and Rep. Ron Paul.  Governor Pawlenty then announced on Sunday that he was ending his campaign for the presidency.

The media narrative now has the field for the GOP narrowed down to three (Bachmann, Romney, and Perry), two of whom did not even compete in Iowa, while all but ignoring the strong showing of Texas Rep. Ron Paul.  While I think it will be difficult for Paul to win the party nomination I don't think it will necessarily be any more difficult than Bachmann winning it.  Neither of them has any executive experience to speak of, both have a fervent band of supporters, and both play to the libertarian/Tea-party wing of the Republican Party.  Financially, Paul might have an edge and he definitely has the experience to run a national campaign while Bachmann has had some notable struggles raising money at times.  Paul has become famous for his 'money bombs' when he attempts to raise millions of dollars in a day.  Bachmann does have the support of the 'tea-vangelicals' (a term I despise) going for her but it remains to be seen what kind of force they will be in the caucuses next January.  Finishing in the top three in the Iowa Caucuses next year will be crucial to both candidates campaigns.  Only one of them will manage that.  If it is Paul, his campaign will be buoyed and sustained (though he likely continues to campaign in futility if he doesn't make the top three).  If Bachmann fails to make the top three her campaign will be effectively dead.

That leaves current Texas Governor Rick Perry, who will have to neglect the needs of his state in order to wage a full time campaign for the presidency, and former Massachusetts Governor Mitt Romney, a moderate Mormon who isn't trusted by much of the GOP base.  Perry has a natural appeal to social conservatives, many of whom are southerners, while Romney appeals more to the classical pro-business wing of the GOP.  Both have their strengths and weaknesses entering the campaign.  Perry has a solid, if somewhat ambiguous, record of accomplishment as governor of Texas.  He has presided over a state that has boomed in terms of job growth in the last decade, though critics point out that 1/3 of the growth has been government jobs while much of the rest has been in low wage service industries.  Romney, on the other hand, was elected governor of one of the most liberal states in America, largely based on his reputation for 'saving' the 2002 Salt Lake City Olympic Games.  Critics point out that job growth in Massachusetts during his tenure was below average and that he signed the nation's first universal health care law featuring the exact type of government mandate he opposes at the federal level.  Financially, Romney will have a huge advantage over the rest of the field.  His personal net worth is around $250 million and his fundraising ability is second to none.  Perry remains untested at raising funds on a national scale, though he has been quite successful in Texas.

So given these three, or four, who will eventually secure the Republican nomination and the right to face off against President Obama 15 months from now? The smart money is on Romney right now but with four candidates appealing to disparate interests within the Republican Party, coupled with the rule changes regarding the allocation of delegates from the primaries and caucuses, the stage could be set for the first contested convention since 1976, when Gerald Ford bested Ronald Reagan for the nomination.  Bachmann and Perry will compete for the evangelical vote, Romney for the financial sector and moderate Republicans, and Paul for the Libertarian wing of the party.  In the final analysis, I think the GOP will go towards electability rather than ideological purity because it may be better to win with someone you don't fully trust than to lose with someone you do.  That means Romney gets the nod with the VP slot going to Perry or Bachmann.  I can't wait for January!

Saturday, August 13, 2011

GOP Debate, Iowa, and Governor Perry

Several Republican wannabe's gathered for a debate sponsored by The Examiner and moderated by the friendly folks at Fox News on Thursday night.  Many of the questions were like 'red meat' tossed to a pack of vicious dogs and hungrily gobbled up by the candidates trying to prove their conservative credentials to the activist base of the party.  One example that illustrates just how out of touch with America the GOP has become was asked by Fox News Special Report anchor Brett Baird.  When asked if any of the prospective nominees would accept a budget deal that cut spending by $10 for every $1 in revenue increases, all of them said they would reject such a deal.  Even Baird was not sure he heard them right and had to repeat himself.  Now, maybe it is simply that the candidates felt they had to play to the base of the party.  If not, however, it shows how ideology has been elevated above resolving the nation's fiscal problems.  They'd be crazy not to accept a deal that reduced the deficit by $10 trillion just because it contained a $1 trillion revenue increase.

The highlight of the evening had to be the when Chris Wallace began questioning former Minnesota Governor Tim 'T-Paw' Pawlenty about some comments he had made about Representative Michele Bachmann's experience and ability to be president.  The two candidates sniped back and forth at each other in a clear violation of Reagan's first maxim of politics: speak no evil of another Republican.  In what is being called the 'Minnesota Melee' T-Paw had the best line when responding to Bachmann's claim of having led the fight against the stimulus package, against Obamacare, and against raising the debt ceiling (all of which passed Congress) when he said, "If that's your example of leadership, please, stop, you're killing us!"  Of course, all this really avoids the bigger question about her experience.  Republicans (and Hillary Clinton) harped on President Obama's lack of executive experience in 2008, claiming it made him unqualified to be president.  Why isn't the same true of Rep. Bachmann?  A double standard?  Perhaps.

Much of the debate has no real meaning except that today in Ames, Iowa, 20,000 or more Republicans will participate in a straw poll indicating their preference for the GOP nominee to face President Obama in 2012.  It is an exercise with very little predictive power.  In 2007, Mitt Romney won the straw poll, Mike Huckabee won the caucuses a few months later, and, of course, John McCain won the GOP nomination.  The straw poll, like the Iowa caucuses, serve to winnow the field of candidates.  A candidate who does well in the straw poll will likely make it to the caucuses, where the top three usually continue on to NH and a few other primaries.  A poor showing at the straw poll probably means a candidate has limited appeal and his/her viability is in question.  Some candidates may even drop out of the race after the straw poll.  Mitt Romney, recognizing the limited value of the poll and combined with his huge financial advantage over the other Republicans, has decided not to participate.  This leaves Michele Bachmann and Ron Paul as the likely favorites.  Which leads us to Governor Rick Perry.

Perry is poised to enter the race for the presidency today with a speech in Charleston, South Carolina.  Whether his speech is designed to downplay the news that comes from Iowa (he won't win because he isn't on the ballot) or just coincidence, it injects a new element into the race.  It also substantially reduces the likelihood of Michele Bachmann winning the GOP nomination, regardless of the outcome in Iowa, largely because they are both seeking support from many of the same Republicans, evangelical Christians.  Given Perry's record of more than a decade of executive experience and evangelicals comprising an above average percentage of southern Republicans, Perry will likely do well among this group.  Bachmann, on the other hand, has some questionable Christian credentials and ties to dominion theology.  She also derives a large amount of support from the tea-party and serves as their pro-forma leader in the House. 

What remains to be seen is how Perry will handle the demands of national campaign when everything in his record will be scrutinized, checked, and rescrutinized.  While no stranger to the politics of personal destruction, he has never been subjected to them at the level that he soon will be.  Nor has Bachmann.  Mitt Romney, on the other hand, has been through it before.  That experience, and his cash advantage, may be the difference in the race.  Perry will do well among southerners and Christians, while  Romney, a traditional Republican and Mormon, likely caries the northeast and mid-Atlantic.  It should be an interesting primary season.  I can't wait for the cold of January!

Wednesday, August 10, 2011

Wisconsin Recall Elections--Money Talks

Yesterday, Wisconsin voters went to the polls in what was the largest recall effort in American history.  Six Republican senators faced recall efforts spearheaded by Wisconsin's public employee unions.  This came in the wake of the GOP's move to destroy the unions back in February of this year.  Democrats needed to win three of the seats to regain control of the Wisconsin Senate.  Democrats failed, though they did take two seats and narrow the Republican majority to 17-16, pending the outcome of two recall elections next Tuesday orchestrated by Republican special interest groups. 

Regardless of which party won the seats in Wisconsin I am disturbed by the money it attracted into Wisconsin.  According to agencies that track political spending the total spent by outside groups on electioneering was around $30 million.  On six seats in the Wisconsin Senate!  In 2010, interests groups spent about $300 million nationwide on races for the U.S. Congress.  That figure is 400% higher than the previous midterm election in 2006.  Projections for 2012 are that independent expenditures will likely top a half a billion dollars.  Much of the money is spent by groups created by wealthy people who want to remain anonymous while influencing the outcome of an election.  In a Democratic system, I think that is fundamentally wrong.  If someone wants to make their case and argue for their positions he/she should also have the courage to do so publicly.  Failing to do so is evidence of cowardliness. 

Additionally, much of what these groups put out is not meant to educate voters on candidates and their records.  It is meant to conceal their true agenda, deceive voters, and amounts to nothing more than a well-orchestrated disinformation campaign.  I am reminded of a campaign like this that occurred in Washington State several years back.  The legislature passed a law requiring employers to retrofit their offices with ergonomically friendly equipment.  The goal was to reduce workplace injuries and reduce the costs of workman's compensation insurance for employers.  Studies indicated that a reduction in workplace injuries would save employers far more than the costs incurred to purchase new chairs and desks and other equipment.  Workers would take fewer sick days and insurance premiums would decline.  Yet, a special interest group, Workers Against Job Killing Rules, emerged arguing that the new regulation would result in an exodus of jobs from Washington to other states.  A fierce campaign was waged and in the end the law was repealed.  The sad part is that there were no actual workers involved in the was a front group for several large employers to deceive the voters through the use of fear tactics over a law they didn't like.  This kind of disinformation campaign goes on every election season in America.  I believe it is a symptom of the dysfunctional state our political system has entered.  The truth doesn't matter anymore, just who can raise the most money and deceive the most people.

Tuesday, August 9, 2011

Friedman, Keynes, and Whatever Comes Next

America's two great political parties have adopted two very different outlooks on fiscal policy.  Republicans have largely embraced the philosophy of Milton Friedman, a staunch libertarian and classic liberal, while Democrats have adopted the philosophical approach of John Maynard Keynes.   

Since Richard Nixon supposedly uttered the phrase 'We're all Keynesians, now' it seems that a great gulf has opened between the two major American political parties.  In actuality, the phrase was coined by the late economist Milton Friedman and later adopted by Nixon after removing the U.S. from the gold standard in 1971.  What Friedman meant was that in some sense all the politicians and economists employed Keynes' economic philosophy that government should spend more in hard economic times and cut back when times got better.  Friedman was a Keynesian himself before developing his own monetarist economic theories in the 1950's and 1960's.  Monetarist theory essentially argues that economic slowdowns can be countered by adjustments in the money supply (or credit markets).  When prices are deflating then an increase in the money supply is necessary and vice-versa when inflation is present.  In plain English this means that easy credit will lead to a growth in demand for products which will raise their prices.  Tighter credit markets will deflate demand and thus tamp down inflation.  This is what the Federal Reserve does when it adjusts interest rates.  Many conservatives have adopted a modified version of Friedman's approach to fiscal policy that focuses primarily on tax cuts.  The theory is that reducing taxes will put more money in the hands of consumers and businesses who will spend and invest it, thus leading to higher rates of economic growth.  This is what has come to be called 'supply-side economics.'

The flip side of monetary policy is traditional Keynesian fiscal policy.  Fiscal policy has to do with the level of taxing and spending done by governments.  The English Economist John Maynard Keynes argued that recessions can be controlled and their effects mitigated through government investment and spending policy.  Reducing taxes, investing in infrastructure, and spending money all have the effect of stimulating demand.  Thus, we refer to a package of government spending as a 'stimulus' package.  President Obama's package in 2009 included all three of these elements.  Keynes believed that economic growth (or demand for goods) needed to be maintained and rising unemployment levels had to be avoided to prevent economies from sinking into depression.  As businesses contracted in weak economies they would layoff workers who would then have less discretionary income, which in turn would lead to a weakening of demand for goods and services.  A downward spiral would begin until some hypothetical floor was reached.  Government, Keynes believed, is the only entity with enough spending power to replace what was lost through contraction.  So government should make up for the reduced spending in the economy even if it required deficit spending to put people to work (or keep them working) until the economy recovered sufficiently.  Then government should reduce its deficits and cut spending levels to bring its budget back into balance.  Rather than seeking a balanced budget over a single year, governments ought to pursue them over a longer time frame, perhaps 7-10 years.  This is what is known as 'demand-side economics.' 

The problem for both of these theories is the same...they only work in 'closed systems.'  The U.S. economic system is far from closed.  In fact, it is global in nature.  Infusing capital (stimulus) into the U.S. economy may accomplish less than expected because the funds don't stay in the U.S. economy.  They are exported to China, India, or wherever the goods being purchased are made.  One exception, however, would be infrastructure investments.  From the supply-side perspective, tax cuts don't achieve the desired effect because those who receive them don't spend the money in the U.S.  A corporation receiving a tax break may build a new factory in Mexico where labor is cheaper, thus removing that money from the U.S. economy.  At least if the government had simply spent it the funds would likely have stayed in the country.  We end up with a situation that both the Keynesians and Friedman's disciples won't like and that is both of them help economic growth in other countries while doing little to promote growth at home.

What we need is to develop an economic model that sees the world economy as an open system, recognizes the limitations of government intervention, yet eliminates political ideology from the equation.  We may also have to accept that much of our nation's growth over the past 30 years has been an illusion, or a bubble.  Real and sustainable growth rates are closer to 2% than 4%.  In other words, this may be the new normal.  

Friday, August 5, 2011

Balanced Budget Requirements: Evidence from the States

Yesterday I ran down some of the reasons why I think a balanced budget amendment to the constitution would be disastrous public policy, even though I think Congress should work hard for a deal that includes new revenues and spending cuts to put the nation on a path to fiscal sanity.  Today, I want to take a brief look at what balanced budget requirements have meant to state governments. 

First, 49 of the 50 states have some sort of balanced budget requirement.  They range from a strict rule that requires adjustments to expenditures during a fiscal year when revenues fall short to rules that simply require the governor to submit a balanced budget to the legislature.  In these latter cases, state rules often allow the state to borrow in the event revenues fall short and some allow the state to carry the deficit into the next year.  Each of these rules has a different fiscal impact on a state's finances.  The rules also may apply only to a state's general fund or to all of its finances.  Whatever the case, states and their governors/legislatures often find gimmicks in order to comply with the rules.  Some states simply move many expenditures 'off budget' and use earmarked tax dollars or matching revenue from the federal government. 

Most small states, especially the poorer southern states, have the strictest rules regarding balanced budgets.  In Mississippi, the governor is allowed to make budget reductions to agencies whenever projected revenue is less than budgeted expenditures.  By law, all agencies must be reduced by 5% before any agency can be reduced by more than that.  This often creates a high level of chaos for agencies dependent upon state funding, leading to periodic layoffs, uncertainty about staff positions, filling vacancies, and adjusting eligibility rules for state services.  Over the past 3 years we have seen our state support cut by 23%, resulting in tuition hikes for students that many can ill afford.  And when revenue increases, state support rarely is restored.  Ask any college student you know when the last time his or her tuition was reduced!  Arizona is another example.  Due to projected revenue shortfalls the eligibility rules for medicaid are being revised so that more than 100,000 people will lose their health insurance next year.  Balanced budget requirements among the states have cost hundreds of thousands of teachers, police officers, firefighters, and other state workers their jobs in recent years.  The number of jobs lost in the states might have been double that if not for the Democrats stimulus package in 2009.  Nevertheless, that money has run out and lacking a remarkable recovery, it is likely states will accelerate the pace of layoffs in the coming year.  Of course, this has the effect of prolonging the recession since laid off workers typically have little discretionary funds to spend.

Some states create multiple for the general fund and one for other things such as federally funded programs, capital expenditures, and other projects.  This second budget is usually not subject to the balanced budget requirement.  This allows the state to finance improvements to its infrastructure and carry the balances forward from year to year, much the way a family may carry the balance of a car loan, credit card, or mortgage forward.

Another way that many states escape the balanced budget requirement is through the creation of special districts.  At present there are more than 34,000 such districts (school, water, power, etc...), many of which have taxing authority.  Altogether there are over 87,500 governmental entities in the United States! 

Of course, revenue declines at the state level also impact city governments and county governments, many of which also have some sort of balanced budget requirement.  These have led many cities and counties to difficult decisions requiring cutbacks to essential services like police & ambulance protection.  In at least one case, a 2 yr old boy choked to death because the fire crew closest to his home was away covering for one closed due to budget cuts.  In another case, the town assessed all residents a $75 fee for fire protection and allowed a resident's home to burn to the ground because he had not paid the fee.  The full story is here

The news is replete with stories of negative effects from budget cuts required by revenue shortfalls due to either an unwillingness to raise taxes or an inability to do so because of rules imposed upon governments.  That is not to say that I think governments ought to have a blank check...just that we ought to consider the real impact on the lives of everyday citizens before slashing budgets and cutting services.  Sometimes a temporary deficit isn't such a bad thing after all.

Thursday, August 4, 2011

Balanced Budget Amendments: A Necessary Evil or Bad Public Policy?

Let me start off by saying I do not oppose balanced budgets in and of themselves. In fact, I think governments ought to strive for a balanced budget whenever possible, particularly in good economic times.  That, however, is where I draw the line.  It is not that I favor vast amounts of government spending...I don't.  I do favor necessary government spending and the maintenance of a reasonable social safety net for the poor, the unemployed, those with chronic medical problems, and the elderly.  As a former hardcore conservative I opposed most of these things...I would argue largely due to ignorance and naivete.  Having studied the effects of many social programs over the past 8 years my views have evolved, though I still consider myself quite fiscally conservative.  To be sure, my definition of fiscally conservative is substantially different than what modern conservatives perceive it to mean.  For me it means that government expenditures and revenues should be as balanced as feasibly possible without doing harm to citizens or the economy.  In addition, I want responsive and responsible government.  Like most citizens, I want to pay as little in taxes as I can...with the caveat that I also live in a civilized society and recognize the necessity of some government services that must be paid for through tax revenues.  I want to live in a decent community with decent roads, good schools to send my daughter to, an efficient system of public transit, high quality medical care, a well stocked public library, and the near absence of crime.  Building that kind of society takes money and elected officials committed to a better world.  So I'll gladly pay the taxes necessary to sustain that kind of world.

Having said all that I ask the question as to whether or not amending the constitution is the right approach to achieving that kind of society?  I don't think it is.  Further, I think conservative efforts to bring about a balanced budget amendment, if successful, will actually be destructive of that end and result in a decrease in the well-being of the entire country.  Several Nobel laureate economists agree with that sentiment.  In a letter to the president they wrote:

"While the nation faces significant fiscal problems that need to be addressed through measures that start to take effect after the economy is strong enough to absorb them, writing a requirement into the Constitution that the budget be balanced every year would represent very unsound policy. Adding additional restrictions, as some balanced budget amendment proposals would do, such as an arbitrary cap on total federal expenditures, would make the balanced budget amendment even worse."
 Part of the problem with requiring a balanced budget is that it removes flexibility on the part of the government to respond to a crisis such as a recession.  In times of recession government revenue drops, sometimes precipitously, as it did in 2008 and 2009.  If government lacked the ability to respond to such crises through increased spending (i.e., stimulus) the result would be disastrous.  Many economists believe that without the nearly $800 billion stimulus package President Obama pushed through Congress in 2009 the United States, and perhaps the world, would have plunged into an economic depression.  During periods of slow economic growth government is the only entity with the ability to infuse the economy with enough cash to prevent a depression.  Many conservatives will respond that the stimulus didn't work but that position is largely ideologically driven and ignores the empirical record.  Hundreds of thousands of teachers, police officers, firefighters, and other public service employees are still working today (as well as shopping, eating out, and paying taxes!) who likely would have lost their jobs had the government not had the ability to respond to the precipitous drop in revenues that occurred in 2008-09.  To be sure, the stimulus did not solve the structural economic problems that led to the Great Recession, nor was it designed to do so.  It did exactly what it was intended to do and that was to make the Great Recession somewhat less severe for many citizens.  If conservatives had their way it might look more like 1933 today than 1937.  I say 1937 because that is the year that FDR concluded that the economic stimulus programs implemented in 1933 had worked and it was time to reduce government spending to bring the budget back into balance.  Roosevelt reduced government spending by some 25% the following year.  The result?  The economy plunged back into recession and unemployment rose by 33%. 

Conservatives will argue, disingenuously I believe, that their balanced budget amendment would have no such effect because (a) it could be overridden by a super-majority vote of 2/3 of Congress and (b) it could be ignored in times of war by a simple majority vote.  In the first case, it is nearly impossible to get 2/3 of Congress members to agree on anything, let alone overriding a constitutional amendment and conservatives know that.  So barring a super-majority comprised of liberal Democrats, the amendment would tie the government's hands behind its back during periods of economic slowdown, deepening the recession and causing unnecessary pain to citizens.  On the second point, the amendment would allow conservatives to fight the wars they love without having to pay for them through higher taxes or reduced spending elsewhere.  It is an all around bad deal for progressives specifically and for public policy in general.  Amending the constitution is not the appropriate way to enact the political preferences of a vocal minority.  Robert Samuelson writes:
The Constitution is the repository of the nation’s basic political principles. This is why it commands public respect. What the Constitution is not (and should not become) is a handbook for the day-to-day operations of government. The fatal flaw of the BBA is that it would take the Constitution in precisely this direction. It not only says the budget should be balanced, but one Republican version says it should be balanced at 18 percent of the economy (gross domestic product). That’s not a principle; it’s an instruction. Why not 17 percent or 22 percent of GDP?

None of this should be taken to mean we don't need to get our fiscal house in order because we do.  But the oft cited analogy to the average family needing to balance its budget doesn't apply for a few reasons.  First, most families don't have balanced budgets.  If they did they would never be able to buy a home, a car, or send a kid to college.  All of these things typically require families to borrow money based on estimates of future revenues, which is a good thing.  If American families didn't do this the economy would be much smaller and unemployment much higher.  Secondly, when conservatives employ the analogy of the average family balancing its budget they usually speak only of the need to reduce spending when revenue decreases.  They never speak of the other side of the equation: increasing revenue.  Ironically, a large portion of the debt conservatives are wringing their hands about is directly attributable to the foolish policies they implemented between 2001 and 2006, as this graph from the Washington Post shows:

Enough said for time I'll take a look at the effect balanced budget amendments have on state & local governments.  Be warned, it's not pretty.