The Eisenthal Report

Comparative Democracy

When the 44th President of the United States takes office this coming January, one of his first meetings with a foreign leader is likely to be with the Prime Minister of Canada; it is possible that the Prime Minister with whom President Obama or President McCain meets will not be the current officeholder, Stephen Harper.

Prime Minister Harper has called a quick and unexpected general election to be held on Tuesday, October 14 - three weeks before the U.S. Presidential election.

I have commented previously on the difference between our approach to national elections, which seem virtually endless, and the approaches of other western democracies - which call elections and have them done pretty quickly. In particular, I commented on Australia's six week national campaign of about a year ago - one which saw a change in Prime Ministers - and contrasted this with our elections, which were still a year in the future.

Now, we may see a more dramatic demonstration of this contrast as either President Obama or President McCain meets with either Prime Minister Harper or Prime Minister (Stephane) Dion early next year.

Of course, we're comparing our Presidential system with the parliamentary systems of Australia and Canada. The parliamentary systems have well-established and well-functioning party mechanisms - perhaps so well-established and well-functioning that they do not allow as much innovation and responsiveness as our system allows.

On the other hand, not only are our allies not in constant campaign mode, but there usually are fewer concerns expressed about the experience of the party leaders who will be running a government if their party wins.

New Budget Brief from The Concord Coalition

The Concord Coalition has released an issue brief analyzing President Bush's budget for the fiscal year that will end on September 30, 2009 - the last budget that President Bush will submit.

According to the Coalition, the Bush budget

remains faithful to the themes advocated by the administration throughout its tenure in office - keep taxes low, allocate higher resources to defense and homeland security, defer a solution to the growing toll of the Alternative Minimum Tax (AMT) and rely on assumptions of future austerity to make the numbers work.

The President's budget projects a five year (2009 - 2013) deficit of nearly $600 billion, but small annual surpluses in the out years of 2012 and 2013. The Coalition points out that this projection is based on at least three questionable assumptions. These are

1. A revenue windfall from the Alternative Minimum Tax (AMT),

2. A sudden drop-off in new funding for the wars in Iraq and Afghanistan (from nearly $200 billion in 2008 to zero in 2010 and beyond), and

3. Annual reductions in domestic discretionary spending beyond 2009.

Under reasonable assumptions, some of which counter the above, the projected five-year deficit rises to $1.8 trillion, with significant annual deficits in the out years.

These deficits will be happening at a time when an aging population will be contributing to a long-term "double whammy" - slowing labor force growth and increased demands for entitlement spending.

When the focus changes to the longer term, the picture becomes quite grim. The Concord Coalition cites a scenario prepared by the Government Accountability Office (GAO), which assumes that current economic and fiscal trends continue: "discretionary spending grows with the economy, entitlements are kept on autopilot and revenues are held at 18.6 percent of GDP, which is roughly the historic level over the past 40 years."

Under this scenario, in less than twenty years, in 2027, Social Security, Medicare, Medicaid, and net interest would consume all revenues - and the deficit would hit 10 percent of the Gross Domestic Product. Ten years later, in 2037, debt held by the public would equal 200 percent of GDP. By 2048, interest costs would exceed the size of today's budget. And by 2053, the "GAO model blows up because the economy is in ruins."

Clinton, Obama, and the American Presidency

The contest between Sen. Hillary Clinton and Sen. Barack Obama for the Democratic Presidential nomination illustrates for this observer what distinguishes the American Presidency from other high leadership positions around the world.

Sen. Clinton certainly has a formidable grasp of the wide range of national policy issues - very possibly more formidable than that of Sen. Obama. The New York Senator is also clearly a seasoned and strong presence on the political scene. She would clearly hold her own - and then some - with friends and adversaries alike. Sen. Clinton clearly has many qualifications for high national office; why then does this observer favor Sen. Obama?

If the government of the United States were organized like that of the United Kingdom - a parliamentary democracy led by a Prime Minister - there is no question in this observer's mind that Hillary Clinton would be the preferred candidate for Prime Minister. Sen. Clinton's skills and experience match closely the requirements for a pure head of government. It is actually not hard to imagine Sen. Clinton in a setting like Prime Minister's Question Time (shown in this country on C-SPAN). The Senator's wide knowledge and tough eloquence would be well-suited to that setting.

The American Presidency is different, however. Its place in our constitutional form of government and in our history demands a different set of skills from that required of a Prime Minister. To be an effective political leader, an American President needs to inspire, to persuade, and to lead public opinion.  Beyond this, an American President exerts moral as well as political leadership - the "bully pulpit" as Theodore Roosevelt put it. And a President leads at times of great national sorrow. One remembers Ronald Reagan at the time of the Challenger disaster in 1986; one should try to imagine Sen. Clinton and Sen. Obama - and Sen. McCain, for that matter - in that role.

Certainly, the President of the United States needs more than airy inspiration to be an effective leader, but without leadership qualities, the President ends up as head clerk of the government. This observer is confident in Sen. Obama's grasp of and judgment on substantive policy issues, but he brings something even more important than this - the ability to persuade and to lead.

Busy Week

The past week has been a busy one in Washington, Boston, and closer to home.

In Washington, Congress enacted an omnibus non-defense appropriations bill for the current fiscal year - well over $500 billion. This was a week after Congress approved a more than $400 billion defense bill. (After defense and non-defense appropriations, almost all that is left is debt service on the federal debt.

In Boston, the Commission on Corporate Taxation released its report - and Governor Deval Patrick gave testimony in support of his proposal to license three "destination resort casinos" in Massachusetts.

This observer has not yet read either release carefully yet - but expects to do so soon.

Congressional Crunch

This morning's Washington Post has a story about Congress' agenda for the next three weeks - and that agenda is a full one.

Before Christmas holidays, Congress must consider 11 appropriations bills (out of 12 total) that have not yet been passed for the year that began October 1 as well as the AMT patch that was passed by the House of Representatives in November. Other legislation includes a major energy bill, restrictions on President Bush's warrantless wiretapping program, and a number of expiring tax credits.

Legislative deliberations will be complicated by the Presidential race. With the Iowa Caucuses and New Hampshire Primary barely one month away, four Democrats - Biden, Clinton, Dodd, and Obama - and one Republican - McCain - will be absent from Washington for most of the next three weeks. Although the United States Senate has a nominal 51 to 49 Democratic majority, the absence of these five senators means that the Republicans will have an effective 48 to 47 majority on many votes - and 49 to 46 majority on some national security issues as Sen. Joseph Lieberman (I - Connecticut) joins the Republicans on those issues.

The AMT legislation has particular urgency. If Congress decides to change the tax code for 2007 at this late date, the Internal Revenue Service could be delayed as much as seven weeks in processing tax returns.

New England Economic Outlook

Earlier this week, the New England Economic Partnership released its economic forecast for New England over the next few years.

In general, NEEP projects slower growth for New England than for the nation as a whole over the next four years. NEEP projects 2.2 percent annual growth in the region's economy through 2011, as compared with 2.7% for the nation over the period.

In looking more closely at the data, it becomes apparent that it is difficult to generalize about New England's prospects as a region - except perhaps that the whole region is particularly vulnerable to the effects of high oil prices. The region has pockets of high growth - New Hampshire - and areas of particularly low growth - Maine and Vermont. Southern New England is expected to come in somewhere between New Hampshire and the rest of northern New England.

The different parts of New England face different pressures. Massachusetts is constrained by its very economic success. In 2005, Massachusetts had the sixth highest gross state product per capita in the country. Massachusetts is a high wage - and high cost - state. This fact has been one reason that a large number of younger people - particularly college graduates - have been leaving the state in recent years. Even without high oil prices and a weakening housing credit market, Massachusetts faces some limits on how fast it can grow economically. While there are limits on economic growth in Massachusetts, it is not clear that there are limits on economic contraction - particularly if energy prices continue to spiral and the housing credit market continues to weaken.

Maine - separated from Massachusetts by only 16 miles of New Hampshire coastline - is a very different case from Massachusetts. In 2005, Maine was 43rd in gross state product per capita. Maine is a lower wage state - but not necessarily a lower cost one. Transportation costs factor into Maine's economy more severely than they do in the other five New England states. While real estate costs are not the factor in Maine that they are in southern New England, energy costs certainly loom large there. Maine's economy, with its relative reliance on manufacturing and tourism, is also more vulnerable to national economic swings.

Rhode Island faces different set of challenges from Maine and Massachusetts. In the short-term, the state's economy faces a significant challenge related to a projected state budget deficit. The Rhode Island state budget is around $7 billion; in an economy of around $45 billion, the state government makes up a little less than one-sixth of the state's economy. By contrast, in Massachusetts, the state budget is around 8 percent of the gross state product. Rhode Island concentrates many services at the state level that would be local or regional in other states. This is related to the fact that Rhode Island is in essence the size - in population and land area - of a large city. Thus, the Ocean State faces particular challenges related to its size.

AMT Patch Moves Toward Enactment

The U.S. House of Representatives yesterday passed a bill that would revise the provisions of the federal Alternative Minimum Tax (AMT) so that individuals who do not pay the tax currently will not need to as their incomes rise.

The AMT was originally created to insure that all taxpayers - even the most wealthy - paid some amount of income tax. The difficulty in recent years is that the income threshold above which the AMT is paid has remained steady as incomes have risen. The AMT has become increasingly a tax on middle class Americans.

The cost of this measure to the federal Treasury - $73.8 billion - is to be offset under the House measure by tax increases on private-equity and hedge fund managers. Such an offset is required under Congressional PAYGO rules; these rules require that any increase in spending or decrease in tax revenue be offset by a corresponding spending decrease or revenue increase. The rules are designed as a deficit reduction measure.

Observers, including Sen. Max Baucus (D - Montana), believe that the AMT reduction will pass in the United States Senate, but not the corresponding tax increases. The Bush administration has also announced that it will veto the tax increase.

Passing the AMT reduction but not the corresponding tax increase would directly contradict PAYGO rules. This would make future compliance with PAYGO much more difficult, as the Concord Coalition points out - thus weakening or removing an important deficit fighting tool.

Rising Oil Prices = Massive Wealth Transfers

This morning's Washington Post has an article that details how rising oil prices are creating a massive and sustained transfer of wealth around the world.

According to the Post, the wealth transfer amounts to between $4 billion and $5 billion per day - or more than $2 trillion per year. The winners are fairly obvious: Saudi Arabia, Iran, Venezuela, Alaska. The losers are basically the rest of the world, including this country for the most part.

About this country, the Post writes that

The rising bill for imported petroleum lowers already anemic consumer savings rates, adds to inflation, worsens the trade deficit, undermines the dollar and makes it more difficult for the Federal Reserve to balance its competing goals of fighting inflation and sustaining growth.

What is different about this price rise is that it is more sustained than previous increases, which were mostly spikes in prices. As the Post writes,

With crude oil prices nearing $100 a barrel, there is no end in sight to the redistribution of more than 1 percent of the world's gross domestic product. Earlier oil shocks generated giant shifts in wealth and pools of petrodollars, but they eventually faded and economies adjusted. This new high point in petroleum prices has arrived over four years, and many believe it will represent a new plateau even if prices drop back somewhat in coming months. "There's never been anything like this on a sustained basis the way we've seen the last couple of years," said Kenneth Rogoff, a Harvard University economics professor and former chief economist at the International Monetary Fund. Oil prices "are not spiking; they're just rising," he added.

U.S. House Foreign Affairs Committee Approves Armenian Genocide Resolution

CNN reports that in a narrow vote, the U.S. House Foreign Affairs Committee a short time ago approved House Resolution 106, which recognizes the Armenian Genocide.

This vote, with 27 members in favor and 21 opposed, came about despite the opposition of President Bush, Secretary of State Condoleezza Rice, and all living former Secretaries of State. The President and other foreign policy figures based their opposition on the damage passage of the resolution would do to relations between the United States and Turkey. Indeed, Turkish President Abdullah Gul has said explicitly that passage of this resolution would damage the bilateral relationship.

In his remarks today, President Bush said that

We all deeply regret the tragic suffering of the Armenian people that began in 1915. This resolution is not the right response to those historic mass killings.

As CNN points outs, this "resolution arrives at a particularly sensitive juncture in U.S.-Turkish relations. The United States has urged Turkey not to send its troops over the border into northern Iraq to fight Kurdish separatist rebels, who have launched some cross-border attacks against Turkish targets."

TER has been following the issue of the Armenian Genocide intensively for the past two months, with a focus on how it has played out in Massachusetts and within the Jewish community.

According to Rep. Adam Schiff (D - California), House Resolution 106 now has 226 co-sponsors out of 435 House members. If all co-sponsors vote for the bill, it will pass the House.

Truth to Power: A New Blog

TER takes note of a new blog: Truth to Power.

This is the blog of a friend: Kathleen Conley Norbut, who is - among other things - a member of the Board of Selectmen in the Town of Monson, Massachusetts. Monson is - like West Brookfield, where I live - in the hilly borderland between central and western Massachusetts.

If the Patrick administration gets its way, this hilly borderland may be the home of one of the three proposed "destination resort casinos." Kathleen has already been an outspoken leader against the approval of these casinos - and particularly against the casino that might go into the nearby community of Palmer, Massachusetts.

This observer looks forward to more Truth to Power.