Monday, May 28, 2012

Preparing Plan B...  

While I am seriously concerned that the Republican mindset is simply about power, the members who seem to be driving the bus having given some signals to indicate what a broad Republican victory this fall might mean.

Curiously, in a few ways, I might support their goals.

We can, I think, forget about the deficit reduction as likely. The goal for the right is to cut programs they hate and taxes. The first is a trivial amount (shutting PBS down won't dent the budget), and they have shown little regard for other supposed spending targets. 

One of which is, (ahem), the farm program.
A target price supporter discounted the idea that Tea Party House members would rebel against the notion of government set prices.
“It never comes up with them,” one said.  
Key members of the freshman class are seen as allies.
Reps. Martha Roby (R-Ala), Austin Scott (R-Ga.). Steve Southerland (R-Fla.), Steven Fincher (R-Tenn.), Renee Ellmers (R-N.C.), Alan Nunnelee (R-Miss.), Steve Palazzo (R-Miss.), Rick Crawford (R-Ark.) and Robert Hurt (R-Va.) are seen as in the peanut camp.  [More]
This is just one example of unwillingness to cut anything other than stuff outside a your own district. This especially holds true for defense. Meaningful reform of major entitlements/defense look pretty low probability to me right now.
“The whole point here is to try to get some economic growth, job creation, to get out of this recession,” Kyl told POLITICO. “Why would we risk going backward with policy that even CBO says would be the wrong prescription right now?”
Arizona’s other senator, John McCain, the top Republican on the Armed Services Committee, dismissed Reid’s comments as “unfortunate.”
“I think it makes it pretty clear what Senator Reid doesn’t understand are the devastating effects on our nation’s security that Secretary Panetta has so graphically described,” said McCain, a Vietnam veteran and retired Navy captain.
“I wish [Panetta] would take a trip down to 1600 Pennsylvania Ave. and tell the president we cannot afford this from a national security standpoint,” McCain added. “That isn’t John McCain’s opinion; that is Leon Panetta’s opinion.”
Sen. Lindsey Graham, an Air Force reservist, chimed in as well: “Gutting the military should be the last thing we want to do.” [More]
Keep in mind this was the deal they agreed to last summer. Which makes me pretty sure they will renege on any campaign-promised spending cuts in that huge block of the budget.

On the other hand, I don't think I can even guess how many tax targets they will aim for. And hit. Revenues will almost certainly drop to great cheers, even as corresponding cuts bog down. And a new war somewhere will suddenly become more feasible, along with some costly bullets.

Simple history tells us Republicans are bigger spenders and deficit producers, and especially unfunded spending. While they have neatly convinced many that Obama has been a big spender, he pales in comparison to Bush, and Reagan. They have, however failed to convince people who can do the math.


 Obama has indeed presided over the slowest growth in spending of any president using raw dollars, and it was the second-slowest if you adjust for inflation. The math simultaneously backs up Nutting’s calculations and demolishes Romney’s contention. The only significant shortcoming of the graphic is that it fails to note that some of the restraint in spending was fueled by demands from congressional Republicans. On balance, we rate the claim Mostly True. [More]
I was as surprised by these numbers as critics, but being a Keynesian, I support government spending increases during recessions, but not expansions. Thanks largely to the wind-down of the Iraq war and, in fairness, a less than cooperative Congress, the Obama "splurge" simply never happened.

My point is not to continue the did-too/did-not charges, but to estimate what a Republican sweep of power might mean for spending. Romney gave us a hint, I think in a recent interview with TIME.
Halperin: I want to get to a lot of those, and let’s go to spending, which is a big thing for you, one of the bases of comparison – you say you’d cut spending a lot more than the President has.  And like most governors I know, you can get down in the detail.  A lot of people don’t know that about you; you can really get your arms around a policy issue and go deep, so let’s talk about spending.  You have a plan, as you said, over a number of years, to reduce spending dramatically.  Why not in the first year, if you’re elected — why not in 2013, go all the way and propose the kind of budget with spending restraints, that you’d like to see after four years in office?  Why not do it more quickly?
Romney: Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%.  That is by definition throwing us into recession or depression.  So I’m not going to do that, of course.  What you do is you make adjustments on a basis that show, in the first year, actions that over time get you to a balanced budget.  So I’m not saying I’m going to come up with ideas five or ten years from now that get us to a balanced budget.  Instead I’m going to take action immediately by eliminating programs like Obamacare, which become more and more expensive down the road – by eliminating them, we get to a balanced budget.  And I’d do it in a way that does not have a huge reduction in the first year, but instead has an increasing reduction as time goes on, and given the growth of the economy, you don’t have a reduction in the overall scale of the GDP.  I don’t want to have us go into a recession in order to balance the budget.  I’d like to have us have high rates of growth at the same time we bring down federal spending, on, if you will, a ramp that’s affordable, but that does not cause us to enter into a economic decline. [More][My emphasis]
Another way of putting this is expressed well by David Frum, a conservative heretic whom naturally I read. "We're all Keynesians during Republican administrations." Romney is at least smart enough not to try drastic cuts while the recovery is still struggling. The problem is while I agree with this, Congress may force just enough reductions to slow us to a halt, or alternately, after getting back to 4% growth, decide deficits don't matter again.

Where is all this leading me? Well, in discussion with my family this weekend, it dawned on me there are some things we could anticipate in a Romney win that would allow us to better cope during the ensuing administration.
  • My taxes will likely be lower than otherwise. Thanks to $6 corn, etc. I'm in the coddled sliver of 1%. We'll get ours first. And no, I won't be creating any jobs. In fact, I will be investing in technology that lowers labor needs (autonomous chainsaws, 600 hp.wheelbarrows, etc.) But given where demand will go, I won't be expecting big sales surges.
  • I think it puts a real horizon on low interest rates. I'm not too sure how fast the bond market will respond, but it could be faster than I think, raising interest rates despite Fed actions to the contrary. So my long-standing bias against piles of cash will be at least mitigated by seeking protection from interest costs. Sooner or later we'll have to inflate this debt, but the time delay for interest rates could be bigger than I imagine.
  • The economy could plunge (see also: UK), but more likely meander back into recession, in my best guess. The right has shown little finesse in fiscal policy and our delicate balancing act to encourage our fragile growth will succumb to policy lurches like SNAP cutbacks, unemployment cutoffs, and more government layoffs - especially at the state level. Meanwhile, tax cuts for the wealthy will have minimal stimulative effect on consumer spending, but could fuel asset inflation significantly. This could, in turn, keep farmland price growth strong, even as commodity prices stagnate or decline.
  • The effect of the resulting deficits will be hard to predict politically. Given the intransigence of the right on revenue increases (taxes), and the simultaneous reluctance to truly reform health care - which is THE problem - they may just be ignored as long as we remain the least ugly currency and can attract the immense hoard of free-floating cash in the world.
  • One sure thing is the end of health care reform for a while. Even so, the numbers on that problem might force even reluctant Republicans to try something. I just can't see them cutting off their largest demographic - the elderly - with any serious Medicare decreases. As for Medicaid, we too often forget it's increasingly about nursing homes, not just welfare moms/children. (Interesting note on this problem: it may not be enough to exhaust Mom's assets to qualify her nursing home costs for Medicaid coverage. Junior's assets may have to go as well.) One thing seems likely, large increases in the uninsured.
All of this speculation is worth the paper it isn't written on, of course. But the one scenario I think has the lowest possibility is a realistic long-term grappling with the deficit-causing problems, unless the economy is roaring and tax revenues growing by November, allowing some funds to actually be used to address the deficit.

But in that case, Obama is more likely to win.

As for farm prices, I think soon we'll suspect, at least, the yield curve has been altered by climate change, and assumed yield growth will be re-thought. We may realize our supply issues are real after a couple more below-trend yields.

So be lucky with rain, but avoid floods, stay in the 1%, don't have children/grandchildren to put through college or expect to have jobs for, don't lose your health or health insurance before 65, and you should be fine.

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