Morning Jolt: Obama’s State of the Union likely to have defiant tone

25 Jan 2015 | Author: | No comments yet »

Kudlow: Why Obama doesn’t get common sense economics.

He was so puffed up, with such a bristling sense of self, that it was hard to believe this was the same guy who spent the last year clenched like a fist, beset by ISIS, beheadings and Ebola, shunned by his own party and slammed by the other party in the fall election. President Barack Obama last week proposed raising taxes on the rich in order to fund programs that will benefit the middle class. “The notion … that in order for some people to do better, someone has to do worse is just not true,” GOP Sen.When you strip away all the layers of cockiness, preachiness and delusion in President Obama’s 2015 State of the Union address, you find more cockiness, preachiness and delusion underneath.A recent report by anti-poverty organisation Oxfam revealed that, based on data from the Credit Suisse Global Wealth Datebook 2013 and 2014, and the Forbes’ billionaires list, much of the world’s wealth is in the hands of just 1% of the world’s population.Liberals have been waiting to exhale for more than six years, and Barack Obama – the ultimate in noncommittal Problem Boyfriends – finally gave them that chance this week.

Oxfam went on to say that those in this top tier had seen their share of wealth increase from 44% in 2009 to 48% in 2014 and is poised to reach 50% in 2016. His awakening to the fact that millions of American families have been excluded from the slowest economic recovery since just after World War II begs only one question: What took him so long?

Even in the House chamber, surrounded by hundreds of people and watched by millions, he seemed to delight in his detachment as he laid down his own markers to drive up his own numbers. Many people, if they are lucky enough to find full-time work, don’t receive anywhere near the same level of compensation or benefits that they once had, due to the non-prosperous economic bounce.

But the president noted that America’s richest have been doing better for years, while middle class wages have stagnated. “Will we accept an economy where only a few of us do spectacularly well?” he asked. He praised his own “smarter kind of American leadership” after being caught flat-footed by the rise of the most powerful terrorist quasi-state in history. This phenomenon of widening inequality has been particularly evident in emerging economies such as South Africa and Brazil which reflect among the world’s highest Gini coefficients. Middle class incomes have been stagnating since the 1970s, and it’s a problem that economists and observers on the left have been talking about for years. He talked of respecting “human dignity” without mentioning the 200,000 dead (including more than 10,000 children) in Syria — which will be remembered as Obama’s Rwanda.

On the one hand, an empirical look at this year’s address indicates that Obama is actually focusing more attention on foreign policy than ever before. But hang on a minute: Where has that guy been, anyway, and who was that other, somewhat less inspiring person who occupied the Oval Office between approximately Jan. 20, 2009, and this week? Also below the “good news” of the jobless rate, the release gets around to mentioning that the labor force participation rate “edged down” by 0.2 percent, to 62.7 percent, a 36-year low.

But we can talk another time about how government has long been at work redistributing income to America’s wealthiest citizens, and how a change in focus to redistribute wealth downward from the top would be welcome indeed. While this manifestation has largely been engineered in the developed world through tax regimes designed to attract the wealthy resulting in tax havens for the rich, it has not been so for the less-developed and emerging countries where this has arisen largely from perpetuation of historical imbalances. After the dire and arid political slog of the past several years, the lame-duck SOTU of 2015 was a veritable cornucopia of big ideas: Free community college for all! Now it’s easier for him to see who he is and where he stands vis-à-vis the Republicans because he doesn’t have to make intellectual compromises or negotiate the jagged shoals of the old-school Democratic Party.

Bob Menendez compared to “talking points that come straight out of Tehran” — as the centrifuges spin and new Iranian nuclear facilities are being constructed. No matter how you slice it, when someone goes from making $80K to making $60K — cuts in pay upon new hires are not captured by the DOL statistics — it’s very hard on a family. There’s certainly financial security to be found in marriage, and there’s evidence that Americans are delaying marriage because they don’t think they can afford it.

Presidential leadership on defense and foreign policy usually consists of preparing Americans for the unsought but necessary struggles of a dangerous world. Some economists will argue that an increase in wealth among the rich is better for all as investment and spending by the rich has a trickle-down effect that results in job creation and better livelihoods for the poor. President Obama feels he will be able to finally float above it all, more singular and more interesting and more separate, debating enlightened progressive topics like criminal justice reform and child care infrastructure while those off-kilter conservatives fight it out for 2016. While it may have made a good sound bite for the President to use the metaphor of “turn the page,” most Americans would like to go back to the page where their compensation and job security were higher . However, the counter argument is that the wealthy spend their money largely on goods and services that disproportionately benefit them and thus entrenching their position which serves to widen the gap even further.

It’s common economic sense, but University of Chicago economist Casey Mulligan states this in a simpler way: Growth starts with investment and ends with consumer spending. They also have the added advantage of being able to minimise their effective tax rate through often much lower capital gains taxes, elaborate tax avoidance schemes and more often than not, through their ability to influence policy makers. This pattern supports the generally accepted notion that presidents tend to devote more attention to foreign policy the longer they stay in office — that over time, presidents retreat into foreign policy and spend less effort on domestic affairs. A rational energy policy that looks toward the long-term future and addresses the climate crisis, instead of the build-a-pipeline-and-let-our-grandkids-suck-it approach! Rhetoric absolutely matters, in politics as in life, and before I go all Cassandra on you, let me be clear that I’d rather hear the president say things like that than not.

He only began to really brag on the economy Tuesday night, when he felt certain of the numbers, rather than before the midterms, when it might have helped his party. We no longer live in a society that effortlessly produces middle class jobs; unless and until that issue is resolved, all the targeted social programs in the world will be mere Band-Aids. However – and you knew there was a “however” coming, didn’t you? – Obama’s bravura Jimi Hendrix solo from the other night was more than a little puzzling, and requires some decoding.

The republic may be crumbling, but at least the economy appears to be on the mend after more than five years of anemic “recovery.” Rather than encouraging more economic growth, the president on Tuesday outlined a policy agenda certain to hobble it – again. Obama’s new plans, which he knows will not be considered by Congress, are examples of his misguided policies, which add to the federal government’s coffers and problems. This is especially true in a president’s second term; not only has the low-hanging fruit been plucked already, the pressure to win votes and placate domestic constituencies diminishes and lame duck-syndrome sets in.

Why all these quasi-utopian visions after years of nothing – and why now, after a crippling midterm defeat, with the shot-clock on his presidency running down into the single digits? As one top White House official says about the Obama inner circle, “They’d rather be right than win.” He’s alone on the stage — always his preferred setting.

These plans include raising $320 billion in new taxes toward financial institutions and all who contribute to them in the form of investments and savings plans. So it is such that many tax regimes continue to be skewed in favour of the rich with a focus on incentivising the owners of capital to take risks and create wealth. As resistance to a president’s domestic policy grows, foreign policy becomes more attractive, given that he can act in a far more unfettered fashion there. This SOTU feels like an “overdetermined” event, a concept from political theory meaning something caused and shaped by many different factors, which may be disharmonious or contradictory.

The U.S. gross domestic product grew nearly 3 percent last year, accelerating its pace from a crawling 2 percent annual growth rate to something like a slow walk. My guess is that this speech and its agenda were both heartfelt and calculated, both an attempt to get us to gaze toward the far horizon and an attempt to put the Republicans on the wrong foot next year. Historically speaking, for the U.S. economy to really deliver on more jobs and higher wages, annual GDP growth needs to be closer to 4 percent, and employers should be hiring 300,000 to 400,000 workers a month, rather than the current average of 250,000. In the words of Margaret Thatcher, “No one would remember the Good Samaritan if he only had good intentions; he had money as well.” What we know is that wealth itself is not a finite construct and that by having one small section of society that is richer than the majority does not necessarily detract the ability of society to increase the size of the pie. The inheritance tax, or “death tax” as it is popularly referred to, would be higher than it has ever been for families who are bequeathed property or savings.

Finally, over the course of their administration presidents simply become more comfortable with setting foreign policy as they gain more experience in handling international diplomacy. Despite all this, President Obama has concluded the time is right for a $320 billion tax increase to expand existing federal programs and create new ones. Perhaps because of Obama’s confrontational tone, many (both supporters and critics) found the speech’s agenda to be “boldly progressive” or “unabashedly liberal.” It was different and smarter than that. But Obama’s mixed and troubling record of official deeds stands in sharp contrast with the high-flying, big-picture rhetoric of that Throwback Tuesday speech. As they gained more aptitude at handling the instruments of international power it was natural for them to dedicate more of their time and effort to this policy area.

Additionally, there is a new tax proposed for those who have 529 College Savings Plan, which is the only hope many middle-class parents have to help their children afford higher education. Ironically, a huge part of Obama’s base—police officers, firefighters, teachers—might suffer a serious depreciation of pension-fund stockholdings.

While the difficulties in the Zimbabwean economy over the past decade or so have seen some become wealthy over short periods of time by exploiting the inefficiencies and anomalies of the economy, the poor continue to have stagnant or declining real incomes. The plan would cost $60 billion over 10 years to cut tuition that is practically free in most states anyway, greatly increasing demand on already overcrowded community colleges.

Hell, we can go further than that: Let’s assume that Obama means what he says (insofar as any politician ever does), that he feels immensely frustrated with the political paralysis of Washington and hopes to seize the moment to make one last impression on American history before retiring into several decades of overpaid foundation work. Put another way, GOP leaders might accept taxes on consumption by the wealthy (say, by limiting the mortgage deduction for second homes), but they won’t support additional taxes on savings and investment. Thrilled to sidestep the press, he felt liberated enough, even as Yemen spiraled, to go on YouTube and make his case to the appealing GloZell Green, a YouTube star wearing glowing green lipstick who got famous eating cereal out of a bathtub.

The ultimate result will hence be sluggish economic growth for as long as there isn’t a robust and thriving middle class that drives demand and supports industry. Let me see if I can ventriloquize without mockery: It’s amazing what Obama has been able to accomplish, given the level of racial hatred, paranoid bile and short-sighted obstructionism from his political opponents. The last is particularly important because entrepreneurs and small businesses owners are the ones who are doing most of the real hiring in this economy.

Obama has undeniably been the target of poorly disguised or undisguised racism, and the target of a scorched-earth Republican strategy of total non-cooperation pioneered under Bill Clinton. Regarding those evil 1 percenters, according to the Tax Policy Center, the top 1 percent of Americans paid 33.4 percent of their expanded cash income in federal taxes in 2014. That latter portion results mainly from GOP panic over its aging, declining and entirely white voter base and didn’t have much to do with Obama’s parentage or skin color.

But the combination has been toxic, and during his first term Obama seemed perpetually surprised to learn that congressional Republicans’ only mission was to make him look bad in every way possible, up to and including not ever quite being convinced he was a real American. He didn’t get to the point Bill Clinton did, where he had to insist he was relevant, though last summer, some of his frustrated hopey-change-y acolytes talked about having an intervention with the rudderless president. One can argue that the GOP’s ideological terror tactics affected White House policymaking in all sorts of ways, and consistently put Obama on the defensive.

But others argued against it, pointing out that, while Obama might not have the presidency that was giddily anticipated, during the 2009 tulip-craze phase, he was doing what he wanted. This suggests that foreign policy is clearly not a high priority for Barack Obama in comparison to his predecessors — or at least that he prefers to focus public attention on domestic concerns.

But was it Republican persecution that led Obama to entrust the financial system to a slightly different constellation of the bankers who had wrecked it in 2008? Chuck Schumer argued, “When Democrats focused on health care, the average middle-class person thought, ‘The Democrats aren’t paying enough attention to me.’” Obama’s “middle-class economics” seems responsive to that critique. That requires leadership from all sides, which must acknowledge the will of voters who, in November, sent the White House a clear message: Work with Republicans and carve out a middle ground.

Marco Rubio’s book “American Dreams”; or listen to Mitt Romney’s recent speech at the Republican National Committee’s winter meeting; or look at the website for Jeb Bush’s Right to Rise PAC. All of these prospective nominees argue that economic growth, while necessary, is not sufficient; that the cultivation of human capital is essential to individual and national success in a globalized economy; and that government has an important role in promoting equal opportunity. This is the president’s version of events, pretty much: Now that we’re notionally out of recession and not exactly at war in Iraq and Afghanistan (although not exactly out of it either), it’s time to think big once again about shaping our destiny as a nation. So if you’re making $100,000 a year and paying $25,000 at the 25 percent bracket, your tax cost drops to $15,000 at the 15 percent bracket—that’s a $10,000 savings. Obama rode into office was on the back of a whopping economic crisis and an unpopular war, and his responses to both were remarkably timid, at least compared to what many or most of his supporters had hoped for.

This anticipates my next hypothesis, but one way to think about what happened is that Obama learned fast that in the current dispensation of power he had no choice except to leave the spooks and generals and plutocrats in charge of their own affairs. Or, more likely, that he came into office knowing that already, because the nature of a political education is to learn who’s really holding the knife and slicing the butter. 3.

This speech was his feeble act of political protest against the status quo, if not empty political theater designed to mollify disgruntled liberals so they’ll come back for more. I am highly susceptible to this genre of explanatory theory, but this one’s overly simplistic and does not cover all the peculiarities of Obama or his era. Obama can be a deeply sincere person with whom I have areas of agreement and disagreement, who wanted to work a damaged system as best he could in the interests of democracy and other noble causes, but who found out the system was too dysfunctional for that. If nothing else, this is an ingenious and idiotic combination of all four preceding hypotheses: Too incompetent, too hamstrung or too persecuted to pursue his dream agenda over the last six years, Obama now uses the dying moments of his presidency to sock-puppet Hillary into the firebrand progressive he never was.

Frum appears torn between the conviction that this imaginary Frankenstein maneuver is bad politics (because any suggestion of “tax the rich” policies makes him uncomfortable) and his pundit’s delight at reducing an ideological division within the Democratic Party to a soap opera of warring personalities and feuding dynasties. Obama will go down in history as the most maddening and enigmatic of modern presidents, a figure whose symbolic importance far outweighs his accomplishments.

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