President Obama is going through one of the periodic rough patches of his presidency. From the collapse of his campaign against the automatic spending cuts in the “sequester” to the failure to pass universal background checks for gun purchases, the president seems to have lost the mojo that carried over from his election victory last year.

Now, he needs to get his juice back amid speculation he’s already a lame duck and mounting criticism of his handling of the civil war in Syria, plus renewed examination of the death of four Americans at the U.S. consulate in Benghazi last year.

I believe the president must do four things to delay his lame-duck status and cement his legacy.

Push again and maybe again to eliminate the gun show loophole. The compromise bill sponsored by Senators Pat Toomey (R-Pa.) and Joe Manchin (D-W.Va.) fell six votes short of the 60 votes needed to overcome a filibuster. One of those “no” votes came from Senate Majority Leader Harry Reid (D-Nev.), who voted against the bill to allow it to come to the floor again. (I don’t get it, either.)

Republican Senators Jeff Flake of Arizona and Kelly Ayotte of New Hampshire may change their votes, so there may now be 58 votes for Manchin-Toomey. The president and his supporters should beg, plead, or twist arms to secure the other two votes and get it through the Senate. (The House, of course, is another story.)

President Obama meets with top economic and legislative advisers. Official White House photo by Pete Souza.

Work behind the scenes to help Senators put together a passable compromise on immigration reform. Let senators like Marco Rubio take the lead but signal you’ll be open to tougher security provisions to help get a bill through a Senate filibuster and the House, where the nativists in the Republican Party are strongest. Again, this is a good place for the president to “lead from behind,” keeping his fingerprints off the final bill for tactical purposes. He’ll get credit for it, anyway,

Focus on implementing the Affordable Care Act and financial reform.  Obamacare and the Dodd-Frank financial reform act, passed in the two years the president had a Democratic Congress, are likely to be the cornerstones of his legacy, but successful implementation is critical. I’ve already pointed out some concerns about Obamacare’s rollout. And regulators are still writing rules that Congress dumped in their laps in the overly complex Dodd-Frank Act. Some of them are quite tough, which is why banks are mounting yet another big lobbying effort. The president should encourage his regulators to stand firm while sweating more of the details on health care reform.

Don’t let Syria disintegrate.  As I’ve written here, Syria is a big mess, and there are no good solutions. But I think the president’s bottom line (or red line, if you will) is to keep the country from falling apart or triggering a regional war. That will mean helping control the flow of refugees, probably arming some of the rebels, and perhaps getting NATO (not U.S.) troops into limited—and I mean limited– military action. President Obama doesn’t want to be known as the president who lost the Middle East on his watch, but he’ll have to take some steps to prevent that from happening.

I don’t think President Obama will be remembered as a great or near-great president. But to be considered a good one, he’ll have to successfully complete his big legislative initiatives and also make sure the things he’s already accomplished will last beyond his second term. Of such successes are presidential legacies made.

Following his defeat over legislation that would close the “gun show” loophole; stalled immigration reform, and a setback over FAA funding in the automatic spending “sequester,” President Obama is facing a torrent of media criticism that he’s lost his “juice.”

And indeed the president has gone into one of his periodic funks, where he seems to retreat into a cocoon before emerging aggressively, as he did in September 2011, following the debt ceiling debacle.

This blog has repeatedly criticized this president’s leadership—the complaints about “detachment” and “aloofness” are justified. And so is his apparent lack of interest in follow-ups and “sweating the details.”

But now, he’s up against a stone wall of Republican intransigence. Just six months after his comfortable reelection, when the GOP was supposed to do some serious soul searching, congressional Republicans have dug in even deeper and appear determined to never let him get his way.

In a revealing piece last week in Politico, Jake Sherman wrote of a “House in Chaos”:

The House simply isn’t interested in the agendas being pushed by the president and Democratic Senate. Most Republicans aren’t looking for a big legislative push on gun control. GOP leaders are skeptical that they can arrive at a framework to negotiate a budget agreement with Senate Democrats. And tax reform and an immigration overhaul, while broadly supported, are still seen as long shots.

The biggest stumbling block, Sherman wrote, is the Tea Party faction, “stiff ideologues who didn’t extract any lesson from Mitt Romney’s loss and are only looking to slash spending and defund President Barack Obama’s health care law at every turn.”

Is it any wonder the president has stopped talking to House Speaker John Boehner?

House Republican leaders give press conference in April. Photo: Flickr Creative Commons/republicanconference.

And though the Senate looks more amenable to bipartisan compromise, leadership there is also playing hardball, as Paul Brandus reported in The Week:

…Senate Minority Leader Mitch McConnell — whose most fervent hope was that Obama would be a one-term president—now knows with absolute certainty that Obama will be gone in three-and-a-half years.

In fact, the Kentucky senator has less incentive to deal now than ever before, because there’s a good chance that Republicans will win the Senate next year.

McConnell, of course, is running for reelection in 2014 and doesn’t want to face a Tea Party primary challenge.

Then there are the Republican presidential hopefuls for 2016—Senators Rand Paul, Marco Rubio, and Ted Cruz. Rubio already has stuck his neck out for immigration reform, so he’ll have to shore up his base on everything else. And Cruz especially, but also Paul, have turned obstructionism into an art form.

Am I being unfair? Listen to what Sen. Pat Toomey (R-Pa.) said after his proposed expanded background checks bill failed to get 60 votes:

“In the end it didn’t pass because we’re so politicized. There were some on my side who did not want to be seen helping the president do something he wanted to get done, just because the president wanted to do it…”

Just because the president wanted to do it. Doesn’t that say it all? If President Obama supported Medicare vouchers, tax cuts for the top 1% and allowing prayer in school again, he might have trouble getting 60 votes in the Senate.

The truth must be told: A huge number of Republican voters simply hate this president with a passion and they would rather lose than give him any victory. You’re never going to win over people like this, no matter how many cocktail parties and make-nice dinners you throw. The president needs to accept that and act accordingly if he wants to salvage his second term.  

President Obama was on the defensive during much of Tuesday’s White House press conference, but he pushed back at NBC’s Chuck Todd’s question about worries over implementation of the Affordable Care Act.

…For the 85 to 90 percent of Americans who already have health insurance, they’re already experiencing most of the benefits of the Affordable Care Act even if they don’t know it.

So all the implementation issues that are coming up are implementation issues related to that small group of people, 10 to 15 percent of Americans,..who don’t have health insurance right now.

And what we’re doing is we’re setting up a pool so that they can all pool together and get a better deal from insurance companies…That’s it. I mean, that’s what’s left to implement, because the other stuff has been implemented and it’s working fine.

If only it were that easy.

A couple of weeks ago, retiring Sen. Max Baucus (D-Mont.), who was instrumental in drafting health care reform, warned Health and Human Services Secretary Kathleen Sebelius that implementation could be a “huge train wreck.” Proposed insurance exchanges are slated to open in October.

President Obama answers questions at an April 30th White House press conference. Source: YouTube/whitehouse.gov.

Politico reports that “Democrats are worried now — about the messaging and the mechanics of the rollout”:

“I’m concerned — because we did take substantial criticism for putting this plan in place — that it achieve its true purpose,” said Rep. Lloyd Doggett of Texas. “There’s so much work to do in such a short period of time.

And there’s good reason for concern, John Harwood reported in The New York Times:

Among the complex imperatives: pushing reluctant states to set up insurance marketplaces and expand Medicaid programs, keeping an eye on insurance companies as they issue new rate schedules, measuring the law’s effects on small-business hiring, and coaxing healthy young people to buy coverage so the system works economically for everyone else.

Only about half of the states have indicated that they will expand Medicaid under the law, a central ingredient for the goal of providing coverage to those now uninsured.

Of course, many states that haven’t expanded Medicare are run by Republican governors. The GOP sees little political advantage in helping make the law work.

And already some of the law’s quirks are actually driving premiums up, by 25-50% in some states.

Daniel Kessler of Stanford and the conservative Hoover Institution laid out a litany of possible woes for Obamacare in Tuesday’s Wall Street Journal:

The unpopular health-care law’s rollout is going to be rough. It will also administer several price (and other) shocks to tens of millions of Americans.

..Around six million of the 19 million people with individual health policies are going to have to pay more—and this even after accounting for the government subsidies offered under the law.

I estimate that another 10 million people, the approximately two-thirds of the market that is low- or average-risk, will see higher insurance bills for 2014.

 In total, it appears that there will be 30 million to 40 million people damaged in some fashion by the Affordable Care Act—more than one in 10 Americans.

On Tuesday, the president assured the nation that “we are pushing very hard to make sure that we’re hitting all the deadlines and the benchmarks.”

That’s hardly reassuring from a president whose follow-through often has fallen short of his lofty rhetoric. Given the difficulties in getting his second-term agenda through Congress, President Obama’s place in history may rest on the success or failure of health care reform.

That’s why this time he needs to sweat the details and be prepared to sell health care reform yet again.

The amazing discrediting of one of the most influential research papers of our time—Kenneth Rogoff and Carmen Rinehart’s 2010 “Growth in a Time of Debt”—has mobilized opponents of austerity around the globe.

As we wrote last week, the paper, which found that economic growth in developed economies goes negative once public debt exceeds 90% of GDP, was a key rationale for austerity policies in Europe and the United States, just as the Laffer Curve justified supply-side economics.

But now, Rogoff and Rinehart have admitted to an embarrassing computational error which produced that negative result. Their corrected spreadsheets showed that at debt ratios above 90% of GDP, economies still grew, albeit at a slower pace.

That undercut the urgency behind austerity, which can have counterproductive effects, especially in a recession, its opponents argue.

The European Union in particular has enforced austerity policies on Greece, Spain, and Portugal, exacerbating those countries’ already deep recession. David Cameron’s government in the UK has done it voluntarily. In the US, the Tea Party movement that has taken over the Republican Party has forced $3 trillion of deficit cuts, including the current “sequester.”

But the International Monetary Fund has been railing against austerity for weeks. Its chief economist, Olivier Blanchard, said the UK in particular was “playing with fire.” And Managing Director Christine Lagarde declared: “We need growth, first and foremost.”

Keynesian Nobel Prize economist Paul Krugman, austerity’s chief critic—he favors massive government stimulus spending until the economy recovers—has been taking a restrained victory lap all week.

Paul Krugman speaks at the Commonwealth Club in San Francisco in 2011. Photo: Flickr/Ed Ritger.

But Henry Blodget, Business Insider’s editor in chief, did the crowing for him:

Last week, a startling discovery obliterated one of the key premises upon which the whole austerity movement was based.

Once the error was corrected, the “90% debt-to-GDP threshold” instantly disappeared. It also, in my opinion, settled the “stimulus vs. austerity” argument once and for all.

The argument is over. Paul Krugman has won. The only question now is whether the folks who have been arguing that we have no choice but to cut government spending while the economy is still weak will be big enough to admit that.

I don’t think they will be, and I don’t agree that Krugman has won the argument.

On the first point, I don’t think leaders like David Cameron or German Chancellor Angela Merkel will change their positions. Merkel reflects the views of the German people, who believe southern Europeans should tighten their belts the way Germans do.

The British people will go to the polls in 2015, when Ed Miliband, an Old Labour throwback to the pre-Margaret Thatcher days, may well win a de facto referendum on Cameron’s austerity.

Here in the U.S., Tea Party Republicans and fiscal conservative leaders like Rep. Paul Ryan are too deeply dug in to reverse themselves on spending cuts and austerity.

And second, I disagree on the implications of what happened.

The new data reduces the urgency for cuts in discretionary spending, of which we have had plenty. The short-term cuts we’ve had are sufficient, as Goldman Sachs projects deficits of only 2.75% of GDP by 2015.

But long-term entitlement programs are another story. The estimated unfunded liabilities for Medicare, Social Security and federal employee retirement plans are $50 trillion, 300% of current GDP, not 90%.

While that bill doesn’t come due all at once, it has a cumulative, corrosive effect on our economy. With 8,000 Baby Boomers retiring every day for the next two decades, the crunch is coming soon.

That’s where I think Krugman and the Keynesians fall short. By kicking the can down the road instead of formulating a long-term plan to address entitlements now, when interest rates are near zero, they’ll miss a big opportunity to solve a problem that will be much bigger even in a decade.

At that point, errors on some academics’ spreadsheet will be the least of our problems.

Also Read: Bush Was the Worst President of the Last 50 Years

On Thursday President Obama and the four living former presidents will travel to Dallas to dedicate the George W. Bush Presidential Library and Museum at Southern Methodist University. Everyone will no doubt say kind things about the 43^rd president, who left office four years ago.

And a new Washington Post-ABC News poll showed a big improvement in his approval rating, from 33% when he left office to 47% now, while his negative ratings have shrunk from 66% then to 50% now. His approval rating, by the way, is equal to President Obama’s.

Yet I believe historians will view President Bush as the worst president of the last 50 years. This is a tough one for me, as I think President Nixon was a criminal who tried to trash the Constitution. But Nixon had some real accomplishments (the opening to China, the creation of the EPA), as opposed to President Bush, who barely had any.

Among those accomplishments:  His efforts to combat AIDS in Africa saved millions of lives. He supported efforts by Treasury Secretary Henry Paulson to rescue the financial system in the midst of the 2008 crisis (though he did little to prevent it).

And he did keep the US safe from another terrorist incident after 9/11, although quite frankly, his Administration had ample warnings that one was coming in the months before the attacks on the World Trade Center and the Pentagon.

But the negative side of the balance sheet weighs far more heavily:

• The Iraq War was a catastrophe. Yes, Saddam Hussein was deposed, but the Bush Administration handled it so badly it wound up being a huge blow to U.S. prestige. Iraq is now a mess, with bloody sectarian warfare, and is a reliable ally of Iran. And, oh yes, there were no weapons of mass destruction.

• His administration’s obsession with Iraq caused him to take his eye off the ball in Afghanistan, where the small number of US troops war kept us from catching Osama bin Laden or crippling the Taliban early on. Twelve years later, we face another long-term defeat in that benighted country.

Former President George W. Bush spoke at a conference in New York in April 2013. Photo: Howard R. Gold/The Independent Agenda.

• The two wars have cost Americans “$3.1 trillion and counting,” according to the Costs of War project at Brown University.

• In the name of the War on Terror, the Bush Administration authorized warrantless wiretapping, renditions to secret prisons overseas, detention without due process, and torture, severely eroding the Constitution and violating international law.

• While we were at war, President Bush nonetheless continued the 2001 tax cut and actually accelerated those cuts in the 2003 tax cut. The tax cuts, the president said explicitly, were aimed at eliminating the surpluses achieved during the Clinton Administration. They failed to promote economic or employment growth.

• The president also promoted the Medicare prescription drug plan, which had no source of funding. The cost to taxpayers so far: $300 billion and counting.

• And then there was Katrina. The president’s confused, delayed response to the disaster shocked the nation and his backing of an incompetent like FEMA director Michael “Heck of a Job” Brown paralleled his support for the even more dangerously inept Donald Rumsfeld and Iraq administrator Paul Bremer.

I could go on—the Terry Schiavo fiasco, the failed effort to push through partial Social Security privatization just before the stock market crashed, etc., etc.

But why bother? Anybody looking at President Bush’s record objectively must come to a similar conclusion: He was simply the worst president of the last 50 years.

If they want to win again, Republicans will have to renounce his legacy just as they needed to exorcise the ghost of Herbert Hoover.

So, now it seems that the paper heard ‘round the world—the 2010 study by Kenneth Rogoff and Carmen Reinhart that said economic growth goes negative when debt gets too big—was deeply flawed.

Prof. Carmen Reinhart in 2009. Flickr/Boston Book Festival.

The two researchers, now both Harvard professors, wrote in a working paper that average real GDP growth was -0.1% in 20 advanced countries whose debt reached 90% of GDP from 1946 to 2009.

That created a powerful argument for austerity, as many countries’ debts had ballooned in bailing out banks during the financial crisis. Rep. Paul Ryan has cited the two in his own “Path to Prosperity” 2013 budget.

But when one grad student and two professors at the University of Massachusetts Amherst—Thomas Herndon, Michael Ash and Robert Pollin—tried to replicate Rogoff and Reinhart’s findings,  they discovered several fundamental errors, which they exposed and corrected in an eye opener  of a paper:

We…find that coding errors, selective exclusion of available data, and unconventional weighting of summary statistics lead to serious errors that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies in the post-war period….When properly calculated, the average real GDP growth rate for countries carrying a public-debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not -0.1 percent as published in Reinhart and Rogoff (italics added).

They go on to say that “average GDP growth at public debt/GDP ratios over 90 percent is not dramatically different than when debt/GDP ratios are lower,” criticizing Rogoff and Reinhart’s claim that “public debt loads greater than 90 percent of GDP consistently reduce GDP growth.”

The three UMass researchers aren’t accusing Rogoff and Reinhart of cooking the books, just (implicitly) of sloppiness on a monumental scale. Mike Konczal had the best explanation of what they did wrong, but it boils down to data mining, not weighting certain countries’ data properly and, get this, an Excel spreadsheet that didn’t update data.

In a response posted early Wednesday morning, the two copped to their Excel mistake, thanked the UMass researchers (poor cousins of Harvard though they are) and humbly vowed to “redouble our efforts to avoid such errors in the future.”

But they took umbrage at insinuations they “manipulated the data to exaggerate our results,” saying that subsequent research produced consistent outcomes–public debt above 90% of GDP is associated with one percent slower GDP growth, and can last for years, “with massive cumulative effects.”

Prof. Kenneth Rogoff in 2010. Photo: Flikcr/Canada 2020

Still. it’s not negative growth, which is a big difference.  Quartz’s Tim Fernholz reported that Rogoff and Reinhart met with 40 senators in April 2011 and when Sen. Johnny Isakson (R-Ga.) asked “do we need to act this year?,” Rogoff answered, “Absolutely.”  “Once you’ve waited too long, it’s hard to take radical steps,” Rogoff said later.

That was just months before the debt ceiling debacle in the House of Representatives over this very issue.

Critics like Nobel Prize-winning hyper-Keynesian Paul Krugman and progressive economist Dean Baker have argued that slower economic growth causes higher debt, not vice-versa. Krugman also grumbled about the limited data set in the original Rogoff and Reinhart paper, so he can now say his four favorite words: “I told you so.”

But to me the debate is really about long-term debt, not some abstract percentage of GDP. The big issue is the retirement of the Baby Boomers and the looming disaster of Medicare, whose unfunded liabilities could approach $40 trillion if medical expenses continue to increase at recent rates. That, and inevitably rising interest rates, would suck all the oxygen out of the room.

So, I think Congress and the president should focus on a multiyear plan to restructure Medicare starting in 2023, and set it in motion now while interest rates are near zero. They’ve done the exact opposite, however, cutting discretionary spending by $3 trillion while not addressing the hard long-term questions. 

If the Reinhart/Rogoff dispute accomplishes one thing, it should be to move current budgetary issues out of the emergency room. This is not a heart attack, but a treatable form of cancer, and we need a long-term plan to cure it.

]]> http://www.independentagenda.com/budget-and-spending/rogoff-and-reinharts-screw-up-may-undercut-austerity/feed/ 4 http://www.independentagenda.com/politics-and-2012-election/rubio-takes-a-calculated-risk-on-immigration-reform-3/ http://www.independentagenda.com/politics-and-2012-election/rubio-takes-a-calculated-risk-on-immigration-reform-3/#comments Mon, 15 Apr 2013 03:32:44 +0000 Howard R. Gold http://www.independentagenda.com/?p=3937

There was Sen. Marco Rubio of Florida on seven—that’s right, seven– different Sunday talk shows, making the case for immigration reform.

Rubio will join eight Senators of both parties to present the bill officially on Tuesday. It promises to be … More...

There was Sen. Marco Rubio of Florida on seven—that’s right, seven– different Sunday talk shows, making the case for immigration reform.

Rubio will join eight Senators of both parties to present the bill officially on Tuesday. It promises to be one of the year’s most politically charged debates, and Rubio was trying to get on the right side of it Sunday.

He summed up the positive case to Bob Schieffer on CBS News’ “Face the Nation”:

This bill does three things that are fundamentally important for our country. It modernizes our legal immigration system…It puts in place the toughest enforcement measures in the history of the United States, potentially in the world. And it once and for all deals with the issue of those that are here illegally, but does so in a way that is fair and compassionate but does not encourage people to come illegally in the future…

But he spent most of his time trying to persuade Tea Party Republicans– to whom he is a hero but who have been hostile to immigration reform–that the bill didn’t reward “undeserving” people who broke the rules.

Sen. Marco Rubio discusses immigration reform on CBS News’ “Face the Nation.” Source: CBS News.

Here’s what he said on ABC News’ This Week:

I think it’s important to understand it does not give anything…The only thing you are earning here is an opportunity to apply for temporary status, and ultimately, potentially to apply for a green card, the way everybody else does…

It will actually be cheaper if they went back home, waited ten years, and applied for a green card.  And so, secondly, we’ve not awarding anything.  All we’re giving people the opportunity to eventually do is gain access to the same legal immigration system, the same legal immigration process that will be available to everybody else.

And on “Fox News Sunday”:

And then they don’t qualify for any federal benefits. This is an important point. No federal benefits, no food stamps, no welfare, no Obamacare. They have to prove they’re gainfully employed. They have to be able to support themselves, so they’ll never become a public charge.

Finally there’s the issue of security, as he told Schieffer:

And of course, that will be dependent upon certain security measures being met. That means securing the border, universal e-verify, and a universal entry-exit tracking system. If those three things are not in place, that green card process won’t begin, even if the ten years has elapsed.

And then there’s the alternative, which included a not-so-subtle swipe at last year’s GOP presidential candidate, Mitt Romney:

The proposals in the past that some have advocated is to make their lives miserable so that they’ll leave on their own, or to basically ignore the problem…

Self-deportation anyone?

Rubio is telling Republicans their current stance on immigration is untenable. But he’s doing it in the language of the GOP base, which holds his own presidential ambitions in their hands.

Rubio voted against the New Year’s “fiscal cliff” compromise. He will undoubtedly vote against expanded background checks or any restrictions on guns. On every issue but immigration, he’s likely to stand shoulder to shoulder with the Tea Party.

But on the immigration issue, he needs to stake out new ground. He simply can’t pander to Republican nativism because that would kill his chances to reach out to Hispanics, and would contradict his own “brand” as an immigrant’s son who lived the American Dream.

So, he’s taking a big but calculated risk that he can bring his party’s base along—or at least neutralize them. This is the first test of his leadership abilities in the long run-up to 2016.

 

]]> http://www.independentagenda.com/politics-and-2012-election/rubio-takes-a-calculated-risk-on-immigration-reform-3/feed/ 1 http://www.independentagenda.com/budget-and-spending/presidents-budget-is-a-small-step-forward/ http://www.independentagenda.com/budget-and-spending/presidents-budget-is-a-small-step-forward/#comments Thu, 11 Apr 2013 16:17:33 +0000 Howard R. Gold http://www.independentagenda.com/?p=3929

President Obama finally presented his 2014 budget Wednesday, and the coverage has been mostly favorable, except on the progressive left and the Tea Party right.

Progressives were enraged at the president for changing the way cost-of-living increases are calculated for … More...

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President Obama finally presented his 2014 budget Wednesday, and the coverage has been mostly favorable, except on the progressive left and the Tea Party right.

Progressives were enraged at the president for changing the way cost-of-living increases are calculated for Social Security payments, effectively cutting benefits over time. That was a Republican idea the president floated in budget negotiations with House Speaker John Boehner late last year.

The president also proposed $370 billion in cuts to Medicare over the next decade. Some of those savings would come from having wealthier seniors pay higher premiums and cutting payments to drug companies.

Republicans shrugged it off. Speaker Boehner said the president  deserves “some credit for some of the incremental entitlement reforms that he has outlined in his budget. But I would hope that he would not hold hostage these modest reforms for his demand for bigger tax hikes.”

The president said:

When it comes to deficit reduction, I’ve already met Republicans more than halfway.

Well, that depends on your perspective. The president’s budget would cut $1 trillion in spending and raise $800 billion in revenue over the next decade, close to the breakdown Sen. Patty Murray (D-Wash.) proposed in the Democratic budget that passed the Senate.

It’s vastly different, of course, from the $4.6 trillion in budget cuts, almost entirely from spending reductions, Rep. Paul Ryan has proposed and which the House of Representatives passed.

Still, it’s striking that in almost every category—from Social Security to defense to education and transportation—the president’s budget would spend more over the next decade than either Murray’s or Ryan’s would.

President Obama speaks about his 2014 budget proposal at the White House Wednesday. Source: whitehouse.gov/YouTube

Why? Because the president is intent on preserving his initiatives to “invest” in America, otherwise known as his pet projects. They include boosting scientific research, expanding pre-K education, repairing infrastructure, and protecting Pell grants and other college aid for families of modest income. He’d pay for them by reducing tax deductions for wealthier Americans.

Some of these initiatives are worthy, but I thought the additional revenue was supposed to pay for reductions in entitlements, including bending Medicare’s cost curve in the coming years. That’s where the big budget crunch will come a decade from now, as even Paul Krugman grudgingly acknowledges.

President Obama’s budget will be thrown into the mix of the two conflicting Congressional budgets that already have passed, and Murray and Ryan, who don’t agree on much of anything, say the reconciliation process is moving forward. (All three budget proposals would substitute their cuts and revenue increases for the hated  $1.2-trillion sequester, the beast that refuses to die.)

I believe the president is positioning himself as the Reasonable Alternative, offering more entitlement reforms than Murray did but also tax increases, unlike Ryan. He’s hoping he can negotiate some compromise, even a bad one, like the January 1^st fiscal cliff deal.

But Republicans will probably demand even more entitlement reform before they’ll even consider additional revenue. And more entitlement reform may cause an open revolt among liberal Democrats. It’s a very delicate balance, requiring more diplomacy than this president has displayed so far, and it shows how politically charged these issues are.

Still, I’ll cite what former Controller General David Walker, a fiscal hawk and CEO of the Comeback America Initiative, said:

The President has shown some leadership by presenting a budget that opens the door to more compromise.  Now he needs to step forward and finish building a bridge to a Grand Bargain–before the clock runs out on us.

It’s a small step on a long, difficult journey, and the path ahead is full of peril.

 

 

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Love her or hate her, one thing is beyond dispute: Margaret Thatcher mattered.

The grocer’s daughter from Grantham, England became the United Kingdom’s first woman prime minister. She also served the longest of any PM in the 20^th Century. And she changed the country’s direction more than any prime minister since Labour’s Clement Attlee installed the National Health Service and Britain’s welfare state after World War II.

Among her many accomplishments was her revival of the “special relationship” between the U.S. and the U.K., which reached its zenith during World War II in the complicated alliance between  Winston Churchill and FDR.

Thatcher’s relationship with President Ronald Reagan was also complicated—it was not always a love fest—but the two respected and admired each other greatly. They both embraced free-market capitalism and passionately hated Communism. The economic prosperity their policies helped unleash and their firm stance against the Soviet Union in its dying days were instrumental in winning the Cold War.

More often it was Thatcher who led the way. Taking power in 1979, following Britain’s Winter of Discontent, Thatcher embarked on a series of reforms based on Milton Friedman’s monetarist policies.

She pushed interest rates higher (the Bank of England wasn’t independent until 1997), cut social spending, slashed income taxes while doubling the Value Added Tax, and started privatizing state-owned monopolies in oil (BP), steel (British Steel), telecom (BT), airlines (British Airways), rail, and others.

President Reagan made similar moves when he took office in 1981, although deregulation had started under President Carter and the U.S never had the number of state-owned enterprises Britain did. Their tough medicine pushed the U.S. and U.K. into deep recessions in the early 1980s, but by 1982 both economies were on the upswing again. That prosperity lasted through the decade.

President Ronald Reagan and Prime Minister Margaret Thatcher outside the White House. Official White House photo. Source: Margaret Thatcher Foundation.

Thatcher also set the template for President Reagan’s foreign policy. The 1982 Falklands War with Argentina was a silly bit of grandstanding, but it did restore “pride” among certain Britons and warned far more powerful foes that “the lady’s not for turning.”

Similarly, President Reagan’s invasion of helpless Grenada in 1983 was the first blow against the Vietnam Syndrome, which crippled US policymakers during the Carter Administration.

And in 1984 Thatcher met Mikhail Gorbachev before he became Soviet premier and declared in an interview with the BBC: “I like Mr. Gorbachev . We can do business together.” Thatcher’s blessing made it easier  for President Reagan to negotiate with the new Russian leader, while building up U.S. military might and pursuing a missile defense program. Thatcher, however, had to throttle Reagan back when the president pursued full nuclear disarmament.

She also had to buck up his successor, George H.W. Bush, during the confrontation with Saddam Hussein over Kuwait in 1990. “Don’t go wobbly on us, George,” she famously hectored him before the first Gulf War, though she was out of office by the time that conflict began.

President Reagan was ahead of her in one major area—he fired striking air traffic controllers in 1981. That was the shot heard ‘round the world in the labor-management arena, and it changed things forever. Thatcher’s confrontation with the far more powerful miners’ union  took place three years later, and she, too, took a firm stance, defeating the formidable miners’ boss Arthur Scargill, a force in the Labour Party as well.

Margaret Thatcher was a ground-breaking leader, affecting U.S. history almost as much as Britain’s. In many areas she led and America follwed. Here, too, she mattered.

Now that the Democratic-controlled Senate has passed its first budget in four years by the resounding margin of 50-49, Congressional leaders will face the unenviable task of reconciling it with the budget passed by the House of Representatives and sponsored by Rep. Paul Ryan (R-Wis.).

The Democratic budget, spearheaded by Sen. Patty Murray (D-Wash.), calls for nearly $2 trillion in deficit reduction over the next two years. But half of that–$975 billion—comes from raising taxes, principally by limiting deductions for wealthier households. And it reduces the deficit to 3% of GDP but never balances the budget.

Ryan would cut rather than raise taxes for businesses and individuals, blowing an even bigger hole in the budget it purports to balance.

So, to close that gap and balance the budget in ten years, it repeals Obamacare and transforms Medicare into a “premium support” system while turning Medicaid over to the states.

The budgets are based on such different assumptions and opposing philosophies of government that forging a workable compromise looks like “mission impossible,” as The Hill put it.

But strip out the red meat for each party’s base and we might actually get somewhere. The Hill reports that talks are proceeding between Murray, one of the most liberal senators, and conservative hero Ryan, the 2012 Republican vice-presidential candidate.

First, let’s look at Ryan’s plan, because it’s more ambitious and there are more obvious things to eliminate in a final deal. The biggest nonstarter is repealing Obamacare, which Ryan estimates would save $1.6 trillion from 2014 through 2023. Block granting Medicaid (and preventing its expansion under Obamacare) would save maybe another $770 billion during that time.

Democrats will never accept that, but they may agree to slow the rate of increase of Medicaid. So, let’s split the difference, which gets us down to $300 billion in Medicaid savings over ten years.

President Obama met briefly with Republican National Committee leaders last month in the Capitol. Official White House photo by Pete Souza.

Democrats also will never agree to the Ryan Medicare plan, although President Obama has said he’s open to compromise if Republicans agree to more revenue increases, which they have said they never would.

The Ryan budget would also cut an astonishing $1.9 trillion in “other mandatory” federal programs  over the next ten years, but it doesn’t get specific  besides saying we should block grant food stamps to the states.

So, Ryan’s radical reforms of Medicare, Medicaid, and other entitlement programs and repealing Obamacare account for $4 trillion out of his proposed $5.3 trillion in cuts. The rest come from lower  interest payments and cuts in discretionary spending. That doesn’t leave much to work with.

Murray’s budget is much simpler. Its $975 billion in cuts come primarily from defense spending, Medicare, and savings on interest.  It also sneaks in $100 billion in extra stimulus. It will replace the automatic spending cuts (sequester) with a combination of spending cuts and tax increases.

So, where’s the common ground? Here are four possibilities:

1. Drop Ryan’s radical overhaul of entitlement programs and replace them with tighter eligibility standards for Medicare and Medicaid.
2. Drop Murray’s call for extra stimulus
3. Repackage Murray’s tax increases as tax reform, including some cuts in corporate taxes recommended by Ryan and an overhaul of deductions and exemptions.
4. Keep the $1.2 trillion “sequester,” but give the president more discretion to make cuts in both defense and domestic spending.

That gives us maybe $2-2.5 trillion in spending cuts, including to some entitlement programs, and perhaps another $500 billion in revenue increases, net of business tax cuts. So we could see as much as $3 trillion more deficit reduction over the next decade.

Granted, it’s not the most likely outcome, but stranger things have happened. The president introduces his new budget—finally—next week. Let’s see if he can move the ball forward.