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CRISIS, GRIDLOCK & POLICY SWEET SPOTS (UPDATED 3-2-10)

 

Read Jay B Gaskill’s Lost Souls Coffee Shop, an allegory for the human condition.  More on the Bridge to Being Blog at http://jaygaskill.com/blog2/ .

 

And read Jay Gaskill’s new thriller, The Stranded Ones.  More on the Policy Think Site at   http://www.jaygaskill.com/TourTheStrandedOnes.pdf .

 

 

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As posted on The Policy Think Site ON 3-1-2010, revised 3-2:

http://jaygaskill.com/PolicySweetSpots.htm

 

 

 

 

CRISIS, GRIDLOCK

&

THE POLICY SWEET SPOTS

 

Gridlock in congress is neither bad, nor permanent.  In this case, the needed and effective policy innovations – even in the midst of a crisis - are being stalled by a series of collisions between ideologies and common sense. 

 

The ideologies are inside the Beltway and the common sense resides elsewhere.

 

The president purports to want to find ‘common ground’ with the opposition after allowing congressional leaders to shut down the amendment, congressional hearing and discussion process.  He purports to listen to his critics while pointing out that ‘we won the election’.  The implication is clear enough:  The president wants the appearance of consultation, without the burden of real compromise.  He stubbornly believes that his leadership must still be followed even when his electoral victory is now regretted by a plurality of voters trending to a supermajority.  Doubters should look at the polling data:

http://www.rasmussenreports.com/public_content/politics/obama_administration/daily_presidential_tracking_poll

and

http://www.rasmussenreports.com/public_content/politics/obama_administration/obama_approval_index_history 

and

http://www.rasmussenreports.com/public_content/politics/mood_of_america/right_direction_or_wrong_track .

 

President Obama still expects implement a comprehensive policy package many key features of which are strongly opposed by a majority of Americans. 

 

All of these discussions and maneuverings are taking place under the looming shadow of a debt crisis more severe than any in this country’s history.  Compare the CBO’s Gross Domestic Product  projections --

{http://www.cbo.gov/ftpdocs/100xx/doc10014/03-20-PresidentBudget.pdf }

 

with the national debt projections --

{http://www.cbo.gov/ftpdocs/100xx/doc10014/Chapter1.5.1.shtml} and note this ---

 

How bad is the CBO's latest report on the country's budgetary future? The Washington Post calls the office's numbers ‘dire.’ U.S. News says they're ‘off the wall.’ And in a post about the report on his blog, the CBO's director, Douglas Elmendorf, writes that ‘under current law, the federal budget is on an unsustainable path.’”

{http://reason.com/blog/2009/06/29/debt-and-taxes-the-cbos-dire-p} from June, 2009.

 

...And this ---

“...our debt will hit 60% of GDP twelve years earlier than forecast...” {http://wallstreetpit.com/17751-the-lost-budget-decade}

 

All this is going on while a majority of elected and unelected officials inside the Beltway still live in a fantasy construct.  In their fantasy, the United States federal government still has an immense store of financial resources with which to address a crisis engendered by that same government having operated on funds on borrowed, but not repaid over the last 30 years. 

 

But the cupboard is bare.

 

No political party or faction escapes accountability for getting us into the current mess...and no one can now escape its consequences.  Eventually, one constraint must govern those who govern:  Government cannot continue to borrow money to fund the operations of government. 

 

There are a number of policy implications, among them these four:

 

(a)                    Public indebtedness must be reduced, not increased, across the board, in real terms, without any accounting gimmicks or tricks before the entire house of cards becomes “the American bubble”. 

(b)                    The necessary tax and spending adjustments must be managed with care in order to avoid choking off the real private business growth necessary to get us out of the current fiscal crater.  This means that the promotion of real, robust, profit-generating private sector commercial enterprises (i.e., those based on actual commodities and valuable services with a world-market value, as opposed to mere financial paper) becomes the very first economic priority of government. This necessarily requires a radically new government direction.

(c)                    Therefore most of the burden of tax and spending adjustments must be borne by the government itself, in the form of spending and services cuts and lower taxation.

(d)                    And any tax changes must satisfy two conditions: (1) they must amount to a net decrease in the overall tax burden, and (2) they must operate to help, not differentially punish or burden, domestic business development.

 

Yes, the current impasse will be overcome.  But it will require intelligent, trusted leadership that mediates agreements at the policy ‘sweet spots’ where ideologies, common sense and wise policy converge.  In other words, the current impasse calls for a new generation of leaders.... 

 

 

AN IMPASSE ANALYSIS

 

This impasse is driven by one or a combination of the following three assessments, each describing how the policy positions taken by one side are seen by the other:

·        The wrong approach, risking lasting damage if implemented;

·        The right approach, taken up by the wrong side as a head fake;

·        Possibly the right approach, but killed by the breakdown of trust.

 

The health care debate is particularly intractable because opposing sides are driven by fundamental differences.  As David Brooks described the impasse in Friday’s New York Times,

 

Both parties see the same problem. The current system is a mess, with opaque prices and perverse incentives that mostly favor the insurance companies. But, as Yuval Levin has pointed out in National Review, the Democrats believe the answer is to create a highly regulated insurance system with inefficiencies eliminated through rational rules. The Republicans believe that the answer is to create a genuine market with clear price signals, empowered consumers and an evolving process.

 

http://www.nytimes.com/2010/02/26/opinion/26brooks.html?ref=opinion

 

Good faith discussion of possible areas of agreement (and, yes, there are a few) have been shut out by a breakdown of trust, exemplified by the congressional leadership’s insistence (with a complicit administration) on a comprehensive package, rather than individual, separately debated proposals, separately implemented and tracked.  That approach is like the software bundling practices of Microsoft. 

 

And the administration’s ‘consultation’ approach recalls those faux consultations held by top management with mid-managers after the real decisions have already been made or the ‘public meetings’ that administrative agencies notoriously hold for ‘input’ when the proposed rule or policy has already been set in stone.  

 

The people have become wise to this ‘going through the motions’ process because the political elites have used technique too much and too blatantly for too long.

 

 

POLICY SWEET SPOTS

 

 

Definition of Sweet Spot

 

In sports: The sweet spot is that balance point between potentially conflicting forces that produces the optimum outcome.  In baseball for example, players refer to the ‘sweet spot’ on a bat.  In skiing, there is a performance sweet spot that optimizes control and speed. 

 

In policy:  The sweet spot is that balance between competing political forces that produces an optimum political and policy outcome, crudely, the ‘win, win’ spot. 

 

For example:  Conservatives and liberals were able, long ago, to agree on a federal freeway system funded by user fees from gasoline taxes and truck load weight assessments.

 

Prediction:  The ‘sweet spot’ discussions will not bear fruit until the congressional democrats are forced to change their approach. 

 

Look for progress in January 2012.

 


THREE SWEET SPOTS

 

A. Energy/Global Warming

 

The impasse is all about the scientific and economic wisdom of punishing (economically burdening) traditional hydrocarbon energy technologies during a recession, based on a faux scientific consensus suggesting an emergency (i.e., the science is conflicted, the urgency exaggerated).  The sweet spot is a consensus that the USA is unduly dependent on oil from politically hostile parts of the world, that energy independence is a highly desirable course of action, all the global climate change and ‘evil CO2’ claims aside.

 

The sweet spot:

 

Small Scale, Mass Produced, New Generation Nuclear Power Plants

 

Links: 

 

Modular Nuclear Reactors – Wall Street Journal http://online.wsj.com/article/SB10001424052748703444804575071402124482176.html

 

Green Research –

http://www.greentechmedia.com/green-light/post/small-modular-nuclear/ 

 

Toshiba’s “Nuclear Battery http://www.nuclear.com/n-plants/index-Small_modulr_reactr.html and http://www.world-nuclear.org/info/inf33.html

 

Small Town Nukes [March 2010, National Geographic]

http://ngm.nationalgeographic.com/big-idea/08/mini-nukes

 

Advantages:

·        10-20 megawatt units (small town, neighborhood size), reduce dependence on large power grids

·        Mass production economies & Smaller investment risks

·        Failsafe designs

·        Uniform technical interfaces, simplifying training

·        Simplified & expedited licensing

·        No atmosphere emissions

·        20 to 30 year life

·        Not subject to Middle East politics

 

Why this particular impasse?

 

The anti-carbon, global warming opinion set vehemently opposes exploitation of new oil reserves and is skeptical about ‘clean coal’ technologies.  The conservative, energy independence opinion set, having rejected the global warming ‘emergency’ but accepted the need to achieve independence from ‘terrorist state oil’, does not believe that solar and wind technologies can fill the oil gap.  Both sides are nervous about nuclear power, the liberals because of outmoded safety concerns (solved in the new generation reactors) while the conservatives are nervous about a massive tax investment in large nuclear plants. 

 

The obvious ‘sweet spot’ compromise is the small, modular nuclear plant model, mass produced by private industry and rolled out incrementally.

 

B. Health Care Reform

 

The Sweet spot:

 

Expanded Catastrophic Care Model, with Consolidated Risk Pools, implemented gradually

 

Advantages & Features:

·        Consumer driven – requiring enforced price transparency

·        Deductibles would be mitigated by tax incentives for health care savings accounts

·        Vouchers could be made available to assist

·        High risk pools, backed partially by the fed., would be diluted by folding in federal employees, attracting and adding state employee pools and other mixed risk pools with incentives

·        Gradual implementation with success metrics

 

Links:

 

The case for reform caution:

http://www.aei.org/outlook/100934

 

Overview of a new model:

http://insurancenewsnet.com/article.aspx?id=164618&type=newswires

 

High risk pools – mixed experience

http://www.americanprogress.org/issues/2008/09/flawed_model.html

 

An argument for vouchers

http://www.csmonitor.com/Commentary/Opinion/2009/0810/p09s01-coop.html

 

 

Why the impasse? 

 

Any major new entitlement program is DOA, given the grim fiscal picture.  This means that reform necessarily proceeds incrementally via micro-compromises, using a combination of tax incentives and state/local/private partnerships to gradually move towards a more consumer-driven, less bureaucratic health care delivery and financial system. 

 

Visit and review my own proposals at: http://www.jaygaskill.com/HeathCareTrainWreck.htm .

 

 

C. Transition from a Debt – Consumption Economy to an Investment – Production Economy

 

The Sweet spot:

 

Selective Repeal & Removal of Political, bureaucratic, Administrative Business Start-up Obstacles, Coupled with a stable, competitive Tax Structure

 

Links:



Futility of increasingly progressive taxation

http://www.manhattan-institute.org/html/research_memorandum_11.htm

 

International Competitive Tax Cutting

http://www.manhattan-institute.org/html/miarticle.htm?id=3449

 

Competitive advantages of a low, flat tax

http://www.cato.org/testimony/ct-ce030806.html

 

See my own proposals at:

http://jaygaskill.com/GUIDEtoRECOVERY.htm and http://jaygaskill.com/Recovery09.htm and http://jaygaskill.com/KeynsianCollapse.pdf .

 

This cliff-sized impasse should not be surprising.

 

We are on the edge of a tectonic shift between a consumption-driven-economy, supported by perpetual borrowing, to a production-sustained-economy, ignited by private investment.  This shift requires us to embrace a profound adjustment of government’s borrowing, spending and taxation policies, one that runs roughshod over the entire spectrum of special interests.  Fixing the problem now, before a catastrophic economic collapse caused by the expiration of easy credit at all levels, is a bit like getting an alcoholic into rehab before he or she reaches the ‘gutter stage’.  

 

See -- http://www.forbes.com/2010/02/11/cut-spending-taxes-budget-medicare-paul-ryan-opinions-columnists-bruce-bartlett.html  -- detailing one plan without a bureaucratic obstruction relief component.

 

My Prediction: 

 

In the next five years or so, there will be upheavals in the Chinese and European economies the net effect of which will be to dry up easy, low cost loans to the US government.  These may be offset by direct foreign investment in US business startups, if we are wise enough to allow them room to do so while employing American talent.  The overall effect will be a federal fiscal diet and a nascent recovery.  Our ability to sustain that recovery and recover government fiscal balance will be the real test of the sustained character of our new leadership.  This will require a major reconfiguration of the roles of the ‘liberal’ and ‘conservative’ elements in our polity and a new, better informed, more responsible populism, something I have described as the coming populist reformation.  http://jaygaskill.com/newPPP.htm .

 

Stay tuned....  I’ll be developing these themes over the coming months.

 

JBG

Jay B Gaskill

Attorney at Law

 

 


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