Saturday, February 16, 2008

2 part column on the number 1 issue in the US Presidential election

Republican Politics, American Style
Published on February 14th in Metro Eireann By Charles Laffiteau

Ok now that Super Tuesday is behind us where do I stand as regards the respective Republican and Democratic US Presidential candidates? On the Republican side I hope that Senator John McCain will emerge as the Republican nominee even though I disagree with him strongly on several issues, most notably the war in Iraq.
While I often disagree with the editorial board of the New York Times, the following statement neatly summarizes my thinking about Senator McCain. “Senator John McCain of Arizona is the only Republican who promises to end the George Bush style of governing from and on behalf of a small, angry fringe. With a record of working across the aisle to develop sound bipartisan legislation, he would offer a choice to a broader range of Americans than the rest of the Republican field.”
On the Democratic side I hope and believe that a majority of Democratic and independent voters will see through the Clinton campaign machine’s attacks on Senator Obama and the obvious distortions of his statements and positions on various issues (by the two-headed Billary machine) that characterizes the Clinton presidential campaign.
The New York Times editorial board even makes a note of these divisive and highly partisan Bush-Rove Republican campaign tactics in their editorial endorsement of Hillary Clinton for the Democratic presidential nomination saying that “we urge Mrs. Clinton to take the lead in changing the tone of the campaign. It is not good for the country, the Democratic Party or for Mrs. Clinton, who is often tagged as divisive, in part because of bitter feeling(s) about her husband’s administration and the(ir) so-called permanent (presidential) campaign. (Indeed, Bill Clinton’s overheated comments are feeding those resentments, and could do long-term damage to her candidacy if he continues this way.)”
The New York Times published a letter from President John F. Kennedy’s daughter, Caroline which I will now quote; “Over the years, I’ve been deeply moved by the people who’ve told me they wished they could feel inspired and hopeful about America the way people did when my father was president. I have never had a president who inspired me the way people tell me that my father inspired them. But for the first time, I believe I have found the man who could be that president — not just for me, but for a new generation of Americans. That is why I am supporting a presidential candidate in the Democratic primaries, Barack Obama.”
But rather than dwell on Presidential candidate endorsements, today I would like to begin discussing where the 5 remaining candidates stand after Super Tuesday’s primaries and then begin discussing what I believe the major election year issues will be for the US presidential candidates.
On the Republican side McCain now has a large lead in delegates but lost several southern states to Huckabee and several western states to Romney. Conservatives pundits like Rush Limbaugh and Ann Coulter continue to attack McCain and their conservative followers in the south and west continue to split their votes against McCain between his two remaining opponents. Huckabee has no chance to win the nomination but I think he remains in the race hoping to end up as McCain’s Vice Presidential running mate. Time will tell if this ploy works, but I think it just might.
On the Democratic side Billary won in 8 states including big states like New York and California but Obama emerged with only 10 fewer delegates overall thanks to strong wins in 14 other states including America’s bellwether state of Missouri. Billary still has strong support from white women and Latinos but Obama has cut Billary’s margin among Hispanic voters down to a two to one advantage and garners more votes from white men in addition to his overwhelming advantage among younger voters. Obama will erase most or all of Billary’s slim 76 delegate lead by capturing all of the remaining 10 states voting during the month of February. This lead is due Billary’s support from 211 UNELECTED Super-delegates (Democratic political establishment leaders) because Obama has actually won 7 more ELECTED delegates in the 26 states that have voted so far in 2008.
As for the major election issues the number one issue is NOT the war in Iraq. While the war in Iraq is still an issue for the US electorate it is not the only example of gross incompetence on the part of the Bush administration and the President’s Republican allies in Congress. Have you ever heard the phrase “IT’S THE ECONOMY STUPID”? A long recession now looms for America thanks largely to President Bush and Republican Congress members’ complete repudiation of Republican economic and fiscal responsibility values. But I expect Republicans will attempt to blame the Democratic majority for the economic downturn and claim credit for quick action on Bush’s economic stimulus package which I believe is useful, but flawed and simply not enough.
That is my assessment as well as the view of a number of respected economists on the $150 billion emergency spending plan agreed to by President Bush and Congressional leaders in a bid to stimulate consumer spending in the US economy. Given that a lot of Americans are so deeply in debt, (due to the consumer spending boom of the last 16 years spanning the terms of both Clinton and Bush administrations) many of these consumers won’t use this money to buy new goods and services.
Since the tax rebate checks won’t reach consumers until this summer at the earliest, they won’t be able to spend the money until the end of the third or during the fourth quarter of 2008. By that time I expect a change in consumer psychology and attitudes will have already taken hold and a combination of fear and economic insecurity will lead them to save this money or use it to pay off debts rather than spend it.
I strongly believe the so-called prosperity of the past 16 years was a mirage. But before agreeing to a compromise with Democrats on tax rebates for middle and lower income workers, Bush was still promoting tax cuts for businesses instead of rebates, arguing this would coax companies to expand. Most economists question that assumption, asserting that if consumers lack money to spend, then businesses will stand pat or cut back and fire people, (whatever their tax rate) further deepening and prolonging any recession. Desmond Lachman, a respected economist at the American Enterprise Institute said; “Breaks in taxes for corporations are unlikely to make a difference. There’s waste in it.” Next week I will conclude my discussion about the number one issue in the upcoming US presidential election.

Republican Politics, American Style
Published on February 21st in Metro Eireann By Charles Laffiteau

Last week I began a discussion of my views about the number one issue in the upcoming election which is the US economy. For the past 16 years, American consumers have increased their overall spending every single quarter, which is almost twice as long as any previous streak. Now I’m afraid it is time for the payback. Martin Feldstein, the dean of Republican economists, says he thinks that the economy “could slip into a recession and that the recession could be a long, deep, severe one.” In the South Carolina Democratic presidential debate, Barack Obama made the same argument: “We could be sliding into an extraordinary recession,” he said.
Feldstein and Obama see the economic reality the US is facing, a reality that the other Republican and Democratic candidates or members of Congress don’t want to acknowledge much less address because doing the right thing to address America’s long festering economic shortcomings will be painful for everyone. But I and others in both parties contend that continuing to propose partisan half measure solutions, in an attempt to win elections or re-election, only postpones and increases the length and intensity of the painful measures America will eventually have to take to address its economic ills.
Ever hear the phrase “NO PAIN, NO GAIN”? There is a reason why this phrase has become a cliché in our language. That’s because whether we want to acknowledge it or not, there is a whole lot of truth in it. Unfortunately only Senator McCain on the Republican side and Senator Obama on the Democratic side appear to have the good sense, judgement and insight to realize that it is time to “face the music” and stop telling Americans what they want to hear (so they can get themselves elected to positions of power) and start telling them the harsh but honest truth so they can begin fixing things.
For many Americans a psychological barrier has already been broken and where you can see it is in the actions and sentiments of people who don’t live pay check to pay check. People with lots of disposable income, good jobs and money from investments in cities from New York to San Francisco are cutting back on their dry cleaning and hair salon expenses even though they are not actually being pinched financially.

People in New York are not that different from people in other US cities. In other parts of the country people are buying less expensive bread and skipping dessert when they go out for dinner. Business economists get nervous whenever consumers start pulling back. They know this pruning of daily expenses has a domino effect, setting off a chain of events that actually contributes to an economic slide and more fear. Consumer psychologists say that increased fear then leads to further belt tightening, deepening the economic slide and increasing fear in a seemingly endless cycle that feeds on itself.
Indeed, for the first time in many years retail sales in the US were down over the holidays, leading economists to debate whether the country could experience a rare decline in personal consumption, a sure sign of a recession that has already begun. The respected Pew Research Center says its polling shows that consumer confidence has plunged and that consumer satisfaction with the economy is now at a 15-year low.
But this is not why I believe the US is facing a prolonged and deep recession which will last for at least four or five years. The reason why this will be a very nasty recession is because the US housing market is only in the early stages of a downward spiral. Florida serves as a prime example of what is and will continue to be a looming financial disaster for many middle class US homeowners for the foreseeable future.
In the Fort Myers area of southwest Florida, the local News-Press regularly advertises auctions of homes built to sell for $250,000 with minimum bids of $50,000 and small condos are offered with opening bids of $25,000. $250,000 houses are now selling for $100,000, (when they sell at all) and most of the properties that are selling are “short” sales, where the debt and closing costs exceed the sales value of the house.
The consumer spending which buoyed the US economy for the last 16 years was (and still is) dependent on Americans feeling optimistic about the value of their assets. For most Americans their homes are their primary assets and these homes have and will continue to lose value for the next couple of years. When the decline in home values eventually slows and prices stabilize, this will be followed by at least a couple more years of stagnant prices before the market value of homes in the US begins to climb again.
When home values do eventually start to rise again, it will take another year or two for consumers to adjust psychologically and begin to spend more freely on consumer goods and household durables like furniture and appliances. If you do the math, 2 years for home prices to stop dropping + 2 years for home prices to stabilize + 1 or 2 more years for consumers to become optimistic about the underlying value of their primary asset = 5 to 6 years of economic recession in the US.
In an increasing globalized world economy it is foolish to think that the EU and Asian economies will not be adversely impacted by this prolonged slump in the US economy. It is also foolish to think that governments or central banks can do anything more than cushion the fall or mitigate some of the worst consequences. One of the unfortunate realities of free market economics and capitalism is that long periods of growth and prosperity are always followed by periods of contraction which, although shorter in duration, can be quite painful for a large number of citizens.
Whoever is elected as the next US President will be confronted with paying the bill for many years of deficit spending and financial mismanagement on the part of the current Bush administration and the failure of Congress and both the Bush and Clinton administrations to effectively confront the rising costs of the US entitlement programs such as Social Security and Medicare over the past 16 years.
The solutions to these and many other problems such as universal healthcare and global warming will require bi-partisan solutions which have been few and far between in American politics over the past 16 years. A continuation of the partisan politics which dominated the Bush and Clinton administrations for the last 16 years is not the answer.

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