Tuesday, August 21, 2012

Presidential Election - A Challenging Scene

First some stark facts about the financial position of the United States. Here is the debt clock data which should inform all of our thinking about the US Presidential race:

  1. US Federal debt (accumulated deficit) is $15 trillion and rising.
  2. US Federal spending deficit (revenue – spending) is $1.25 trillion.
  3. US liabilities for social security is $15 trillion.
  4. US liabilities for drug prescriptions is $20 trillion.
  5. US liability for Medicare is $83 trillion.
  6. Personal debts in the US are $15 trillion.
  7. Mortgage debt in the US is $13 trillion.

This is the national picture. We can add in US State debt and Municipal debt to get a picture of a nation that is not managing its economy with much intelligence. California, which has a tax base of just under 2 million has a State debt of $385.5 billion – a 19% debt to GDP ratio. Pennsylvania, with just 12 million people, has debts of $133 billion while little Montana, with just 1 million people, has debts of $6.5 billion.

The number one issue in the election is the economy closely followed by Medicare, which is seen as both an economic issue (current arrangements are unsustainable) and a quality of life for seniors issue. These issues are closely followed by what we can call the “exceptionalism” issue – the extent to which the candidates buy into the myth that the United States and its people are the best thing for the planet since sliced bread.

Lets get one thing straight: neither candidate is a great candidate. Both have serious flaws of character, neither shows any signs of courageous leadership and both are weakened by their own baggage. The real choice is “none of the above”.

But a choice will be made. Romney’s choice of Ryan as a running mate was meant to strengthen his credentials for tackling the US economic challenge. Despite having published the Ryan Plan, Ryan has no plan. As Paul Krugman has pointed out (see here), the plan pushed debt higher and relies on magical thinking (the “confidence fairy”) and trickle down economics to produce magical levels of growth. In the first decade he would cut taxes (mainly for the rich – people like Romney) by $4.3 trillion and spending by $1.7 trillion. His biggest policy suggestion is to dramatically reduce spending on Medicaid and then transforming Medicare into a less expensive program with those who need it paying more for it. There are no specific plans to stimulate growth other than “trickle down”.

Obama is just as weak. Basically his policy has been to ensure a modest reduction in government spending, changes to the tax regime, a reform of health care and focused investment in infrastructure. Nothing significant in his policy approach with respect to debt reduction, stimulus for house building and ownership or economic growth. With unemployment officially at 9% (which means closer to 11-12% de facto), his approach appears weak.

On American exceptional ism, this is fundamentally about the rhetorical abilities of the candidates to state that America is the greatest country on earth. Obama has taken the view that this isn’t actually true. In education, for example, the US ranks 14th in the world on established international rankings by the OECD. While it does have some very smart people (such as those who engineered the landing of an exploratory craft on Mars), it has a great many social issues to deal with, it incarnates more people per capita than any regime in the world and some of its elected officials are basically dumb (“legitimate rape” comes to mind). Romney takes the view that it is the job of the President to go around the world and not apologize for anything, but to be assertive about the wonders of the American people.

It is a vicious election campaign because both candidates know that they have little to offer. It is about vested interest and money – those with money want to keep it and those who want money want to get more of it. Neither candidate will satisfy their own constituencies of interest, let alone the electorate as a whole. It’s a poor show all round.

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