“Coulda, Woulda, Shoulda” – Friedman 11/14/07

Today’s column by Friedman on energy policy should be mandatory reading for all political candidates. The basic premise of the opinion is that America has failed to act in a coherent manner with regards to energy (i.e. oil) policy. Specifically, Friedman points out the drastic increase in oil prices from September 2001 through November 2007 (350%), which can largely be attributed to the increased global demand for oil. This increased global demand is significantly related to America’s failure to reduce its’ demand and developing nations (e.g. China and India) adopting the American developmental model with respect to energy policy (see 11/9 post). The real underlying issue Friedman has with the current policy is that America has blindly relied on market forces to guide energy policy, but in a situation as complicated as energy policy the market fails to consider all the costs and benefits of a transaction. In a completely free market there is no obvious incentive to the individual driver or company to reduce oil reliance because the benefits that accrue from such decreased reliance are to the nation-state and society at-large and not the discreet economic unit. The societal costs of additional pollution is not part of the transaction, nor are the implications on geopolitical stability and sustainability calculated (directly) into the spot price of West Texas sweet crude.

The question is how do we get these costs considered in each transaction? One method would be to get individual consumers to price in these costs on their individual consumption behavior. Though laudable, the aggregate effects of this change will likely be nominal due to the overwhelming costs of an educational drive and also due to the low participation rate in such a program. The low participation rate is economically understandable, because there is no rational economic disincentive to the behavior in question. This is where a second method of regulating the market comes in: taxes. Of course using taxes to modify behavior is never very politically palatable, but this is when a truth telling politician (don't laugh) is needed. Friedman argues we need a candidate (a Democrat in his mind, and probably the only hope at all) to speak to this issue in a clear and truthful manner.

“DEMOCRATIC CANDIDATE: “Yes, my opponent is right. I do favor a gasoline tax phased in over 12 months. But let’s get one thing straight: My opponent and I are both for a tax. I just prefer that my taxes go to the U.S. Treasury, and he’s ready to see his go to the Russian, Venezuelan, Saudi and Iranian treasuries. His tax finances people who hate us. Mine would offset some of our payroll taxes, pay down our deficit, strengthen our dollar, stimulate energy efficiency and shore up Social Security. It’s called win-win-win-win-win for America. My opponent’s strategy is sit back, let the market work and watch America lose-lose-lose-lose-lose.” If you can’t win that debate, you don’t belong in politics.”

The likelihood of any serious candidate making this kind of statement is slim, but just because the current political actors aren’t willing to say it does not mean it is without value (an argument could be made that precisely for this reason it has value) Americans need to realize that continued (over) consumption of oil has a number of negative externalities coming to bear on each additional barrel of oil imported from abroad. It is my opinion that the best method to address these concerns is through a fuel tax. I understand that this tax would be inherently regressive, but this could be addressed through a phase-in and/or a temporary (I know this is hard to do) fuel tax income tax credit. Taxes have their place, and though modifying individual behavior may be the most desirable, sometimes a little government intervention can get the ball rolling.

Take this as my personal call to arms for a Geopolitical Social Cost Benefit Analysis of US Energy Policy. There has already been an outcry for including a tax on oil that would incorporate the social costs of pollution, but I argue here that we must consider the geopolitical consequences of continue reliance on foreign oil from unstable regions. An extension of the current policy, leads to America in a showdown of increasing demand with China and/or India for a stagnating world oil supply.

“Wobbled by Wealth?” – Krugman 11/5/07

Are the Democrats becoming corrupted by the influx of cash from wealthy supporters? This question is becoming more pertinent in the Democratic Party, as for the first time in recent history; the Democrats have raised more cash than the GOP from the business world. Are the Democratic officials selling out their progressive base by accepting the largesse of corporate America, or are they taking advantage of a political opportunity to broaden the power base?

The answer to this question will likely not come until sometime after 1/20/09, when a new president (likely Dem) will be able to develop an agenda for the nation. Will this agenda feature a more equitable tax structure with fewer loopholes and deductions for the rich? Will health insurance reform see the light of day? Will insurance reform to ensure that long-term policyholders aren’t dropped without cause become law? Or will hedge fund managers call on Mr. Schumer, drug companies on Hilary, and insurance on Mr. Dodd? Though this sounds a bit doomsdayish, the biggest concern I have is that progressives will fail to support the Democratic Party because they view it as the same as the GOP. Krugman hit the nail on the head on this point:

“O.K., some perspective. I sometimes hear people say that there’s no difference between Democrats and Republicans; that’s foolish. Look at the fight over children’s health insurance, and you can see how different the parties’ philosophies and priorities really are. All of the leading Democratic candidates are offering strongly progressive policy proposals; the Republicans are, if anything, running to the right of the Bush administration.

Perspective is key here, and I am not convinced that the Democratic presidential hopefuls are completely devoid of progressive principles. They have shown a willingness to at least espouse progressive ideals on the campaign trail. I am, like Krugman however, worried.

I have hope that opening the doors to business will generate immense electoral gains, arguably solidifying a governing coalition that can make a positive globalization effect for America into the future. I also have my concerns - Business is a bit of a serial monogamist, where nothing is forever. If the Democrats pursue this path of working closely with business, they may just cut some of the power out from under themselves were they to pursue a progressive agenda viewed as too extreme by the business community. Conversely, if they pursue an overly business friendly agenda, the possibility of losing unions, labor, and progressives is also real. I don’t believe in entrenched party lines, as they tend to make compromises more and more difficult as absolutes are embedded in party platforms. I do, however, find some cause for concern when the party that is stopping big boy hedge fund managers (all 150 of them) from being equitably taxed on their sizable income is the same party that for years has claimed to represent all the little guys out there.

“Death of the Machine” – Krugman – 10/19/07

Friday's NYT has Krugman discussing corporate campaign financing via K Street.The ability of the Republican Party to raise significantly more funds, especially from the business community, has been considered a given over the last few election cycles. The methods of Rove and elected Republicans, such as Santorum, to garner a permanent majority were predicated on the ability to grossly outspend opponents in elections. The current election cycle is strongly challenging this given, as Democrats are receiving more funds from each of the top ten industries in America. The question at the core of this issue is why is corporate America abandoning the GOP at this rate? The easy answer is political calculus. This argument holds that businesses know how to read the signs of an impending bomb of an election for the GOP in 2008. With 22 of the 34 contested Senate seats held by Republicans, a wave of GOP retirements in the House, and a lackluster presidential field the corporate world is quite simply hedging on the likelihood of a unified Democratic government for the first time since 1993. This calculus, along with the business community getting tired of seemingly being held hostage by the Republican Party, are two of the likely reasons for the funding shift.

Another possible cause of the growing gulf between business and the GOP is the lack of competency by the current administration. Though it is hard to argue that Bush has been unfriendly to business, his actions and policies have not exactly been the most conducive to growth and stability in the national and world economy. Disruption, volatility, and incoherent policies are bad for business, and the current administration has had no shortage of any of the three.

I would add two additional reasons for this growing disaffection between GOP and business. The first is that as the GOP maintains its intimate relationship with social conservative organizations and groups, the business community is forced to recognize that the GOP isn’t always with them – but occasionally must pander to the vote base. A singular example of this issue is the public financing of research facilities for stem cells – here in Madison the business community is very receptive to the idea, while the religious organizations are vehemently opposed. The final reason, and most disturbing, that I can come up with regards to business money flowing to the Dems instead of the GOP, is that the Democratic National Committee and the presidential candidates are viewed as in the pocket of big business.

Krugman, I think, would disagree with this last point being intentional, but he recognizes it as a real possibility:

“Many progressives, myself included, hope that the next president will be another F.D.R. But we worry that he or she will turn out to be another Grover Cleveland instead – better-intentioned and much more competent than the current occupant of the White House, but too dependent on lobbyists’ money to seriously confront the excesses of our new Gilded Age.”

The idea that a Democrat may be well intentioned, but unable to make some necessary politically bold moves seems more likely when the influx of corporate dollars is noted. The business community is often inherently conservative in nature – along with being enemies of volatility and incoherent policies; they also fight against change and any policy that is assumed to be harmful to the bottom line. I am, like Krugman, very concerned that we have established such a low baseline over the past seven years for leadership, that the progressives in America will rally behind a candidate that is primarily financed by some of the very industries (pharmaceuticals and insurance) that are most impeding necessary social changes.

“Sliming Graeme Frost” – Krugman – 10/12/07

Last Friday, Paul Krugman took issue with the lambasting of Graeme Frost at the hands of the right-wing media machine. It is frustrating for me to watch our political discourse continually fall to this level. I loathe the carelessness in the media of presenting information and the corresponding laxity with which the populace consumes it. Though I am unwilling to exclusively condemn one side of the political spectrum, it does seem that this program of personal attacks by innuendo and lies is utilized entirely too often by the “mainstream” conservative pundits. Krugman points out that these are not “fringe elements” within the right wing media, but folks like Limbaugh and Malkin who are often cited and greatly respected (within their portion of the spectrum) sources of political information.

Believe it or not, I think America needs these folks on the right to stir the political pot with their perspective. The unfortunate reality is that this role of biased (not in a bad way) media outlets is being, along with many other aspects of our discourse, continually polarized where the other side cannot be given quarter at any time. This mentality is, in and of itself, not political – but a zero-sum war game where by one side always wins and the other loses. This is to me one of the biggest failures of a portion of the political spectrum that claims to be so pro-business. The failure to recognize a basic premise of economics - that win-win outcomes are where the most value is added – informs me that there is little interest in making America better in aggregate. The point is to make America better for a certain constituency.

“Politics aside, the Graeme Frost case demonstrates the true depth of the health care crisis: every other advanced country has universal health insurance, but in America, insurance is now out of reach for many hard-working families, even if they have incomes that some might call middle class... ultimately, this isn’t about the Frost parents. It’s about Graeme Frost and his sister. I don’t know about you, but I think American children who need medical care should get it, period. Even if you think adults have made bad choices – a baseless smear in the case of the Frosts, but put that on one side – only a truly vicious political movement would respond by punishing their injured children.”

Thank you Mr. Krugman. This is not as much of a political issue as it is an ethical one. I, along with many others, have lived through a childhood of no health insurance coverage. Children in these positions are exposed to countless health issues that if treated or addressed at an early age may not have a serious impact on their lives, but left untreated we put these kids at a health disadvantage as they enter adulthood. I guess our land of equal opportunity doesn’t apply to health, or education, or dynastic wealth....