America’s cracked political system

Incisive commentary by Jeffrey Sachs; carried on the Guardian on December 30, 2010.

America is on a collision course with itself. This month's deal between President Barack Obama and the Republicans in Congress to extend the tax cuts initiated a decade ago by President George W Bush is being hailed as the start of a new bipartisan consensus. I believe, instead, that it is a false truce in what will become a pitched battle for the soul of American politics.

As in many countries, conflicts over public morality and national strategy come down to questions of money. In the United States, this is truer than ever. The US is running an annual budget deficit of around $1tn, which may widen further as a result of the new tax agreement. This level of annual borrowing is far too high for comfort. It must be cut, but how?

The problem is America's corrupted politics and loss of civic morality. One political party, the Republicans, stands for little except tax cuts, which they place above any other goal. The Democrats have a bit wider set of interests, including support for healthcare, education, training, and infrastructure. But, like the Republicans, the Democrats, too, are keen to shower tax cuts on their major campaign contributors, predominantly rich Americans.

The result is a dangerous paradox. The US budget deficit is enormous and unsustainable. The poor are squeezed by cuts in social programmes and a weak job market. One in eight Americans depends on food stamps to eat. Yet, despite these circumstances, one political party wants to gut tax revenues altogether, and the other is easily dragged along, against its better instincts, out of concern for keeping its rich contributors happy.

This tax-cutting frenzy comes, incredibly, after three decades of elite fiscal rule in the US that has favoured the rich and powerful. Since Ronald Reagan became president in 1981, America's budget system has been geared to supporting the accumulation of vast wealth at the top of the income distribution. Amazingly, the richest 1% of American households now has a higher net worth than the bottom 90%. The annual income of the richest 12,000 households is greater than that of the poorest 24m households.

The Republican party's real game is to try to lock that income and wealth advantage into place. They fear, rightly, that, sooner or later, everyone else will begin demanding that the budget deficit be closed in part by raising taxes on the rich. After all, the rich are living better than ever, while the rest of American society is suffering. It makes sense to tax them more.

The Republicans are out to prevent that by any means. This month, they succeeded – at least for now. But they want to follow up their tactical victory, which postpones the restoration of pre-Bush tax rates for a couple of years, with a longer-term victory next spring. Their leaders in Congress are already declaring that they will slash public spending in order to begin reducing the deficit.

Ironically, there is one area in which large budget cuts are certainly warranted: the military. But that is the one item most Republicans won't touch. They want to slash the budget not by ending the useless war in Afghanistan, and by eliminating unnecessary weapons systems, but by cutting education, health and other benefits for the poor and working class.

In the end, I don't think they will succeed. For the moment, most Americans seem to be going along with Republican arguments that it is better to close the budget deficit through spending cuts rather than tax increases. Yet, when the actual budget proposals are made, there will be a growing backlash. With their backs against the wall, I predict, poor and working-class Americans will begin to agitate for social justice.

This may take time. The level of political corruption in America is staggering. Everything now is about money to run electoral campaigns, which have become incredibly expensive. The midterm elections cost an estimated $4.5bn, with most of the contributions coming from big corporations and rich contributors. These powerful forces, many of which operate anonymously under US law, are working relentlessly to defend those at the top of the income distribution.

But make no mistake: both parties are implicated. There is already talk that Obama will raise $1bn or more for his re-election campaign. That sum will not come from the poor.

The problem for the rich is that, other than military spending, there is no place to cut the budget other than in areas of core support for the poor and working class. Is America really going to cut health benefits and retirement income? Will it really balance the budget by slashing education spending at a time when US students already are being outperformed by their Asian counterparts? Will America really let its public infrastructure continue to deteriorate? The rich will try to push such an agenda, but ultimately they will fail.

Obama swept to power on the promise of change. So far, there has been none. His administration is filled with Wall Street bankers. His top officials leave to join the banks, as his budget director Peter Orszag recently did. Obama is always ready to serve the interests of the rich and powerful, with no line in the sand, no limit to "compromise".

If this continues, a third party will emerge, committed to cleaning up American politics and restoring a measure of decency and fairness. This, too, will take time. The political system is deeply skewed against challenges to the two incumbent parties. Yet, the time for change will come. The Republicans believe that they have the upper hand and can pervert the system further in favour of the rich.

I believe that they will be proved wrong.
Sent from my BlackBerry® smartphone from Zain Kenya

Unfinished Letter from Kigali (December 10, 2010)

It I am sitting at Kigali International Airport in Rwanda waiting to catch a KQ 0468 flight to Nairobi. My expectations of KQ are dismal so I am not sure when I will be in Nairobi, hopefully some time before the end of the week.

I have been in Rwanda attending a conference on “Regional Integration and Human Resource Development in Science and Technology Fields”. The American Association for the Advancement of Science and the Ministry of Education of Rwanda organized this conference.

I am not sure that I want to turn this into some kind of diplomatic cable. But I think some things need saying in the most direct and frank way. So here it is. This meeting confirmed my greatest fears. A long held fear that Africa’s moment as a significant global player in knowledge and thought will not come even 50 years from now.

There is every indication that Africa will be the next big market for consumer goods and that Africa’s broken and dilapidated infrastructure presents a veritable hunger for global investments. So do not get me wrong, besides India and China, Africa is the next big thing for world trade and international investment. In terms of population, Africa could surpass both China and India in just 50 years.

I can see my flight, KQ 0468 on the runway. Things can change.

There is a lot about how Africa will advance that will be driven purely by market forces. And like in many economies such as India, Brazil and certainly China, the vortex of this intense market led growth will generate a formidable middle-income with phenomenal disposable income. My guess is that by 2050, Africa could have about 2 billion people, 25% of who will earn an average per capita income of more than $30,000. This financial muscle can generate pockets of intense affluence, comparable to any North American or European economies.

This nearly 500 million will live typical middle-income North American or European lifestyle with all its trappings of luxury and wasteful consumption. This is the limit of market forces. The rest of 1.5 billion Africans, 85% of them urban dwellers, will be hurdled in the forgotten and largely forbidden corners of squalid urban neighborhoods. Thanks to weak state and family institutions (mothers and others), these neighborhoods will be havens of drugs, murder, rape and human trafficking. For the families of the 1.5 billion, life will be short and brutish.

Will Obama show true grit?

By Jon Friedman

"True Grit," the remake of the John Wayne movie of four decades ago, is the best film I've seen in 2010.

It may not be the most profound or deep flick to come across this year — but no other movie was more entertaining. And that should count for plenty.

Just thinking about the title in these tumultuous times makes me think. Barack Obama, the candidate, sure showed grit in 2008 on the campaign trail. In the White House, though, not so much. And that has been his biggest flaw as the POTUS.

He still has a flash of the Obama charisma that has served him so well, the quality that enabled him to sweep past Hillary Clinton, as if she had been standing still, and then racing beyond John McCain's lead-footed pose.

Charisma was invaluable to a relatively unproven candidate. But grit is essential to the prospects of a relatively unproven sitting president.

I suspect that the president will come through in 2011 and demonstrate that he is in full control of the government and the nation. He has shown signs already with the recent legislative successes. It wasn't charisma that passed those thorny bills. It was tenacity. You might call it grit.

In 2011, the president will have to keep up the winning streak. Right now, the Republican Party is in disarray — and that might just prove fatal in November of 2012 (which is not that far off, really).

This is both a blessing and a curse for Barack Obama. The president can be his own worst enemy, when he is far ahead. He doesn't always personify a killer instinct.

If he happened to be a sports team, the knock would be that his club couldn't close out the opponent or stand on his foe's neck when he has a lead. When he is ahead, the president reverts to the law-professor wonk posture that turned off much of America during the financial crisis and the BP oil spill.

That wonk displayed no real grit — and it showed in the polls when the president's approval rating plummeted for a while.

Presumably, Obama learned from this pitfall.

I expect him to come out swinging in 2011 — and showing the old true grit.

Jon Friedman writes the Media Web column for MarketWatch.com.

Sent from my BlackBerry® smartphone from Zain Kenya

The Ocampo List

Kenya is starting to sound like the place I knew before the historic passing of a new constitution.

I have been listing to reactions to to naming of the six men ICC prosecutor Mr. Ocampo named as the main perpetrators of the shameful ethnic conflagration of 2007 elections.

The country has forgotten that the passing of the new constitution was a rejection of ethnic patronage and impunity and an endorsement of the rule of law, a restoration of our confidence in state rather than tribal loyalty.

But after Ocampo read his list the drum roll of ethnic fiat is back. Across the land, different ethnic communities are standing with their own. I heard a caller on BBC Africa service say that they had no problem with the Ocampo list because the Kenyan prime minister was not on the list. A caller from the Rift Valley trashed the list and the investigations by the ICC.

It is interesting to observe that the lives of nearly 1,200 Kenyans do not count much where ethnic considerations are paramount. It is incredible that sections of the Kenyan public are rising up and casting aspersions on the ICC process. I heard some say that the west is using the Hague process to continue to dominate and humiliate African politicians.

My sense is that the ICC process will cause the Kenyan government to split down the middle. This is ironic because the post election violence was a boon to both Mr. Kibaki (incumbent and sitting president) and Raila Odinga (leader of opposition and sitting prime minister.

From the statement released by the Kenyan state house, it is clearly beyond Mr. Kibaki's pay grade to demand that members of his cabinet named resign from public service. Of course we understand that the six are presumed innocent until proved guilty. But Caesar's wife must be beyond reproach.

I can say, with confidence that the big political and ethnic interests will coalesce to protect all the six named by Mr. Ocampo.

In the end, not Ocampo but the Kenyan people must stand up for justice.
Sent from my BlackBerry® smartphone from Zain Kenya

For Barack Obama it is damned if you do, damned if you don't

From the NYtimes: No Deficit of Courage
By JON MEACHAM
Published: December 8, 2010


IS it, in fact, 1994-95 all over again? The atmospherics are certainly familiar. We have a Democratic president who appears to be tacking to the center to work with Republicans after being battered in the midterms. Jilted liberals, meanwhile, are left wondering how they could have been so blind about the man they had fallen for so hard.

The Clinton comparison has been much in the air after President Obama’s deal to extend the George W. Bush-era tax cuts. But a more apt analogy for the present lies in 1990, not in 1994, and with George Herbert Walker Bush, not with William Jefferson Clinton.

It was in 1990 that Mr. Bush broke one of the most celebrated promises in modern American politics —“Read my lips: no new taxes,” as he put it in 1988 — in order to control federal spending. In the same way that Mr. Obama struck his deal to secure lower tax rates for the middle-class and win an extension of unemployment benefits, Mr. Bush gave on tax rates to get “pay as you go” rules — meaning that no further spending could be approved without compensating budget cuts or revenue increases. It was the beginning of the fiscal discipline that helped create the budget surpluses of the 1990s.

While Mr. Obama’s immediate concern is stimulus and Mr. Bush’s was deficit-reduction, both gave way on issues critical to the true believers within their parties. For Mr. Bush, it was political death. He had never been fully trusted by a Reaganite Republican base. Like Mr. Obama — who is unhappy with his “sanctimonious” left wing — Mr. Bush was no ideologue.

“I’m not going to be held up by campaign rhetoric,” he wrote in his diary early in his term. “If the facts change, I hope I’m smart enough to change, too.” Mr. Bush privately said that he had no intention of being “off in some ideological corner falling on my sword and keeping the country from moving forward.”

He knew that doing what he believed was in the country’s best interest could cost him his job in 1992. “Nobody is particularly happy with me,” he said during the 1990 negotiations. “The budget is a loser.”

But in real time, aware of the consequences, he made the best of the world as he found it. After his election loss to Mr. Clinton, Mr. Bush wrote to Nicholas Brady, his Treasury secretary, that the budget deal would have helped him if the economy had strongly recovered. “It didn’t,” Mr. Bush added, “and I was the ‘read my lips’ liar — over and over and over again. I heard it — it killed us.” With the base angry and so many others believing the economy was not getting better, Mr. Bush faced a primary challenge from the right by Patrick Buchanan and ultimately could not prevail against the combination of Bill Clinton and Ross Perot.

If you play out the 1990 analogy, Mr. Obama, like Mr. Bush, may be a one-term president. Mr. Clinton won re-election because of his political gifts and the improving economy and because he was fortunate in his Congressional foes. Mr. Bush did not have these advantages.

It is too soon to tell what will confront Mr. Obama. If his bill, with its middle-class tax benefits, stimulates the economy, then his compromise on a liberal article of faith may one day rank with Mr. Bush’s courage under conservative fire.

There are worse things than losing re-election yet winning the good opinion of history. Don’t be surprised if Mr. Obama makes that very point when he presents the Presidential Medals of Freedom next year. Among those the president has chosen to honor at the White House: a man from Houston, George Herbert Walker Bush.

Jon Meacham, the author, most recently, of “American Lion: Andrew Jackson in the White House,” is at work on a biography of George H. W. Bush.