Showing posts with label economy. Show all posts
Showing posts with label economy. Show all posts

7/14/2008

Lamentations of an Educated Voter: On Whiners, Pragmatism, and Reality

Barack Obama and John McCain are experiencing great difficulty keeping their surrogates in check and on message. Last week, civil rights activist Jesse Jackson got in trouble by making a vulgar remark in regards to his frustration with Obama. The media had a field day with this, as they couldn't stop talking about Jackson's diminished stature or possible fissures on Obama's left.

The McCain camp, however, would not be outdone. Shortly after Jackson's mouth got him in trouble, chief economic advisor and former Texas Senator Phil Gramm created even more controversy by claiming the United States was in a "mental recession" and accusing us of being "a nation of whiners." (You can access the video clip here.) Obviously, voters don't like to be called names, but on top of that, in an election in which economic anxiety is weighing heavily on voters' minds, these remarks could not have come at a worse time.

Of course, this brouhaha was catnip for pundits and journalists. Gramm tried to backpedal a bit by claiming our political leaders were the "whiners," not the actual voters. But he did not retract his statement at all, nor did he apologize. McCain has since cut ties with Gramm and said that he doesn't speak for his campaign. McCain and Gramm are personal friends who share a long history, but he really didn't have much choice because had Gramm stayed on board, that would have made McCain risk looking out of touch with voters' needs. And lingering complaints about Barack Obama waiting so long to dissociate himself from his church would ring hollow because McCain would still have his association with the advisor who claimed that voters were whiners.

That's politics. Fine.

But what if there were real kernels of truth to what Gramm was saying? I wrote about the need for consumers to practice fiscal responsibility earlier this year when the economic stimulus rebate checks were being debated in Congress. I argued that the economy was worse for people who brought about their ruin through their own poor financial decisions:

"Consumers who paid their bills on time never had to worry about subprime mortgages. Consumers with tight wallets who bought board games or comic books for Christmas instead of DVD players and laptop computers aren't worrying about paying down credit card debt. Lower-income consumers who are driving Corollas instead of Camrys and station wagons instead of SUVs aren't worrying about expensive car insurance and high car payments."
Gas prices notwithstanding, Gramm was likely arguing that consumers should live within their means and that those who haven't been doing so are really feeling the pinch now.

Many consumers seem to have forgotten this and tried to live above their paychecks. This was made easier by offers of no payments for 6 months, 0.9% financing, and two-for-one specials. Nice cars with powerful engines and big homes in well-to-do neighborhoods are expressions of wealth that usually take years to acquire. But telling voters that they should have bought a 27" regular television instead of a 40" flat-screen one or that they should have bought a base model car instead of a limited edition model car is the exact kind of "eat your vegetables" rhetoric that voters tune out. President Jimmy Carter learned this the hard way when he talked about the need for voters to conserve energy and reduce waste only to be ridiculed and have his message be dubbed the infamous malaise speech.

Solutions without sacrifice seems to be a common theme that voters respond to.

Voters want to find a solution to our nation's energy crisis. But they don't want to drill in certain areas or increase fuel efficiency standards for automobiles.

Voters want to pay less for gas. But they don't want to drive slower on the highway. And they want to keep driving their SUVs and cars with V6 engines.

Voters want to increase social services and have a better transportation infrastructure. But they don't want to pay the higher taxes necessary to support them.

Voters want to win the battle in Iraq. But they don't want to send their own family members over there to fight even though the military is stretched thin.

Voters want to increase border security and crack down on illegal immigrants. But they don't want to pay the higher prices that would result from their deportation.

Voters want the best possible health care they can get. But they don't want to give up their smoking, drinking, overeating, junkfood, and couch potato lifestyle.

Voters don't want to be overwhelmed by the economy. But they don't want to give up the houses they should not have moved into or the cars they should not have bought.

Voters want the best, brightest, most pragmatic, most worldly, and most prescient people to occupy the White House. But they (voters and the media) don't want to ask them any substantive questions during the campaign because they get bored (or they think their audiences will get bored) by gory policy details. (What happened this primary season was a travesty.)

This mentality seems to start young and only become more glaring with age.

Students want to get good grades. But they don't want to study for their classes. So they use CliffsNotes or complain to their teachers when they get a B or a C.

Overweight people want to be thin. But they don't want to go on diets or exercise regularly. So they get surgery or complain about discrimination against fat people.

Adults want to be wealthy. But they don't want to stop spending their money on sales, dresses, and video games they can't do without. So they use their credit cards and spend money they really don't have.

Politicians have unfortunately seized on this "solutions without sacrifice" mentality by making promises they can't keep and offering broad goals that we can all agree with, unencumbered by pesky specifics. And voters lap it up like candy.

After September 11, a grieving nation was solidly behind the president and ready to do whatever it took to get the United States back on its feet and help bring justice to the terrorists who attacked us. President Bush then told the nation to "go shopping."

John McCain talks about fiscal responsibility with government finances. But he won't include defense spending when it comes to balancing the budget. Thus, the Iraq War would essentially be financed by simply printing more money, thus further weakening the dollar--a practice that could have consequences that more than offset the fiscal discipline exercised by working within the non-defense portion of the budget.

Barack Obama talks about the need for standing up to President Bush and his prosecution of the War on Terror. One of the central parts of Bush's anti-terrorism policy is the Foreign Intelligence and Surveillance Act which grants telecommunications companies immunity in the event that accusations of warrantless wiretapping were pursued in court. Obama was long opposed to FISA, but ultimately supported an amended FISA compromise that kept this immunity intact.

Voters from all over the political spectrum are criticizing McCain and Obama for their apparent contradictions. McCain is a warmonger who will break the budget and Obama is an opportunistic flip-flopper. But the truth of the matter is, both politicians' decisions have merit in that prosecuting a war and gathering intelligence are complex issues that cannot be reduced to 30 second campaign ads or a slogan on a bumper sticker. So voters are excoriating both candidates for actually taking the complexities of geopolitical reality into consideration.

Back to Phil Gramm.

As was the case with Wesley Clark, perhaps Gramm should have been a bit more tactful when giving his remarks. As a result, like Clark's remarks, the central part of his message was obscured by how the message was delivered. However, he has touched upon something very real, not just about our struggling economy, but also about our own responsibilities to ourselves, our families, and our government.

You can't get something for nothing. And no complex problem has a simple solution. For voters to expect otherwise is irresponsible. There's only so much that a politician, media organization, or government agency can do. The rest is up to a mature and pragmatic citizenry. And in light of the fallout from Gramm's remarks, it seems that many of us still don't get it.

6/12/2008

Gas Prices: A Failure of Conservatism

Gas prices have become one of the most important political issues this year. When the average price of a gallon of gas first reached $2 a gallon, there was shock. When they reached $3 a gallon, there was disbelief. And now they have topped $4 a gallon. People are suffering. Small businesses are suffering. Truckers are suffering. Farmers are suffering. Airlines are suffering. Everyone is suffering.

Last month I wrote about the absurdity of the gas tax holiday that John McCain has proposed. (Hillary Clinton also proposed this, but she's not a candidate anymore.) I argued that repealing the gas tax (currently 18.4 cents per gallon) would only encourage more consumers to buy more gas at a time when we're complaining about our dependence on foreign oil. Reducing our consumption of foreign oil and making gas cheaper by temporarily eliminating a fuel tax are not reconcilable.

To drive down gas prices, you only have two choices: increase supply or reduce demand. Repealing the gas tax does neither. Increasing supply can be done, but it is not a short term solution. Drilling in Alaska, the Mountain West, and the continental shelf along the Gulf of Mexico will take several years before the oil there makes it into our automobiles. Energy analyst Chris Nelder of Energy and Capital is skeptical about the overall value of these solutions for similar reasons.

The only short term solutions center around reducing demand. And this is where conservatism, and to a lesser extent liberalism, has failed.

Regarding the failure of liberalism, liberals would argue that high gas prices should drive down demand, thus leading to a greener environment. With slumping SUV sales, perhaps this is happening now. But it came too late for many people--at least as far as their wallets are concerned. When gas was a then astronomical $3 a gallon, Americans were still driving just as much as they were five years ago when gas prices were much lower. So in theory, while high gas prices should steer people more towards conservation or purchasing more fuel efficient vehicles, it has not happened in a timely enough fashion to avoid the current economic disaster taking place. And could the economy really sustain itself if people are forced to pay an artificially high price for gas? And how many people are willing to put the well being of the environment ahead of the well being of their personal finances?

Having said this, conservatism and the principles it supports are where I find the most fault. Here's why:

There are several reasons why the United States is having to grapple with such high fuel prices. The economies of China and India are growing, the distribution of oil supplies from the Middle East is disrupted, the dollar is weak, no new refineries have been built in the United States for decades, and there are untapped areas rich in domestic supplies of oil that we have not yet taken advantage of. Most people can agree on this.

There's another reason, however, why gas is so expensive. But nobody wants to talk much about it. It's us. And our consumer behavior regarding gas has given conservatism a black eye. (For a well written contrary view to this post, read this piece by Rick Frea at Freadom Nation.)

Increasing fuel standards for American automobile manufacturers has long been offered as a solution to rising gas prices. But the automobile industry has railed against this because they feared it would increase production costs and make their products less competitive. The major industrial areas of the Midwest and cities like Detroit would be particularly hard hit, so they have resisted increasing fuel standards.

Conservatives favor little or no government intervention when it comes to the market. "Letting the free market decide" is a common rallying cry by laissez faire capitalists and economic conservatives. It sounds good in principle. Businesses should have the freedom and flexibility to adapt to consumers' needs. But how has that turned out?

American automobile manufacturers are losing ground to imports, especially from Japan. Japanese companies tend to make smaller and more fuel efficient vehicles. Trucks and SUVs, while popular, are not as critical to the success of companies like Honda and Toyota. These companies make the top selling and fuel efficient Accord, Camry, Civic, and Corolla. They also led the way with hybrid cars like the Prius. American companies manufactured larger, more powerful, less fuel efficient vehicles. The Ford F-150 full-sized truck is the top selling vehicle in America, but its sales are slowing and Toyota has since become the #2 automaker in America as a result.

The increase in gas prices is pushing consumers to buy smaller cars. This is great for the environment, but it is bad for the companies that are making the vehicles people no longer want to buy. This means plants are closing. And when plants close, jobs disappear. Average blue-collar workers do not think about economic speculation and market forces when it comes to hitting the resume circuit. They're thinking about landing a job. And now these jobs are disappearing. So decisions made in corporate boardrooms about their product lineups have forced thousands of people out of work.

When gas was less expensive, people were happy driving large vehicles, some of which they may not have needed. They bought Hummers. They bought trucks. They bought SUVs. And they were not towing anything. And instead of driving these vehicles off road, they were driving them to the shopping mall or to soccer practice. Now they are feeling the pinch as they pay $60 or $70 to fill up their tanks.

At this point, conservatives would say there's nothing wrong. "Personal accountability," right? That is true. If you bought a gas guzzling Ford Explorer instead of a Ford Taurus, that's your responsibility. But this decision affects far more than just the family who bought such a vehicle. That extra $50 an unhappy SUV owner is spending at the gas pump is $50 they are not spending at a local restaurant, a small business, a department store, or a shopping mall. And that means small business owners are taking in less revenue, thus making it more difficult for them to compete with larger corporations that are also hit. So that translates into even more job losses because businesses become less profitable and have to cease operations at some sites. So in short, one person's poor choice can have ramifications that reach far beyond their own wallet. Put another way, the effects of "personal accountability" are not so "personal."

What about people who purchased SUVs and are still making payments on them even though the amount they still owe is greater than the rapidly depreciating value of their SUV? So these people can't sell their SUVs because nobody wants to buy them, but they must continue making the monthly payments to protect their credit rating. This would be another example of "personal accountability" or perhaps even "not living within one's means," but like in the previous example I cited, that is further decreasing the amount of money consumers can pump into the economy. They have less money to get a mortgage, buy a smaller car, or purchase a big-ticket item like a television. And the dominoes start falling again.

And what about small car owners? Consumers who drive smaller, more economical vehicles are paying more at the pump partly because other consumers who drive larger gas guzzling vehicles they don't need are placing a disproportionately high demand on gas. Conservatives would argue that the small car owners are doing the right thing and that how much gas you need should determine how much you should pay. But if more people were driving smaller cars, there would be more gas available (the supply would increase) and gas would therefore be cheaper. This sentiment is shared by Mike at The Pluribus Driver.

The market is indeed changing to meet consumers' demands as capitalism says it should, but this change has happened too late for too many people. And it's having ripple effects. The point of this post is not to criticize people for what they drive or to propose strict government regulation of business, but rather to remind consumers, economists, and politicians of all stripes that even though conservatism makes a lot of sense, as I argued in February, when it comes to gas prices and oil consumption, we are all in this together.

Will any politician have the courage to tell us what we don't want to hear even though we need to hear it?

4/15/2008

Bitter Politics: Advantage Obama?

Barack Obama's "bitter" remarks have gotten an extraordinary amount of coverage in the media over the past few days (such as here, here, and here). Journalists, pundits, and elected officials of all political persuasions have pounced on these remarks and speculated on how adversely they will impact his campaign.

Hillary Clinton, for example, has turned the words "bitter" and "cling" into potential political gold by creating a campaign ad slamming Obama as offensive and elitist. She also slammed him at the recent CNN Compassion Forum.

John McCain, who stayed far away from the Jeremiah Wright controversy, had no problems jumping in the fray by calling Obama's remarks elitist. Perhaps because class arguments are politically safer than discussing race, "straight talk" is easier for McCain to engage in this time around. Regardless, this episode has surely been good for his fundraising.

Regarding the media itself, there are some who are focusing strictly on the word "bitter" as an insult. Others took offense over the use of the phrases "cling to guns" and "cling to religion" because they seemingly demean their rural voters' cultural identities (churchgoing sportsmen). And more are discussing how Obama is coming off as an elitist in the mold of failed presidential candidate Michael Dukakis.

However, could Obama actually wind up as the beneficiary of the aftermath of his awkward remarks?

Comparatively little is being said about the main point of his remarks, which is that these rural voters often vote against their economic self interests because the cynicism and frustration brought about by the loss of jobs in their communities and the lack of affordable healthcare (which affect more than just rural voters) make them more apt to respond to social wedge issues that capitalize on their frustrations, again at the expense of their economic well-being. This was well argued by Obama supporter Senator Bob Casey of Pennsylvania, who also appeared in this latest Obama campaign ad.

And more importantly, the more John McCain and Hillary Clinton try to score political points off of this story, the more it makes both of them look like political opportunists who are thus offering more of the same. This plays right into Obama's message of presenting something new. And the fact that Obama did indeed make a mistake could actually make him appear more humble or more accessible because it shows voters that he too is capable of making a mistake. After all, it is Obama who has traditionally been seen as the second coming of JFK or the political Messiah who could do no wrong.

Ironically, McCain may have inadvertently helped Obama by reminding voters that he (McCain) "will screw up sometimes and frankly so will you (the media)" but that he has "trust in the American people to get it right in the end." One of the first rules of politics is that when your opponent is digging himself a hole, don't hand him a shovel. McCain may have done just that, even if unintentionally.

The ongoing frenzy also advantages Obama because open-minded voters (e.g., undecided voters or those who had not written him off from the getgo) who are paying attention realize the point of what he was trying to say and/or accept his apology and simply want to move on. Gotcha politics reeks of talk and phony outrage, but no meaningful dialogue or solutions. Time politicians spend feigning outrage is time they are not spending presenting their own case to voters.

Could voters reward Obama as a way of punishing the media, the punditry, Hillary Clinton, and his Republican detractors for the way they blew this incident out of proportion? Should this happen, it could be attributable more to a repudiation of politics as usual rather than an actual endorsement of Obama himself. (Consider the uneasy reaction the audience gave when Clinton tried to address this issue recently.) It appears that based on a collection of polls, Obama is actually coming out of this controversy without too much damage. So it would seem that there might indeed be a disconnect between the chattering classes and the actual voters.

Regarding politics as usual, consider this:

1. Hillary Clinton found it necessary to talk about how her father taught her how to shoot when she was a little girl. But when asked when she last fired a gun, she said it was not relevant. That reeked of political opportunism because Clinton is not known for being a fierce defender of the Second Amendment. In the end, that made Clinton look like an empress who had no clothes. In response, Obama deftly compared Clinton to Annie Oakley and jokingly said that Clinton should "know better" because she's not "in the duck blind" every weekend.

2. Barack Obama is a Washington newcomer who has a net worth that is far lower than the other presidential candidates, including those who dropped out of the race. Per her newly released tax returns, Hillary Clinton made well over $100 million in the past eight years.

3. Republicans sound a bit hypocritical accusing Obama of being an elitist because they are the ones who commonly criticize Democrats for engaging in "class warfare." Barack Obama did not grow up as a privileged child with well-to-do parents. He was raised by his sick mother and his grandparents--hardly typical of children born into wealthy families who lived in gated communities located near elite private schools. And how did Obama go from being the inexperienced candidate who wasn't ready for the big leagues to being Mr. Elitist anyway?

This in no way diminishes the potential negative effects of these remarks in the general election. And Hillary Clinton may be hoping that uncommitted superdelegates give her a second look. But given how she may have overplayed her hand and how the punditry and the media are really missing the bus on this issue, Obama may actually come out of this controversy on top.

2/05/2008

The Economy and an Argument for Conservatism

Aside from Super Tuesday and the presidential race, one of the biggest issues facing the country regarding its government is the economic stimulus package currently being debated in Congress. Economic volatility, a slumping housing market, and a weak dollar have contributed to a pervasive sense of pessimism among many voters.

To address these voters' concerns, President Bush, members of Congress, and even the presidential candidates have talked about the need for some sort of "stimulus" that will benefit American families and help jumpstart the American economy. However, their rhetoric and the very nature of the economic stimulus package on the table blatantly contradict some of the principal tenets of their political philosophies. Both liberals and conservatives are guilty of this, but it seems that conservatives are a bit more egregious in their hypocrisy because what should be their argument is actually quite credible.

One major part of the package involves mailing out rebate checks to people who paid federal income taxes last year. The size of these rebates depends on one's marital status and how many children they have. Republicans, including the presidential candidates (both current candidates and those who have recently dropped out), have talked about the need for Americans to get those rebate checks so they can "put that money back into the economy" by buying consumer goods, such as clothes or electronics.

However, these wishes fly in the face of traditional conservative campaign rhetoric about the importance of saving money or encouraging people to invest it. Encouraging people to spend money they received as some sort of "gift" from the government sounds more like telling people to take advantage of a government giveaway--something that appears more in line with liberal philosophy.

On top of this, the people who are struggling financially can't really afford to spend this money on a new pair of shoes or a new television. And if they did, then they would only risk plunging themselves deeper into debt. But then again, since many Republicans want Americans to spend these checks, it seems like they are only exacerbating the financial squeeze many families find themselves in at present.

People are generally pessimistic about the economy, but this pessimism has a lot to do with the choices one has made in the past. For people with mounting credit card debt and rising mortgage payments, the economy is obviously not so good for them. This is where true conservatism (not the current "conservative" rhetoric) could serve as a remedy. Many of the people struggling with their mortgage payments are those who had obtained subprime loans. In other words, their previous poor financial decisions are directly responsible for their poor credit and their poor decision to purchase a house they could not afford. And now they are struggling and need help.

True conservatism would warn people that they should live within their means. A house is the biggest investment any person will make in their lifetime. It takes decades to pay off a mortgage, and it takes stable and reasonably lucrative employment to be able to cover the payments. If someone is not able to handle these conditions, the solution is not to call for the government to bail you out. The solution is to rent an apartment.

As for credit cards, smart consumers know that if they are not able to pay for something in cash or if they can't pay off the bill in full at the end of the month, they should not use their credit cards for anything at all unless it's an emergency. However, consumers in all income brackets are buying iPods, PlayStations, and flat-screen televisions--often on credit.

Conservatives would rightfully argue that people who are not financially independent should be more careful when making these kinds of purchases. Put more bluntly, poor people should not have a Nintendo Wii in the house. People making $35,000 a year should not be making payments on a BMW 3-series. People who get paid by the hour or who work for tips should not be upgrading their cell phones every year.

For these people, their own poor past decisions are directly responsible for their current economic plight. For people who have lived within their means and managed their credit carefully, the economy is doing fine (save for declining property values and high gas prices). Renters aren't worried about rising mortgages, and people without credit card debt aren't worried about rising APRs. However, it is too politically risky for a politician to say this for two reasons: 1) it makes the politician seem "out of touch" with the voters who are suffering from problems they really brought upon themselves, and 2) their "you should have been more careful" rhetoric doesn't provide a solution to the fact that families are struggling now.

One of the tenets of liberalism is that if you do your part and play by the rules, the government will help you or protect you if you are down on your luck through no fault of your own. The problem with this argument is that in most of these cases of current financial hardship, consumers did in fact break these rules and brought about their own ruin. Consumers who paid their bills on time never had to worry about subprime mortgages. Consumers with tight wallets who bought board games or comic books for Christmas instead of DVD players and laptop computers aren't worrying about paying down credit card debt. Lower-income consumers who are driving Corollas instead of Camrys and station wagons instead of SUVs aren't worrying about expensive car insurance and high car payments.

Conservative voters realize this, but none of the presidential candidates are really addressing it. To his credit, Mike Huckabee has warned that the Chinese economy stands to benefit more than the American economy given the glut of Chinese products on the market. But most of the other candidates and congressmen are spending more time talking about extending unemployment benefits and getting these rebates in the hands of the American people as fast as they can. Conservatives look at their (usually Republican) political leaders and shake their heads in disbelief at their rhetoric. It seems like politicians of all persuasions are more interested in pandering than in principle, and that's a shame.

Copyright 2007-2008 by Anthony Palmer. This material may not be republished or redistributed in any manner without the expressed written permission of the author, nor may this material be cited elsewhere without proper attribution. All rights reserved. The 7-10 is syndicated by Newstex.