Among the long string of bad economic news from the last few years, there is something to celebrate: The political consensus in Washington that government could keep on growing at no cost to the growing economy has finally broken down. The size and scope of government is now the defining issue of our time. It is a welcome debate. However, it has centered on spending, which is only part of what government does. Regulation and tax policy are equally important.
Legendary entrepreneur Steve Wynn (who usually supports Democrats) put it bluntly a few days ago, when he said: "[T]his administration is the greatest wet blanket to business, and progress and job creation in my lifetime. And I can prove it and I could spend the next three hours giving you examples of all of us in this marketplace that are frightened to death about all the new regulations, our health care costs escalate, regulations coming from left and right… And it makes you slow down and not invest your money."
Wynn is right. If we want Americans to get back to work, we must tackle overweening government now. A recent survey by the U.S. Chamber of Commerce found that 64 percent of small businesses will not hire anyone in the next year. The reasons given all concern government: taxation, regulation, and the threat of new legislation.
A sterling example of Wynn's point is the Dodd-Frank law that was supposed to solve the problems that led to the 2008 financial collapse. It empowered regulators to decide which firms are "systemically important" -- too big to fail, in other words. Enshrining this concept into law will only make huge financial losses more likely, as firms deemed too big to fail will have an incentive to take more risks, in the knowledge that the government will bail them out when they get into trouble.
That is bad enough. Even worse is not knowing which firms are "systemically important." Yet the Obama administration has yet to make that determination, which means that many large financial companies don't know whether they will be covered, and so don't know whether they will have to raise capital or reduce their leverage. That means that industries that rely on these companies for funding do not know what their cost of capital will be. As journalist Robert Tracinski points out, this is "the most basic piece of information in a functioning economy." The only thing worse than bad rules is not knowing what the rules are.
Uncertainty is not the only way in which government drags down the economy. It also imposes crushing regulations. The cost of complying with regulations comes to over $10,000 per employee for small businesses and is continually rising -- it's already up from $7,600 in 2008. At a time when companies are reeling from the recession, it is remarkable that the Obama administration has not taken steps to reduce this burden substantially -- offering instead only token efforts that do not even scratch the surface of the problem.
We have dug ourselves into a mighty hole. In the 1990s, federal spending increased by $300 billion. In the 2000s, it increased by over $1 trillion. Since 1995, federal bureaucrats have issued over 60,000 new regulations, all of which carry the force of law. The tax code is now 2.1 million words long. Ample evidence shows that this growth in government hinders growth and fosters unemployment.
Yet we can climb out of it, and we don't need to reinvent the wheel to do so. The laboratories of democracy that are the states offer some possible solutions. In Wisconsin, Governor Scott Walker's labor and fiscal reforms have reduced the power and reach of the state government. As a result, the Badger State added 9,500 net jobs in June -- over half of the nation's total of 18,000 net new jobs that month.
This shows that by shrinking the state, we can spark recovery. As I point out in my new book, Stealing You Blind, there are several ways to do this. For example, reduce the number of federal agencies and re-charter those that remain to better define their mission, reform public sector compensation and work rules, radically simplify the tax code, end labor union privileges, and above all institute genuine regulatory reform.
The current debate over the debt ceiling offers an opportunity to do all of this. It doesn't all have to be done by August 2, but all these proposals should form part of the debate. If policy makers fail to seriously consider these solutions, they will just be kicking the can down the road. Reining in an overgrown and ever-expanding government -- in all its forms -- is the only route to long-term prosperity and national solvency. The time for action is now.
Iain Murray heads the Center for Economic Freedom at the Competitive Enterprise Institute and is the author of Stealing You Blind: How Government Fatcats Are Getting Rich Off of You, new from Regnery.
Friday, July 29, 2011
Thursday, July 28, 2011
You think the debt crisis is bad now? Wait until Obamacare takes its toll
One of the main reasons for enacting Obamacare was to bring down health care costs - so said the President, then-House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid. But since its passage, the sweeping overhaul of one-sixth of our economy has done just the opposite. If you think the debt debate on Capitol Hill has revealed that this nation is on the road to fiscal ruin, just wait until health care reform really kicks in.
The Congressional Budget Office will tell you that we will save $143 billion between 2010 and 2019, but its assumptions were flawed from the start. Doing a close analysis of the budget office scoring, Kathryn Nix of the Heritage Foundation concludes that Obamacare "indisputably represents a massive new burden on current taxpayers and future generations."
Those costs are evident already. "Health care costs are expected to increase by 8.5% in 2012 - slightly up from this year's increase of 8%, according to the annual 'Behind the Numbers' report on medical costs recently released by [PricewaterhouseCoopers'] Health Research Institute," says the online publication Small Business Trends.
Part of that increase has to do with the fact that many of the nation's hospitals are buying up physician practices or consolidating with other hospitals to form conglomerates that are able to muscle insurers more than ever before for higher fees for service.
But the other factors that have contributed to the spike are the provisions in Obamacare that took effect immediately.
Insurers are now forced to cover patients despite any preexisting conditions. They are also required to provide preventive services and cover children as their parents' dependents up to the age of 26. The health care bill also scrapped annual and lifetime cap provisions, so if you get a rare form of cancer, you'll have unlimited coverage regardless of the cost. According to news website The Daily Caller, "the day Obamacare hit the books one year ago, 150 new regulations immediately went into effect. Since then, 125 more regulations have gone into effect."
All of this sounds wonderful, but someone has to pay. Every American who currently has health insurance in the U.S. will be forced to shell out higher premiums.
The danger to insurance companies, and thus to patients, is similar to what happened with Romneycare (a blueprint for Obamacare) in Massachusetts, where the new health mandates ruined the few efficiencies of managed care. Sicker (and, hence, costlier) patients sign up for coverage, which weighs down on the healthy population, whose premiums rise so drastically that they cannot afford coverage anymore. They figure, why pay expensive premiums when I can instead sign up for insurance when and if I do get sick and pay the penalty for not being covered (which is much less, anyway)?
It's just like car insurance: You need safe drivers paying their insurance to balance out the reckless drivers with shoddy driving records. Without just about all responsible drivers purchasing coverage, the system doesn't work.
That is why Obamacare is so poorly crafted. There is no incentive for healthy people to sign up. However, had the bill included a provision that opened up insurance markets over state lines, the competition among insurers for customers would have naturally kept costs in check.
In fact, if Obamacare isn't repealed, today's national debt will be far worse tomorrow because of exploding costs.
The National Federation of Independent Businesses released a report this week that revealed that "one in eight small businesses have had or expect to have their health insurance plans terminated since the passage of President Obama's health care reform," according to The Daily Caller. The findings echoed a report from consultants McKinsey & Co. last month that stated that 30% of employers will "definitely or probably" stop offering health insurance coverage to employees after 2014.
Think about it: If you own a business that has fewer than 50 employees, why would you continue to pay for their insurance when you can force them into the government exchanges? Not only does that mean you won't get to keep your doctor, as Democrats promised you would, it also means that Obamacare could drive us into fiscal ruin.
According to a Washington Post Op-Ed by Sen. Ron Johnson (R-Wis.) and former Congressional Budget Office Director Douglas Holtz-Eakin, "If half of the 180 million workers who enjoy employer-provided care wind up in the exchanges, the annual cost of Obamacare would increase by $400 billion by 2021. If the other half eventually follows suit, and all American employees wind up in the exchanges - which we believe is a goal of Obamacare - then the annual cost of the exchanges would increase by more than $800 billion."
That means that far too much of the private-sector health care balance sheet would be transferred over to taxpayers to foot the tab. Over 10 years, the costs would be in the trillions.
Wasn't the whole point of Obamacare to bring costs down - and not break the back of the federal budget?
That's why it must be repealed. The debt fight in Washington will be small potatoes today when you think about what it will be after health care reform goes into full effect. But by then, Obama will conveniently be out of office, and we'll be stuck with the bill.
The Congressional Budget Office will tell you that we will save $143 billion between 2010 and 2019, but its assumptions were flawed from the start. Doing a close analysis of the budget office scoring, Kathryn Nix of the Heritage Foundation concludes that Obamacare "indisputably represents a massive new burden on current taxpayers and future generations."
Those costs are evident already. "Health care costs are expected to increase by 8.5% in 2012 - slightly up from this year's increase of 8%, according to the annual 'Behind the Numbers' report on medical costs recently released by [PricewaterhouseCoopers'] Health Research Institute," says the online publication Small Business Trends.
Part of that increase has to do with the fact that many of the nation's hospitals are buying up physician practices or consolidating with other hospitals to form conglomerates that are able to muscle insurers more than ever before for higher fees for service.
But the other factors that have contributed to the spike are the provisions in Obamacare that took effect immediately.
Insurers are now forced to cover patients despite any preexisting conditions. They are also required to provide preventive services and cover children as their parents' dependents up to the age of 26. The health care bill also scrapped annual and lifetime cap provisions, so if you get a rare form of cancer, you'll have unlimited coverage regardless of the cost. According to news website The Daily Caller, "the day Obamacare hit the books one year ago, 150 new regulations immediately went into effect. Since then, 125 more regulations have gone into effect."
All of this sounds wonderful, but someone has to pay. Every American who currently has health insurance in the U.S. will be forced to shell out higher premiums.
The danger to insurance companies, and thus to patients, is similar to what happened with Romneycare (a blueprint for Obamacare) in Massachusetts, where the new health mandates ruined the few efficiencies of managed care. Sicker (and, hence, costlier) patients sign up for coverage, which weighs down on the healthy population, whose premiums rise so drastically that they cannot afford coverage anymore. They figure, why pay expensive premiums when I can instead sign up for insurance when and if I do get sick and pay the penalty for not being covered (which is much less, anyway)?
It's just like car insurance: You need safe drivers paying their insurance to balance out the reckless drivers with shoddy driving records. Without just about all responsible drivers purchasing coverage, the system doesn't work.
That is why Obamacare is so poorly crafted. There is no incentive for healthy people to sign up. However, had the bill included a provision that opened up insurance markets over state lines, the competition among insurers for customers would have naturally kept costs in check.
In fact, if Obamacare isn't repealed, today's national debt will be far worse tomorrow because of exploding costs.
The National Federation of Independent Businesses released a report this week that revealed that "one in eight small businesses have had or expect to have their health insurance plans terminated since the passage of President Obama's health care reform," according to The Daily Caller. The findings echoed a report from consultants McKinsey & Co. last month that stated that 30% of employers will "definitely or probably" stop offering health insurance coverage to employees after 2014.
Think about it: If you own a business that has fewer than 50 employees, why would you continue to pay for their insurance when you can force them into the government exchanges? Not only does that mean you won't get to keep your doctor, as Democrats promised you would, it also means that Obamacare could drive us into fiscal ruin.
According to a Washington Post Op-Ed by Sen. Ron Johnson (R-Wis.) and former Congressional Budget Office Director Douglas Holtz-Eakin, "If half of the 180 million workers who enjoy employer-provided care wind up in the exchanges, the annual cost of Obamacare would increase by $400 billion by 2021. If the other half eventually follows suit, and all American employees wind up in the exchanges - which we believe is a goal of Obamacare - then the annual cost of the exchanges would increase by more than $800 billion."
That means that far too much of the private-sector health care balance sheet would be transferred over to taxpayers to foot the tab. Over 10 years, the costs would be in the trillions.
Wasn't the whole point of Obamacare to bring costs down - and not break the back of the federal budget?
That's why it must be repealed. The debt fight in Washington will be small potatoes today when you think about what it will be after health care reform goes into full effect. But by then, Obama will conveniently be out of office, and we'll be stuck with the bill.
Wednesday, July 27, 2011
Some Austerity - Federal spending would rise despite proposed “cuts.”
The Reid plan would theoretically cut spending by $2.7 trillion over ten years. Even if that were true, it would still allow our national debt to increase by some $10 trillion over the next decade. But, of course, the $2.7 trillion figure is mostly fiction. About $1 trillion of the savings would come from the eventual end of the wars in Iraq and Afghanistan, savings that were going to occur anyway. Senator Reid might just as well have added another $1 trillion in savings by not invading Pakistan.
Some Austerity - Michael Tanner - National Review Online
Some Austerity - Michael Tanner - National Review Online
Obama offers lectures but no answers
The whole problem with the teleprompter is it can’t come up with a plan. It doesn’t have any of its own ideas. Truth is, it doesn’t come up with anything at all that you don’t type into it.
HURT: Obama offers lectures but no answers - Washington Times
HURT: Obama offers lectures but no answers - Washington Times
Tuesday, July 26, 2011
Two speeches, two visions
By Jennifer Rubin
President Obama’s decision to give a speech tonight was proof that things have not gone well for him. He threw (another) tantrum in the Friday news conference, he turned down a bipartisan deal presented to him Sunday and thereby took himself out of the limelight. Tonight’s speech was not intended to “solve” the impasse but to make sure Obama would get credit if a deal is struck and avoid blame if it is not.
The speech itself was part panic attack, part platitudes and a whole lot of class warfare (corporate jets! hedge fund managers!). He stood awkwardly at the East Room podium, minus any press corps. He began with a ponderous recap of the budget train wreck, and then described his grand bargain (light on the details, because, of course, he never put a concrete plan out there). He ridiculed the Republican plan, saying it didn’t ask for sacrifices from the rich. But wait, Majority Leader Sen. Harry Reid (D-Nev.) doesn’t have taxes in his plan. In fact, his whole plan was an indictment of Reid’s no-tax plan. Apparently, he assumed no one was keeping up with current developments.
He then desperately argued against the short-term deal that is available to him and could pass the House. He talked down our credit rating. ( “a six-month extension of the debt ceiling might not be enough to avoid a credit downgrade and the higher interest rates that all Americans would have to pay as a result”) and said he couldn’t do a second deal because Republicans would again object to taxes. However, realizing that there is no chance of a deal that includes taxes and takes us through 2012, he left a little wiggle room. (“I think that’s a much better path, although serious deficit reduction would still require us to tackle the tough challenges of entitlement and tax reform. Either way, I have told leaders of both parties that they must come up with a fair compromise in the next few days that can pass both houses of Congress — a compromise I can sign.”)
It was a speech entirely divorced from reality. The Senate Democrats can’t pass tax hikes. The grand bargain can’t get through the Congress with jumbo tax hikes. It is he who rejected a deal that had the agreeement of House and Senate leaders. You have to wonder why he set the bar so high. He’ll face the flood of “President Capitulates!” headlines when it doesn’t come about. But the answer lies in the sole and consuming passion of this White House: reelection. Hence, the class warfare and the excuse-mongering.
Then it was House Speaker John Boehner’s turn. He touted his small-business background and made clear that ordinary people don’t get to simply borrow more and more. He reminded us that Obama wanted a clean debt bill, but the House insisted on a new way of doing business. Then he recapped the president’s intransigence:
What we told the president in January was this: the American people will not accept an increase in the debt limit without significant spending cuts and reforms.
And over the last six months, we’ve done our best to convince the president to partner with us to do something dramatic to change the fiscal trajectory of our country. . .something that will boost confidence in our economy, renew a measure of faith in our government, and help small businesses get back on track.
Last week, the House passed such a plan, and with bipartisan support. It’s called the ‘Cut, Cap, and Balance’ Act. It CUTS and CAPS government spending and paves the way for a Balanced Budget Amendment to the Constitution, which we believe is the best way to stop Washington from spending money it doesn’t have. Before we even passed the bill in the House, the President said he would veto it.
I want you to know I made a sincere effort to work with the president to identify a path forward that would implement the principles of Cut, Cap, & Balance in a manner that could secure bipartisan support and be signed into law. I gave it my all.
Unfortunately, the president would not take yes for an answer. Even when we thought we might be close on an agreement, the president’s demands changed.
And he made the key point: “You see, there is no stalemate in Congress. The House has passed a bill to raise the debt limit with bipartisan support. And this week, while the Senate is struggling to pass a bill filled with phony accounting and Washington gimmicks, we will pass another bill — one that was developed with the support of the bipartisan leadership of the U.S. Senate. Obviously, I expect that bill can and will pass the Senate, and be sent to the President for his signature. If the President signs it, the ‘crisis’ atmosphere he has created will simply disappear.” (In other words, after Reid fails to get cloture on his phony cuts, the Senate will go back to the House bill that was actually a joint effort by Reid, Boehner and Minority Leader Sen. Mitch McConnell. Boehner benefits from low or no expectations, and his solid, serious and optimistic address was impressive and effective. No wonder the White House was miffed that he had to share time with the Republican House leader.
President Obama’s decision to give a speech tonight was proof that things have not gone well for him. He threw (another) tantrum in the Friday news conference, he turned down a bipartisan deal presented to him Sunday and thereby took himself out of the limelight. Tonight’s speech was not intended to “solve” the impasse but to make sure Obama would get credit if a deal is struck and avoid blame if it is not.
The speech itself was part panic attack, part platitudes and a whole lot of class warfare (corporate jets! hedge fund managers!). He stood awkwardly at the East Room podium, minus any press corps. He began with a ponderous recap of the budget train wreck, and then described his grand bargain (light on the details, because, of course, he never put a concrete plan out there). He ridiculed the Republican plan, saying it didn’t ask for sacrifices from the rich. But wait, Majority Leader Sen. Harry Reid (D-Nev.) doesn’t have taxes in his plan. In fact, his whole plan was an indictment of Reid’s no-tax plan. Apparently, he assumed no one was keeping up with current developments.
He then desperately argued against the short-term deal that is available to him and could pass the House. He talked down our credit rating. ( “a six-month extension of the debt ceiling might not be enough to avoid a credit downgrade and the higher interest rates that all Americans would have to pay as a result”) and said he couldn’t do a second deal because Republicans would again object to taxes. However, realizing that there is no chance of a deal that includes taxes and takes us through 2012, he left a little wiggle room. (“I think that’s a much better path, although serious deficit reduction would still require us to tackle the tough challenges of entitlement and tax reform. Either way, I have told leaders of both parties that they must come up with a fair compromise in the next few days that can pass both houses of Congress — a compromise I can sign.”)
It was a speech entirely divorced from reality. The Senate Democrats can’t pass tax hikes. The grand bargain can’t get through the Congress with jumbo tax hikes. It is he who rejected a deal that had the agreeement of House and Senate leaders. You have to wonder why he set the bar so high. He’ll face the flood of “President Capitulates!” headlines when it doesn’t come about. But the answer lies in the sole and consuming passion of this White House: reelection. Hence, the class warfare and the excuse-mongering.
Then it was House Speaker John Boehner’s turn. He touted his small-business background and made clear that ordinary people don’t get to simply borrow more and more. He reminded us that Obama wanted a clean debt bill, but the House insisted on a new way of doing business. Then he recapped the president’s intransigence:
What we told the president in January was this: the American people will not accept an increase in the debt limit without significant spending cuts and reforms.
And over the last six months, we’ve done our best to convince the president to partner with us to do something dramatic to change the fiscal trajectory of our country. . .something that will boost confidence in our economy, renew a measure of faith in our government, and help small businesses get back on track.
Last week, the House passed such a plan, and with bipartisan support. It’s called the ‘Cut, Cap, and Balance’ Act. It CUTS and CAPS government spending and paves the way for a Balanced Budget Amendment to the Constitution, which we believe is the best way to stop Washington from spending money it doesn’t have. Before we even passed the bill in the House, the President said he would veto it.
I want you to know I made a sincere effort to work with the president to identify a path forward that would implement the principles of Cut, Cap, & Balance in a manner that could secure bipartisan support and be signed into law. I gave it my all.
Unfortunately, the president would not take yes for an answer. Even when we thought we might be close on an agreement, the president’s demands changed.
And he made the key point: “You see, there is no stalemate in Congress. The House has passed a bill to raise the debt limit with bipartisan support. And this week, while the Senate is struggling to pass a bill filled with phony accounting and Washington gimmicks, we will pass another bill — one that was developed with the support of the bipartisan leadership of the U.S. Senate. Obviously, I expect that bill can and will pass the Senate, and be sent to the President for his signature. If the President signs it, the ‘crisis’ atmosphere he has created will simply disappear.” (In other words, after Reid fails to get cloture on his phony cuts, the Senate will go back to the House bill that was actually a joint effort by Reid, Boehner and Minority Leader Sen. Mitch McConnell. Boehner benefits from low or no expectations, and his solid, serious and optimistic address was impressive and effective. No wonder the White House was miffed that he had to share time with the Republican House leader.
Tuesday, July 19, 2011
Wynn Slams Obama On Business: "Responsible For Fear In America"
Wynn Slams Obama On Business: "Responsible For Fear In America"
Related Videos | expand
Steve Wynn, CEO of Wynn Resorts, trashed President Obama on a company conference call today. Below are the most damning portions of the call:
I believe in Las Vegas. I think its best days are ahead of it. But I'm afraid to do anything in the current political environment in the United States. You watch television and see what's going on on this debt ceiling issue. And what I consider to be a total lack of leadership from the President and nothing's going to get fixed until the President himself steps up and wrangles both parties in Congress. But everybody is so political, so focused on holding their job for the next year that the discussion in Washington is nauseating.
And I'm saying it bluntly, that this administration is the greatest wet blanket to business, and progress and job creation in my lifetime. And I can prove it and I could spend the next 3 hours giving you examples of all of us in this market place that are frightened to death about all the new regulations, our healthcare costs escalate, regulations coming from left and right. A President that seems, that keeps using that word redistribution. Well, my customers and the companies that provide the vitality for the hospitality and restaurant industry, in the United States of America, they are frightened of this administration.And it makes you slow down and not invest your money. Everybody complains about how much money is on the side in America.
You bet and until we change the tempo and the conversation from Washington, it's not going to change. And those of us who have business opportunities and the capital to do it are going to sit in fear of the President. And a lot of people don't want to say that. They'll say, God, don't be attacking Obama. Well, this is Obama's deal and it's Obama that's responsible for this fear in America.
The guy keeps making speeches about redistribution and maybe we ought to do something to businesses that don't invest, their holding too much money. We haven't heard that kind of talk except from pure socialists. Everybody's afraid of the government and there's no need soft peddling it, it's the truth. It is the truth. And that's true of Democratic businessman and Republican businessman, and I am a Democratic businessman and I support Harry Reid. I support Democrats and Republicans. And I'm telling you that the business community in this company is frightened to death of the weird political philosophy of the President of the United States. And until he's gone, everybody's going to be sitting on their thumbs.
http://www.realclearpolitics.com/video/2011/07/18/wynn_slams_obama_on_business_responsible_for_this_fear_in_america.html
Related Videos | expand
Steve Wynn, CEO of Wynn Resorts, trashed President Obama on a company conference call today. Below are the most damning portions of the call:
I believe in Las Vegas. I think its best days are ahead of it. But I'm afraid to do anything in the current political environment in the United States. You watch television and see what's going on on this debt ceiling issue. And what I consider to be a total lack of leadership from the President and nothing's going to get fixed until the President himself steps up and wrangles both parties in Congress. But everybody is so political, so focused on holding their job for the next year that the discussion in Washington is nauseating.
And I'm saying it bluntly, that this administration is the greatest wet blanket to business, and progress and job creation in my lifetime. And I can prove it and I could spend the next 3 hours giving you examples of all of us in this market place that are frightened to death about all the new regulations, our healthcare costs escalate, regulations coming from left and right. A President that seems, that keeps using that word redistribution. Well, my customers and the companies that provide the vitality for the hospitality and restaurant industry, in the United States of America, they are frightened of this administration.And it makes you slow down and not invest your money. Everybody complains about how much money is on the side in America.
You bet and until we change the tempo and the conversation from Washington, it's not going to change. And those of us who have business opportunities and the capital to do it are going to sit in fear of the President. And a lot of people don't want to say that. They'll say, God, don't be attacking Obama. Well, this is Obama's deal and it's Obama that's responsible for this fear in America.
The guy keeps making speeches about redistribution and maybe we ought to do something to businesses that don't invest, their holding too much money. We haven't heard that kind of talk except from pure socialists. Everybody's afraid of the government and there's no need soft peddling it, it's the truth. It is the truth. And that's true of Democratic businessman and Republican businessman, and I am a Democratic businessman and I support Harry Reid. I support Democrats and Republicans. And I'm telling you that the business community in this company is frightened to death of the weird political philosophy of the President of the United States. And until he's gone, everybody's going to be sitting on their thumbs.
http://www.realclearpolitics.com/video/2011/07/18/wynn_slams_obama_on_business_responsible_for_this_fear_in_america.html
The U.S. Isn't Running Out of Oil
To hear many pundits tell it, opening up more of America’s lands to oil exploration and
development, especially offshore, won’t lower oil prices. So why bother? After all, we operate
in a global oil market, and even if the U.S. somehow increased its domestic crude oil production
appreciably, wouldn’t Chinese demand, OPEC duplicity, and greedy speculators conspire to
keep oil prices high?
The law of supply and demand dictates that, all else being equal, additional U.S. production
must necessarily put downward pressure on world oil prices, just as additional production
from OPEC or Canada would. If the fear is that OPEC would respond to greater U.S. output by
trimming production by a corresponding amount, the worst that could happen is that world
crude oil prices would remain unchanged while more investment and jobs are created in the
U.S., our balance of trade improves, and more revenue flows to state and federal governments.
All in all, these are not bad outcomes.
The reality, however, is that we have policies in place preventing the United States from
responding to increased demand for oil, or even to put a serious dent in imports. It’s been that
way for many years, and the data show it.
Correlations were calculated to measure the relationship between crude oil production and
global oil demand for the period 1970 through 2010. Because global oil markets are in balance,
it shouldn’t come as any surprise that over the past 41 years the correlation between global
crude oil production and global oil demand comes in at 0.99, nearly perfectly positive.
Different countries, however, respond very differently to global market signals, especially in
countries where national oil companies hold sway. Saudi Arabia, for example, regulates oil
output to defend a certain target price. Price taking countries, on the other hand, usually pump
as much as they can as long as it is profitable to do so. Countries relying on freely operating
private oil companies might see a range of responses depending on market circumstances, the
regulatory environment, and available resources.
To see how different countries adjusted production in response to global demand, correlations
of crude oil output and global oil demand were calculated for the largest 29 oil producing
countries in the world in 2010 (i.e., those producing more that 500,000 barrels per day). The
results are presented in Table 1.
Table 1. Correlation of Crude Oil Production and Global Oil Demand by Major Producing Country: 1970-12010
Country
Correlation
Kazakhstan
0.97
China
0.94
Brazil
0.94
Canada
0.92
Algeria
0.91
Angola
0.91
United Arab Emirates
0.89
Russia
0.85
Sudan
0.83
Qatar
0.83
Azerbaijan
0.82
Norway
0.82
Colombia
0.81
Argentina
0.80
Oman
0.80
Malaysia
0.78
India
0.77
Mexico
0.75
Nigeria
0.74
Saudi Arabia
0.57
United Kingdom
0.43
Egypt
0.37
Iraq
0.17
Kuwait
0.08
Iran
(0.01)
Venezuela
(0.06)
Indonesia
(0.26)
Libya
(0.30)
United States
(0.96)
United StatesNotes: Correlations for former Soviet republics calculated from 1992-2010. Opec members in italics.
Sources: Energy Information Administration.
As one would expect, crude oil output in most countries tends to correlate quite strongly
and positively with global demand—that is, as global oil demand rises, so does domestic oil
production. Of the 29 countries considered, 15 show strong positive correlations of 0.80 or
above. This group also includes countries that have managed to increase output in response to
increased global demand with much lower reserves than the United States.
Saudi Arabia’s role as a price-making swing producer is evident in its correlation of 0.57. There
also were a handful of countries—i.e., Iran, Iraq, Kuwait, and Libya—with very weak positive
or negative correlations. For the most part, these countries have gone through sometimes
prolonged periods of political instability or war that have disrupted oil production.
The result for the United States, however, is unique. Despite decades of concern over oil
imports, the correlation of U.S. oil output to global oil demand over the last 41 years is -0.96, an
almost perfectly negative correlation. Figure 1 shows how U.S. crude oil production and global
oil demand are almost a perfect mirror image of each other. No other country in the world—
not even those suffering through revolutions and wars—has managed to sustain a pattern such
as this for over four decades.
Much is made of the fact that when it comes to crude oil production, the U.S. punches above
its weight. At about 5.5 million barrels per day, U.S. output ranks third highest in the world with
about 7.4% of global output. One often hears that the U.S. is running out of oil and that our
current reserves make up just 2% of the world total, but this is a grossly inadequate view of U.S.
oil resources. The story is much more complex.
Consider that while proved reserves in most other producing countries are being replenished—
global proved reserves since 1970 have risen 135%—they aren’t in the United States. In fact,
the U.S. reserves estimate reported by the Energy Information Administration for 2009 was
lower than the estimates reported by EIA for every other year going back to 1970 except one—
2008—a situation matched only by Indonesia among the large producing countries.
3
But the United States isn’t running out of oil, it’s running out of access. There are many
promising sources of crude oil in the U.S., but the vast majority of them are off limits to
exploration and production. The exact size of this resource is unknown because companies are
not allowed to do the necessary work to find out where the oil is and how much of it there is.
Preliminary work by government agencies, however, suggests that the resources could be quite
large.
The Department of the Interior estimates that the U.S. Outer Continental Shelf (OCS) contains
86 billion barrels of undiscovered, technically recoverable oil resources. However, about 97% of
the OCS is not under lease, preventing any exploration or production of oil and gas.
Onshore federal lands contain an estimated 24.2 billion barrels of undiscovered technically
recoverable oil resources. But like our offshore resources, the vast majority of these onshore oil
resources are unavailable for exploration and production.
The United States has massive unconventional crude oil reserves. Government estimates point
to U.S. oil shale and oil sands resources exceeding 2 trillion barrels, larger than total proven
global reserves of conventional oil. The global supply picture, and U.S. competitiveness for that
matter, could improve if even a small fraction of these resources can be tapped economically.
We have seen how horizontal drilling and hydraulic fracturing in shale formations have
combined to open up new possibilities for natural gas production around the world,
fundamentally changing natural gas markets. Similarly, new exploration, drilling, and
production technologies will be critically important in finding and developing crude oil from
unconventional oil sands and shales and in deep water. Advanced multidimensional seismic
imaging, for example, allows a much higher degree of accuracy in locating oil and gas deposits,
which reduces the amount of drilling while increasing the amount of resources recovered.
We’re already seeing signs of this. Recent improvements in technologies for producing oil from
shale—including hydraulic fracturing—have caused the decades-long trend in declining U.S.
production to level off and even reverse slightly in recent years. If these shale resources and
other resources, such as those in the Gulf of Mexico and the Outer Continental Shelf, were
proved and production from them allowed, it could increase domestic supplies considerably.
The United States is blessed with vast oil resources, dynamic capital markets, and a culture of
innovation that sustains our global leadership. These assets, however, are not being developed
or used to their full potential. What are we waiting for?
Mr. Eule is Vice President for Climate & Technology at the U.S. Chamber of Commerce’s Institute for 21st
Century Energy.
development, especially offshore, won’t lower oil prices. So why bother? After all, we operate
in a global oil market, and even if the U.S. somehow increased its domestic crude oil production
appreciably, wouldn’t Chinese demand, OPEC duplicity, and greedy speculators conspire to
keep oil prices high?
The law of supply and demand dictates that, all else being equal, additional U.S. production
must necessarily put downward pressure on world oil prices, just as additional production
from OPEC or Canada would. If the fear is that OPEC would respond to greater U.S. output by
trimming production by a corresponding amount, the worst that could happen is that world
crude oil prices would remain unchanged while more investment and jobs are created in the
U.S., our balance of trade improves, and more revenue flows to state and federal governments.
All in all, these are not bad outcomes.
The reality, however, is that we have policies in place preventing the United States from
responding to increased demand for oil, or even to put a serious dent in imports. It’s been that
way for many years, and the data show it.
Correlations were calculated to measure the relationship between crude oil production and
global oil demand for the period 1970 through 2010. Because global oil markets are in balance,
it shouldn’t come as any surprise that over the past 41 years the correlation between global
crude oil production and global oil demand comes in at 0.99, nearly perfectly positive.
Different countries, however, respond very differently to global market signals, especially in
countries where national oil companies hold sway. Saudi Arabia, for example, regulates oil
output to defend a certain target price. Price taking countries, on the other hand, usually pump
as much as they can as long as it is profitable to do so. Countries relying on freely operating
private oil companies might see a range of responses depending on market circumstances, the
regulatory environment, and available resources.
To see how different countries adjusted production in response to global demand, correlations
of crude oil output and global oil demand were calculated for the largest 29 oil producing
countries in the world in 2010 (i.e., those producing more that 500,000 barrels per day). The
results are presented in Table 1.
Table 1. Correlation of Crude Oil Production and Global Oil Demand by Major Producing Country: 1970-12010
Country
Correlation
Kazakhstan
0.97
China
0.94
Brazil
0.94
Canada
0.92
Algeria
0.91
Angola
0.91
United Arab Emirates
0.89
Russia
0.85
Sudan
0.83
Qatar
0.83
Azerbaijan
0.82
Norway
0.82
Colombia
0.81
Argentina
0.80
Oman
0.80
Malaysia
0.78
India
0.77
Mexico
0.75
Nigeria
0.74
Saudi Arabia
0.57
United Kingdom
0.43
Egypt
0.37
Iraq
0.17
Kuwait
0.08
Iran
(0.01)
Venezuela
(0.06)
Indonesia
(0.26)
Libya
(0.30)
United States
(0.96)
United StatesNotes: Correlations for former Soviet republics calculated from 1992-2010. Opec members in italics.
Sources: Energy Information Administration.
As one would expect, crude oil output in most countries tends to correlate quite strongly
and positively with global demand—that is, as global oil demand rises, so does domestic oil
production. Of the 29 countries considered, 15 show strong positive correlations of 0.80 or
above. This group also includes countries that have managed to increase output in response to
increased global demand with much lower reserves than the United States.
Saudi Arabia’s role as a price-making swing producer is evident in its correlation of 0.57. There
also were a handful of countries—i.e., Iran, Iraq, Kuwait, and Libya—with very weak positive
or negative correlations. For the most part, these countries have gone through sometimes
prolonged periods of political instability or war that have disrupted oil production.
The result for the United States, however, is unique. Despite decades of concern over oil
imports, the correlation of U.S. oil output to global oil demand over the last 41 years is -0.96, an
almost perfectly negative correlation. Figure 1 shows how U.S. crude oil production and global
oil demand are almost a perfect mirror image of each other. No other country in the world—
not even those suffering through revolutions and wars—has managed to sustain a pattern such
as this for over four decades.
Much is made of the fact that when it comes to crude oil production, the U.S. punches above
its weight. At about 5.5 million barrels per day, U.S. output ranks third highest in the world with
about 7.4% of global output. One often hears that the U.S. is running out of oil and that our
current reserves make up just 2% of the world total, but this is a grossly inadequate view of U.S.
oil resources. The story is much more complex.
Consider that while proved reserves in most other producing countries are being replenished—
global proved reserves since 1970 have risen 135%—they aren’t in the United States. In fact,
the U.S. reserves estimate reported by the Energy Information Administration for 2009 was
lower than the estimates reported by EIA for every other year going back to 1970 except one—
2008—a situation matched only by Indonesia among the large producing countries.
3
But the United States isn’t running out of oil, it’s running out of access. There are many
promising sources of crude oil in the U.S., but the vast majority of them are off limits to
exploration and production. The exact size of this resource is unknown because companies are
not allowed to do the necessary work to find out where the oil is and how much of it there is.
Preliminary work by government agencies, however, suggests that the resources could be quite
large.
The Department of the Interior estimates that the U.S. Outer Continental Shelf (OCS) contains
86 billion barrels of undiscovered, technically recoverable oil resources. However, about 97% of
the OCS is not under lease, preventing any exploration or production of oil and gas.
Onshore federal lands contain an estimated 24.2 billion barrels of undiscovered technically
recoverable oil resources. But like our offshore resources, the vast majority of these onshore oil
resources are unavailable for exploration and production.
The United States has massive unconventional crude oil reserves. Government estimates point
to U.S. oil shale and oil sands resources exceeding 2 trillion barrels, larger than total proven
global reserves of conventional oil. The global supply picture, and U.S. competitiveness for that
matter, could improve if even a small fraction of these resources can be tapped economically.
We have seen how horizontal drilling and hydraulic fracturing in shale formations have
combined to open up new possibilities for natural gas production around the world,
fundamentally changing natural gas markets. Similarly, new exploration, drilling, and
production technologies will be critically important in finding and developing crude oil from
unconventional oil sands and shales and in deep water. Advanced multidimensional seismic
imaging, for example, allows a much higher degree of accuracy in locating oil and gas deposits,
which reduces the amount of drilling while increasing the amount of resources recovered.
We’re already seeing signs of this. Recent improvements in technologies for producing oil from
shale—including hydraulic fracturing—have caused the decades-long trend in declining U.S.
production to level off and even reverse slightly in recent years. If these shale resources and
other resources, such as those in the Gulf of Mexico and the Outer Continental Shelf, were
proved and production from them allowed, it could increase domestic supplies considerably.
The United States is blessed with vast oil resources, dynamic capital markets, and a culture of
innovation that sustains our global leadership. These assets, however, are not being developed
or used to their full potential. What are we waiting for?
Mr. Eule is Vice President for Climate & Technology at the U.S. Chamber of Commerce’s Institute for 21st
Century Energy.
Monday, July 18, 2011
Petraeus’s Next Battle
The young man peered into a basement office at the White House, where a pair of military officers sat talking. “Does anyone know where General Petraeus is?” he asked. “I’m right here,” the general answered, raising his hand. “They want you in the Oval, sir,” the aide said.
This was June 2010, and Gen. David Petraeus was in charge of Central Command, one of the supreme jobs in the U.S. armed forces. But that was about to change. Minutes before, the president had fired Gen. Stanley McChrystal, the commander in Afghanistan. As Petraeus climbed the narrow staircase and headed down the short corridor to the Oval Office, the president’s national-security team was filing out: Defense Secretary Robert Gates, Secretary of State Hillary Clinton, CIA Director Leon Panetta, and others. Petraeus knew them all, but they avoided eye contact, like physicians about to deliver a grim diagnosis.
Inside, Barack Obama was alone. He motioned Petraeus to a chair by the fireplace and made small talk as they sat down. Then he said: “As your president and commander in chief, I am asking you to take over command in Afghanistan." To a request like that Petraeus saw only one response. “Yes, sir,” Petraeus replied. He would be accepting what was formally a demotion to go back to the field. Nine days later, the dutiful soldier was unpacking his bags in Kabul.
Now, after 13 months, the 58-year-old Petraeus is coming home to head the Central Intelligence Agency. Since that day in the Oval Office, hopeful signs have begun appearing that he may have performed the seemingly impossible task of stabilizing the Afghan battlefield. He achieved a similar feat four years ago in Iraq, turning its savage killing fields into a more manageable landscape of political infighting and chronic but relatively small-scale violence. In both countries, merely staving off complete disaster looked enough like victory to allow the Obama administration to start pulling out troops. “I’ve always said this would be very hard, but it can be done,” Petraeus told NEWSWEEK during a series of interviews this month in Afghanistan. “That’s still my view.”
In Kabul, the hard-as-a-rock, 5-foot-9, 150-pound, -distance- running, push-up-pumping Petraeus has conducted the war from a rundown Edwardian villa, surrounded by a labyrinth of shipping containers piled into two-story blocks of offices and sleeping quarters, and all of it behind high walls, concertina wire, and a lot of firepower. An aide loaded down with three laptops follows him everywhere he goes: one laptop for unclassified emails, one for U.S. secret traffic, one for classified NATO/International Security Assistance Force material. In the colorless corridors of Langley, Va., he’ll be largely on his own. But Petraeus has been preparing a long time for this post. “History will regard him as one of the nation’s great battle captains,” then–defense secretary Robert Gates said in 2008. “He is the preeminent soldier-scholar-statesman of his generation.” Even then, Gates might well have added “intelligence director.”
Since at least the end of 2008, Petraeus has been a key figure in efforts to develop new approaches to covert warfare and take full advantage of real-time information on enemy movements captured by drone technology. The military’s Special Operations Forces and the CIA’s Special Activities Division carry out attacks with ever-higher levels of coordination and integration in Pakistan, in Yemen, in Somalia—and, indeed, in Afghanistan. The way Obama shuffled his cabinet recently (Gates, a former CIA director, has been replaced as defense secretary by outgoing CIA chief Leon Panetta) is testimony to the president’s faith in this approach, at least when it comes to fighting Al Qaeda and its spinoffs.
petraeus-afghanistan-fe01-berry Charles Ommanney for Newsweek
General Petraeus awards a medal to a member of his security team during an awards ceremony at ISAF on July 9, 2011 in Kabul.
Petraeus, the hardened veteran of four decades in the Army, will confront a hardened bureaucracy at CIA headquarters. His friend and political ally Sen. John McCain may call Petraeus “the most impressive combination of character, leadership, and intelligence I have ever encountered,” but many in the CIA, looking coldly at Petraeus’s record, may not share that effusive view. When he’s been in charge on the counterinsurgency battlefield—Mosul in Iraq in 2003, all of Iraq in 2007-2008, Afghanistan since last year—he’s managed to find the resources to get the short-term job done. His long-term requirement for stifling insurgencies—“strategic patience” over years and even decades from an American public pouring hundreds of billions of dollars into the operation—is much harder to achieve. “Vietnam was an extremely painful reminder,” Petraeus wrote in his doctoral dissertation back in 1987, “that when it comes to intervention, time and patience are not American virtues in abundant supply.”
In his last days in Afghanistan, amid all the distractions of formal and informal farewells, Petraeus was working hard to make sure such gains as have been made can be sustained. His successor, Lt. Gen. John Allen, will have 33,000 fewer troops to work with by late next summer. To meet the president’s drawdown targets, Petraeus envisions a complex reshuffle that will involve taking “individuals from various units and staffs” and sending home some entire units as well. Then some 70,000 new Afghan troops—their skills as yet unproved—must be filtered in to replace U.S. troops.
And all the while there are bloody reminders that beyond the walls of the commander’s compound, nothing is certain. In late June the Taliban launched a suicide attack on the heavily guarded Intercontinental Hotel in the heart of the capital, killing 12 people, including four police. Practically on the eve of Petraeus’s departure, Ahmed Wali Karzai, the half-brother of Afghan President Hamid Karzai, was blown away by his own bodyguard. As chairman of the provincial council in the key province of Kandahar, long a stronghold for the Taliban and the opium trade, Ahmed had a most unsavory reputation. But he’d made himself indispensable to American counterinsurgency efforts. The CIA reportedly had him on its payroll. Now it’s not clear who can step in for him.
Petraeus has spent his career urging the military to pay more attention. “We do not take the time to understand the nature of the society in which we are fighting, the government we are supporting, or the enemy we are fighting,” he said in his dissertation. When he took over CENTCOM in 2008, he was so perturbed by the poverty of good intelligence on Afghanistan and Pakistan that he persuaded the director of national intelligence to upgrade the entire collection effort, and he set up a special CENTCOM unit to provide independent analysis of the take.
But the wars he’s most likely to be waging now will be covert ones quite different from the hearts-and-minds strategy he’s advocated since he wrote that thesis. The focus is much more directly on hunting and killing the bad guys with newly refined techniques: “something that doesn’t get you decisively engaged on the ground,” as he puts it.
Yemen, now on the verge of civil war, is hardly the ideal model for future operations, but it has been a critical proving ground. When Petraeus was head of Central Command, he oversaw the covert battle plan there, where “white” U.S. Special Operations Forces—Green Berets from Fort Campbell, KY—are training Yemen’s own special forces. Meanwhile, teams of “black” Special Forces—Delta Force, SEAL Team Six, and their helicopter-flying colleagues—are operating in tandem with Yemenis in the field. The CIA’s paramilitary Special Activities Division is on the ground, too, with the Pentagon’s Joint Special Operations Command operating an armada of drones overhead, some armed with missiles, others so small as to escape notice as they spy.
Not surprisingly, when Petraeus talks about his new job, he focuses on the National Clandestine Service, the part of the agency that recruits spies and carries out covert actions in the field. After he’s sworn in on Sept. 6, says Petraeus, he’s going to “do an all-hands call”: “I’m going to say to them that I’m there to recruit them, and I know they’re there to recruit me—and the director of the National Clandestine Service is my case officer.”
Petraeus knows perfectly well that field operatives are a touchy breed. He’s come across a lot of them. “There’s a care-and-feeding aspect to this,” he says. The best agent-runners are entrepreneurial, independent. “That’s what you want. That’s what you have to foster. These are racehorses, and racehorses require a lot of tender loving care.”
But it’s not just the operational side of the agency; it’s the analytical side that needs enormous attention. Despite tactical successes, the record of strategic failure over the last quarter century is simply stunning. In the last 10 years, if the CIA had produced actionable intelligence on the threat from Al Qaeda, the 9/11 attacks might have been prevented, and America might never have gone to war in Afghanistan in the first place. Had the CIA admitted there was no convincing evidence that Saddam Hussein had weapons of mass destruction, the Bush administration probably could not have invaded Iraq. And, just recently, the CIA failed to predict the Arab Spring, which brought down or weakened dictators it had relied on for crucial intelligence liaison and counterterrorism all over the Middle East.
Maybe Petraeus really is the man to solve such deeply ingrained problems. But success is not a slam-dunk, as someone once said. And for Petraeus, despite his well-cultivated aura of invincibility, it never really has been.
Petraeus describes his father as “at heart a crusty old Dutch sea captain,” who taught him never to accept anything less than a win. Any deviation from that standard brought an icy-blue stare and a growl: “Results, boy, results!” Those words have driven Petraeus ever since. Too young for the Vietnam War, he graduated from West Point in 1974, married the superintendent’s daughter, and proceeded to rise quickly through the ranks. It was Gen. John Galvin, then commander of a division of the 24th Infantry, who talent-spotted Captain Petraeus to be his aide-de-camp and later gave him a life-changing piece of advice: go to graduate school. “Raise your intellectual sights beyond the maximum effective range of an M-60 machine gun,” Galvin urged.
So Petraeus enrolled at Princeton. “It was the place where I learned that there are really smart people in the world who don’t think the way we do,” he says. But the most important lesson came from an international-relations course he took with Prof. Richard Ullman. Petraeus, still fascinated by the war he had missed, wrote a paper examining the impact of Vietnam on the U.S. military. Ullman handed it back with a B-plus and a withering comment: “Though the paper is reasonably well written and has some merit, it is relatively simplistic and I am left feeling that the whole is less than the sum of its parts.”
Unable to forget his father’s admonition, Petraeus asked Ullman if he could try again. The second effort earned him an A-plus, and it laid the groundwork for his 1987 Ph.D. dissertation, a pioneering study of the domestic impact of Vietnam that also contained his first thoughts on how the military needed to prepare for such conflicts in the future. He jokes about his academic credentials now. “I have a Ph.D., though I kept it quiet to avoid damaging my military career,” he said in a farewell speech in Afghanistan. It wasn’t just a wisecrack: Big Army has always valued “muddy-boots generals” over those with fancy diplomas.
The 2003 invasion of Iraq finally provided a laboratory to test his theories as commander of the 101st Air Assault Division in Mosul. The machinery of government had ceased to function; the economy had shut down; the entire country was awash in weapons and munitions; and Saddam Hussein’s fighters had melted into the civilian population, undefeated. Petraeus deployed his troops throughout the community to deter violence; did his best to restore basic services like electricity, water, sewage, and hospitals; organized and monitored elections to replace the local government; kick-started the economy; and reopened the schools. Mosul became an island of relative peace and prosperity. It didn’t last, though: when the 23,000 soldiers of the 101st finished their yearlong deployment, a force barely half that size was sent to replace them—not nearly enough to maintain the security that underpinned everything Petraeus had done. The city sank into the violence that was devastating the rest of Iraq.
No matter. That year in Mosul sealed Petraeus’s reputation as one of the military’s most innovative commanders. He was promptly given the job of ramping up a program to train and equip a new Iraqi army. On his return stateside, the Army’s chief of staff, Gen. Peter Schoomaker, sent him to run the Combined Arms Center at Fort Leavenworth, Kans., with a simple instruction: “Shake up the Army, Dave.” And so Petraeus did. The Combined Arms Center is the nerve center for training and development. Realizing it could be “the engine of change for the entire Army,” Petraeus set to work changing almost every aspect of the Army’s preparations for combat. Out of that assignment came Field Manual 3-24, Counterinsurgency, which is now the Pentagon’s bible on the subject. Having literally written the book on how to win these messy wars, Petraeus was sent back to Baghdad to put his theory into practice.
Today it’s obvious that Petraeus, the not-so-old soldier, looks back on the surge in Iraq with nostalgia. His three assignments there—fighting, training, and surging—were searingly intense experiences, and he bonded with a wide circle of comrades in arms, Iraqis as well as Americans. Not so in Afghanistan, a war where he’d always known it would be tougher to make progress. Petraeus had planned to stay through this summer’s fighting season; but President Obama wants him at CIA. Any regrets at leaving the Afghan fight are overshadowed by excitement at that new job. As he ends his 41 years in the Army, he even relaxed enough to show videos to visitors on a couple of recent evenings. They’re not of Afghanistan; they’re of his beloved 101st and his experiences in Iraq.
Not everyone in Afghanistan fully appreciates what Petraeus has achieved in his year there, says Saad Mohseni, director of the country’s largest media company, the Moby Group: “Much of General Petraeus’s good work has been overshadowed by accusations and counteraccusations, the Afghans accusing the Americans of killing civilians, the Americans accusing the Afghans of ineptitude and corruption.” Even so, he adds, Petraeus's departure worries a lot of people. “Given his reputation, many Afghans would feel compelled to believe that the Americans are downgrading their engagement in Afghanistan”—especially since the general’s return home coincides with Obama’s drawdown announcement.
And now that Petraeus is headed home, what life might he be looking forward to post-CIA? It’s not an unfair question to ask. Petraeus always thinks ahead, and not a few people in Washington remember the way he campaigned for the Iraqi surge in 2007. Behind the scenes he worked closely with three senators—Republicans McCain and Lindsey Graham of South Carolina, and Connecticut independent Joe Lieberman—to promote the idea. “The best salesman was Dave himself,” recalls Graham, himself an Air Force reservist who served in Iraq. “I remember parking him in a room somewhere off the [Senate] floor, and I grabbed individual senators, saying, ‘I just need five minutes.’ And Dave would make the pitch, one by one. He could articulate a complicated system like counterinsurgency in two minutes. And after you met him, it was pretty hard not to want to give him a chance to succeed.”
That level of political finesse raised suspicions among Obama’s people when they took office. Top aides like Rahm Emanuel saw Petraeus as “a potential man on horseback,” says a senior White House official, and they didn’t want him leading a Republican march on the White House in the 2012 election. Petraeus worked to calm their fears, directly confronting Emanuel to assure him that his concern was unfounded.
As Petraeus packed up in Afghanistan this month, he told NEWSWEEK he thought retired generals shouldn’t even endorse candidates, let alone run for office themselves. When, a few years ago, a friend emailed him a list of the 12 generals who have become president and teasingly asked if he saw a pattern, Petraeus responded with a 13th name: William Tecumseh Sherman, the Civil War general who famously scuttled efforts to recruit him by saying, “If nominated I will not run; if elected I will not serve.” As Petraeus contemplates life after the CIA, he now has a new response: “Yes, I want to be president—president of Princeton.” And that happens to be true.
With Christopher Dickey and John Solomon
This was June 2010, and Gen. David Petraeus was in charge of Central Command, one of the supreme jobs in the U.S. armed forces. But that was about to change. Minutes before, the president had fired Gen. Stanley McChrystal, the commander in Afghanistan. As Petraeus climbed the narrow staircase and headed down the short corridor to the Oval Office, the president’s national-security team was filing out: Defense Secretary Robert Gates, Secretary of State Hillary Clinton, CIA Director Leon Panetta, and others. Petraeus knew them all, but they avoided eye contact, like physicians about to deliver a grim diagnosis.
Inside, Barack Obama was alone. He motioned Petraeus to a chair by the fireplace and made small talk as they sat down. Then he said: “As your president and commander in chief, I am asking you to take over command in Afghanistan." To a request like that Petraeus saw only one response. “Yes, sir,” Petraeus replied. He would be accepting what was formally a demotion to go back to the field. Nine days later, the dutiful soldier was unpacking his bags in Kabul.
Now, after 13 months, the 58-year-old Petraeus is coming home to head the Central Intelligence Agency. Since that day in the Oval Office, hopeful signs have begun appearing that he may have performed the seemingly impossible task of stabilizing the Afghan battlefield. He achieved a similar feat four years ago in Iraq, turning its savage killing fields into a more manageable landscape of political infighting and chronic but relatively small-scale violence. In both countries, merely staving off complete disaster looked enough like victory to allow the Obama administration to start pulling out troops. “I’ve always said this would be very hard, but it can be done,” Petraeus told NEWSWEEK during a series of interviews this month in Afghanistan. “That’s still my view.”
In Kabul, the hard-as-a-rock, 5-foot-9, 150-pound, -distance- running, push-up-pumping Petraeus has conducted the war from a rundown Edwardian villa, surrounded by a labyrinth of shipping containers piled into two-story blocks of offices and sleeping quarters, and all of it behind high walls, concertina wire, and a lot of firepower. An aide loaded down with three laptops follows him everywhere he goes: one laptop for unclassified emails, one for U.S. secret traffic, one for classified NATO/International Security Assistance Force material. In the colorless corridors of Langley, Va., he’ll be largely on his own. But Petraeus has been preparing a long time for this post. “History will regard him as one of the nation’s great battle captains,” then–defense secretary Robert Gates said in 2008. “He is the preeminent soldier-scholar-statesman of his generation.” Even then, Gates might well have added “intelligence director.”
Since at least the end of 2008, Petraeus has been a key figure in efforts to develop new approaches to covert warfare and take full advantage of real-time information on enemy movements captured by drone technology. The military’s Special Operations Forces and the CIA’s Special Activities Division carry out attacks with ever-higher levels of coordination and integration in Pakistan, in Yemen, in Somalia—and, indeed, in Afghanistan. The way Obama shuffled his cabinet recently (Gates, a former CIA director, has been replaced as defense secretary by outgoing CIA chief Leon Panetta) is testimony to the president’s faith in this approach, at least when it comes to fighting Al Qaeda and its spinoffs.
petraeus-afghanistan-fe01-berry Charles Ommanney for Newsweek
General Petraeus awards a medal to a member of his security team during an awards ceremony at ISAF on July 9, 2011 in Kabul.
Petraeus, the hardened veteran of four decades in the Army, will confront a hardened bureaucracy at CIA headquarters. His friend and political ally Sen. John McCain may call Petraeus “the most impressive combination of character, leadership, and intelligence I have ever encountered,” but many in the CIA, looking coldly at Petraeus’s record, may not share that effusive view. When he’s been in charge on the counterinsurgency battlefield—Mosul in Iraq in 2003, all of Iraq in 2007-2008, Afghanistan since last year—he’s managed to find the resources to get the short-term job done. His long-term requirement for stifling insurgencies—“strategic patience” over years and even decades from an American public pouring hundreds of billions of dollars into the operation—is much harder to achieve. “Vietnam was an extremely painful reminder,” Petraeus wrote in his doctoral dissertation back in 1987, “that when it comes to intervention, time and patience are not American virtues in abundant supply.”
In his last days in Afghanistan, amid all the distractions of formal and informal farewells, Petraeus was working hard to make sure such gains as have been made can be sustained. His successor, Lt. Gen. John Allen, will have 33,000 fewer troops to work with by late next summer. To meet the president’s drawdown targets, Petraeus envisions a complex reshuffle that will involve taking “individuals from various units and staffs” and sending home some entire units as well. Then some 70,000 new Afghan troops—their skills as yet unproved—must be filtered in to replace U.S. troops.
And all the while there are bloody reminders that beyond the walls of the commander’s compound, nothing is certain. In late June the Taliban launched a suicide attack on the heavily guarded Intercontinental Hotel in the heart of the capital, killing 12 people, including four police. Practically on the eve of Petraeus’s departure, Ahmed Wali Karzai, the half-brother of Afghan President Hamid Karzai, was blown away by his own bodyguard. As chairman of the provincial council in the key province of Kandahar, long a stronghold for the Taliban and the opium trade, Ahmed had a most unsavory reputation. But he’d made himself indispensable to American counterinsurgency efforts. The CIA reportedly had him on its payroll. Now it’s not clear who can step in for him.
Petraeus has spent his career urging the military to pay more attention. “We do not take the time to understand the nature of the society in which we are fighting, the government we are supporting, or the enemy we are fighting,” he said in his dissertation. When he took over CENTCOM in 2008, he was so perturbed by the poverty of good intelligence on Afghanistan and Pakistan that he persuaded the director of national intelligence to upgrade the entire collection effort, and he set up a special CENTCOM unit to provide independent analysis of the take.
But the wars he’s most likely to be waging now will be covert ones quite different from the hearts-and-minds strategy he’s advocated since he wrote that thesis. The focus is much more directly on hunting and killing the bad guys with newly refined techniques: “something that doesn’t get you decisively engaged on the ground,” as he puts it.
Yemen, now on the verge of civil war, is hardly the ideal model for future operations, but it has been a critical proving ground. When Petraeus was head of Central Command, he oversaw the covert battle plan there, where “white” U.S. Special Operations Forces—Green Berets from Fort Campbell, KY—are training Yemen’s own special forces. Meanwhile, teams of “black” Special Forces—Delta Force, SEAL Team Six, and their helicopter-flying colleagues—are operating in tandem with Yemenis in the field. The CIA’s paramilitary Special Activities Division is on the ground, too, with the Pentagon’s Joint Special Operations Command operating an armada of drones overhead, some armed with missiles, others so small as to escape notice as they spy.
Not surprisingly, when Petraeus talks about his new job, he focuses on the National Clandestine Service, the part of the agency that recruits spies and carries out covert actions in the field. After he’s sworn in on Sept. 6, says Petraeus, he’s going to “do an all-hands call”: “I’m going to say to them that I’m there to recruit them, and I know they’re there to recruit me—and the director of the National Clandestine Service is my case officer.”
Petraeus knows perfectly well that field operatives are a touchy breed. He’s come across a lot of them. “There’s a care-and-feeding aspect to this,” he says. The best agent-runners are entrepreneurial, independent. “That’s what you want. That’s what you have to foster. These are racehorses, and racehorses require a lot of tender loving care.”
But it’s not just the operational side of the agency; it’s the analytical side that needs enormous attention. Despite tactical successes, the record of strategic failure over the last quarter century is simply stunning. In the last 10 years, if the CIA had produced actionable intelligence on the threat from Al Qaeda, the 9/11 attacks might have been prevented, and America might never have gone to war in Afghanistan in the first place. Had the CIA admitted there was no convincing evidence that Saddam Hussein had weapons of mass destruction, the Bush administration probably could not have invaded Iraq. And, just recently, the CIA failed to predict the Arab Spring, which brought down or weakened dictators it had relied on for crucial intelligence liaison and counterterrorism all over the Middle East.
Maybe Petraeus really is the man to solve such deeply ingrained problems. But success is not a slam-dunk, as someone once said. And for Petraeus, despite his well-cultivated aura of invincibility, it never really has been.
Petraeus describes his father as “at heart a crusty old Dutch sea captain,” who taught him never to accept anything less than a win. Any deviation from that standard brought an icy-blue stare and a growl: “Results, boy, results!” Those words have driven Petraeus ever since. Too young for the Vietnam War, he graduated from West Point in 1974, married the superintendent’s daughter, and proceeded to rise quickly through the ranks. It was Gen. John Galvin, then commander of a division of the 24th Infantry, who talent-spotted Captain Petraeus to be his aide-de-camp and later gave him a life-changing piece of advice: go to graduate school. “Raise your intellectual sights beyond the maximum effective range of an M-60 machine gun,” Galvin urged.
So Petraeus enrolled at Princeton. “It was the place where I learned that there are really smart people in the world who don’t think the way we do,” he says. But the most important lesson came from an international-relations course he took with Prof. Richard Ullman. Petraeus, still fascinated by the war he had missed, wrote a paper examining the impact of Vietnam on the U.S. military. Ullman handed it back with a B-plus and a withering comment: “Though the paper is reasonably well written and has some merit, it is relatively simplistic and I am left feeling that the whole is less than the sum of its parts.”
Unable to forget his father’s admonition, Petraeus asked Ullman if he could try again. The second effort earned him an A-plus, and it laid the groundwork for his 1987 Ph.D. dissertation, a pioneering study of the domestic impact of Vietnam that also contained his first thoughts on how the military needed to prepare for such conflicts in the future. He jokes about his academic credentials now. “I have a Ph.D., though I kept it quiet to avoid damaging my military career,” he said in a farewell speech in Afghanistan. It wasn’t just a wisecrack: Big Army has always valued “muddy-boots generals” over those with fancy diplomas.
The 2003 invasion of Iraq finally provided a laboratory to test his theories as commander of the 101st Air Assault Division in Mosul. The machinery of government had ceased to function; the economy had shut down; the entire country was awash in weapons and munitions; and Saddam Hussein’s fighters had melted into the civilian population, undefeated. Petraeus deployed his troops throughout the community to deter violence; did his best to restore basic services like electricity, water, sewage, and hospitals; organized and monitored elections to replace the local government; kick-started the economy; and reopened the schools. Mosul became an island of relative peace and prosperity. It didn’t last, though: when the 23,000 soldiers of the 101st finished their yearlong deployment, a force barely half that size was sent to replace them—not nearly enough to maintain the security that underpinned everything Petraeus had done. The city sank into the violence that was devastating the rest of Iraq.
No matter. That year in Mosul sealed Petraeus’s reputation as one of the military’s most innovative commanders. He was promptly given the job of ramping up a program to train and equip a new Iraqi army. On his return stateside, the Army’s chief of staff, Gen. Peter Schoomaker, sent him to run the Combined Arms Center at Fort Leavenworth, Kans., with a simple instruction: “Shake up the Army, Dave.” And so Petraeus did. The Combined Arms Center is the nerve center for training and development. Realizing it could be “the engine of change for the entire Army,” Petraeus set to work changing almost every aspect of the Army’s preparations for combat. Out of that assignment came Field Manual 3-24, Counterinsurgency, which is now the Pentagon’s bible on the subject. Having literally written the book on how to win these messy wars, Petraeus was sent back to Baghdad to put his theory into practice.
Today it’s obvious that Petraeus, the not-so-old soldier, looks back on the surge in Iraq with nostalgia. His three assignments there—fighting, training, and surging—were searingly intense experiences, and he bonded with a wide circle of comrades in arms, Iraqis as well as Americans. Not so in Afghanistan, a war where he’d always known it would be tougher to make progress. Petraeus had planned to stay through this summer’s fighting season; but President Obama wants him at CIA. Any regrets at leaving the Afghan fight are overshadowed by excitement at that new job. As he ends his 41 years in the Army, he even relaxed enough to show videos to visitors on a couple of recent evenings. They’re not of Afghanistan; they’re of his beloved 101st and his experiences in Iraq.
Not everyone in Afghanistan fully appreciates what Petraeus has achieved in his year there, says Saad Mohseni, director of the country’s largest media company, the Moby Group: “Much of General Petraeus’s good work has been overshadowed by accusations and counteraccusations, the Afghans accusing the Americans of killing civilians, the Americans accusing the Afghans of ineptitude and corruption.” Even so, he adds, Petraeus's departure worries a lot of people. “Given his reputation, many Afghans would feel compelled to believe that the Americans are downgrading their engagement in Afghanistan”—especially since the general’s return home coincides with Obama’s drawdown announcement.
And now that Petraeus is headed home, what life might he be looking forward to post-CIA? It’s not an unfair question to ask. Petraeus always thinks ahead, and not a few people in Washington remember the way he campaigned for the Iraqi surge in 2007. Behind the scenes he worked closely with three senators—Republicans McCain and Lindsey Graham of South Carolina, and Connecticut independent Joe Lieberman—to promote the idea. “The best salesman was Dave himself,” recalls Graham, himself an Air Force reservist who served in Iraq. “I remember parking him in a room somewhere off the [Senate] floor, and I grabbed individual senators, saying, ‘I just need five minutes.’ And Dave would make the pitch, one by one. He could articulate a complicated system like counterinsurgency in two minutes. And after you met him, it was pretty hard not to want to give him a chance to succeed.”
That level of political finesse raised suspicions among Obama’s people when they took office. Top aides like Rahm Emanuel saw Petraeus as “a potential man on horseback,” says a senior White House official, and they didn’t want him leading a Republican march on the White House in the 2012 election. Petraeus worked to calm their fears, directly confronting Emanuel to assure him that his concern was unfounded.
As Petraeus packed up in Afghanistan this month, he told NEWSWEEK he thought retired generals shouldn’t even endorse candidates, let alone run for office themselves. When, a few years ago, a friend emailed him a list of the 12 generals who have become president and teasingly asked if he saw a pattern, Petraeus responded with a 13th name: William Tecumseh Sherman, the Civil War general who famously scuttled efforts to recruit him by saying, “If nominated I will not run; if elected I will not serve.” As Petraeus contemplates life after the CIA, he now has a new response: “Yes, I want to be president—president of Princeton.” And that happens to be true.
With Christopher Dickey and John Solomon
Friday, July 15, 2011
Wednesday, July 13, 2011
US too dumb to know O is always right
By MICHAEL GOODWIN
Last Updated: 4:04 AM, July 13, 2011
Posted: 1:43 AM, July 13, 2011
When President Obama started talking at his news conference Monday, I listened intently for 15 minutes or so. Then I got fidgety as his half-truths about the debt grew into full-blown whoppers. As he droned on, I did something I never did before during an Obama appearance: I turned off the TV.
Enough. He is the Man Who Won't Listen to Anybody, so why should anybody listen to him?
Tuning out and turning off the president does not fill me with gladness. He cannot be ignored.
But for now, I will leave that unhappy duty to others. I am tired of Barack Obama. There's nothing new there. His speeches are like "Groundhog Day."
His presidency is a spectacular failure, his historic mandate squandered by adherence to leftist ideology and relentless partisanship. His policies are crushing the prospects for growth and dooming the hopes of 24 million Americans who are unemployed or working part-time.
Yet he is not going to change. He listens only to his own voice, which is why he has lost virtually his entire economic team.
The biggest media myth is that he is a centrist. Oh, please. It's a theory without evidence, for there is not a single example on domestic issues where he voluntarily staked out a spot in the American middle.
Sure, on occasion, Obama will be to the right of the far, far left, but that is not the center. That just means he's not Michael Moore.
Nor is he a centrist because he'll make a deal under duress with Republicans, as he did last December. All politicians have a pragmatic streak, otherwise they couldn't get anything done in a divided government.
But Obama's default statist position remains unmolested by facts or last year's landslide that was a rebuke to his first two years. He continues to push bigger and bigger government, higher and higher taxes and more and more welfare programs.
He will compromise if he must, but he still wants what he wants and will come back for it again and again.
That's the subtext of the debt-ceiling talks and his press conference. He voted against raising the ceiling as a senator, calling the need for an increase a "failure."
Now he is not embarrassed to demand a hike of about $2.5 trillion, and more hair of the spending-and-taxing dog. He reveals his belief that your money is really the government's and it will decide how much you can keep. The only cut he is comfortable with is in the defense budget.
He says it's time to "pull off the Band-Aid" and "eat our peas." Translation: It's time for Republicans to give him everything he wants. That's his definition of being an adult and acting in the national interest.
His only concession to public will is to pretend he's got religion about the fiscal problems and wants a "big deal." What he really wants is to get through the election.
In answering a question about a poll showing that two-thirds of voters don't want the debt ceiling raised, he blew off 70 million Americans by saying they aren't paying attention.
There's a novel campaign theme: Elect me because you're too dumb to understand how smart I am.
Harry Truman ran against a "Do-Nothing" Congress. Obama is running against a "Know-Nothing" nation.
He can never be wrong. You always are, unless you agree with him.
That's the story of his presidency. That's who he is.
Read more: http://www.nypost.com/p/news/national/us_too_dumb_to_know_is_always_right_G4K8WElXRNRR8NvsXQAz0H#ixzz1S0ShPuxV
Last Updated: 4:04 AM, July 13, 2011
Posted: 1:43 AM, July 13, 2011
When President Obama started talking at his news conference Monday, I listened intently for 15 minutes or so. Then I got fidgety as his half-truths about the debt grew into full-blown whoppers. As he droned on, I did something I never did before during an Obama appearance: I turned off the TV.
Enough. He is the Man Who Won't Listen to Anybody, so why should anybody listen to him?
Tuning out and turning off the president does not fill me with gladness. He cannot be ignored.
But for now, I will leave that unhappy duty to others. I am tired of Barack Obama. There's nothing new there. His speeches are like "Groundhog Day."
His presidency is a spectacular failure, his historic mandate squandered by adherence to leftist ideology and relentless partisanship. His policies are crushing the prospects for growth and dooming the hopes of 24 million Americans who are unemployed or working part-time.
Yet he is not going to change. He listens only to his own voice, which is why he has lost virtually his entire economic team.
The biggest media myth is that he is a centrist. Oh, please. It's a theory without evidence, for there is not a single example on domestic issues where he voluntarily staked out a spot in the American middle.
Sure, on occasion, Obama will be to the right of the far, far left, but that is not the center. That just means he's not Michael Moore.
Nor is he a centrist because he'll make a deal under duress with Republicans, as he did last December. All politicians have a pragmatic streak, otherwise they couldn't get anything done in a divided government.
But Obama's default statist position remains unmolested by facts or last year's landslide that was a rebuke to his first two years. He continues to push bigger and bigger government, higher and higher taxes and more and more welfare programs.
He will compromise if he must, but he still wants what he wants and will come back for it again and again.
That's the subtext of the debt-ceiling talks and his press conference. He voted against raising the ceiling as a senator, calling the need for an increase a "failure."
Now he is not embarrassed to demand a hike of about $2.5 trillion, and more hair of the spending-and-taxing dog. He reveals his belief that your money is really the government's and it will decide how much you can keep. The only cut he is comfortable with is in the defense budget.
He says it's time to "pull off the Band-Aid" and "eat our peas." Translation: It's time for Republicans to give him everything he wants. That's his definition of being an adult and acting in the national interest.
His only concession to public will is to pretend he's got religion about the fiscal problems and wants a "big deal." What he really wants is to get through the election.
In answering a question about a poll showing that two-thirds of voters don't want the debt ceiling raised, he blew off 70 million Americans by saying they aren't paying attention.
There's a novel campaign theme: Elect me because you're too dumb to understand how smart I am.
Harry Truman ran against a "Do-Nothing" Congress. Obama is running against a "Know-Nothing" nation.
He can never be wrong. You always are, unless you agree with him.
That's the story of his presidency. That's who he is.
Read more: http://www.nypost.com/p/news/national/us_too_dumb_to_know_is_always_right_G4K8WElXRNRR8NvsXQAz0H#ixzz1S0ShPuxV
What's Rick Perry waiting for?
Rick Perry sure looks like a presidential candidate.
The Texas governor and his top advisers are feeling out early-state Republican activists on the phone. He met for lunch in Austin Tuesday with former Pakistani President Pervez Musharraf. Next week, he’ll join a group of top national Republican donors for dinner in the state capital, POLITICO has learned.
GOP governors and members of Congress, in not-for-attribution comments, and leading strategists like Karl Rove all say the same thing: Perry’s in.
So what’s the hold up?
Those close to Perry say despite the strong hints that both he and his high command are dropping in conversations with senior Republicans — hints that have left party elites in Texas and beyond convinced that Perry will enter the race — the country’s longest-serving governor has not yet made up his mind. Questions about money and infrastructure remain. Not only that, he isn’t in a rush to decide.
Dave Carney, Perry’s chief strategist, said they had no “hard deadline,” but called Labor Day the outer end of when Perry will have to make up his mind.
“I have always expected him to make a decision by the end of the summer,” the strategist said.
Perry’s carefully weighing the difficulties inherent in trying to put together a presidential campaign from scratch after the contest has already begun.
“It’s a matter of doing what others have been doing over years in in a matter of few weeks,” Carney said.
As the will-he-or-won’t-he buzz moves from hum to roar, the usually-accessible governor isn’t offering any public clues. He’s done few interviews since first acknowledging he was considering a run and hasn’t yet made exploratory trips to Iowa or New Hampshire. His schedule this week includes only in-state trips to San Antonio and Denton — and he won’t go to the press-heavy National Governors Association meeting this weekend in Salt Lake City.
Behind the scenes, however, the Texan and his confidantes have stepped up their outreach efforts.
In addition to ringing up early-state Republicans, Perry has spent the last week calling some of his fellow GOP governors to discuss running, including Mississippi’s Haley Barbour, perhaps the most influential of the 29-member group.
While Barbour has said he’ll remain neutral in the presidential contest for the near-term, the nucleus of a Perry campaign could feature remnants from the organization the Mississippian put in place for his own abortive run.
Henry Barbour, the governor’s nephew and a well-connected Republican player, has been recruiting many of the operatives who had signed up with his uncle.
“Perry is the most natural fit for us,” said Barbour.
Some of Rudy Giuliani’s top moneymen are also being wooed by Perry, who endorsed and served as a top surrogate for the former New York City mayor in 2008.
Former Ambassador Peter Terpeluk, financier Roy Bailey and veteran lobbyist Dirk Van Dongen, each of whom raised cash for Giuliani in 2008, are all attending a meeting of major GOP donors next week in Austin and will attend a dinner with the governor. (They wouldn’t discuss Perry or meetings involving him, though.)
When Perry was in New York City last month he met privately with Giuliani and attended a luncheon with a group that included a well-known and longtime supporter of the ex-mayor, John Catsimatidis. Longtime New York political influentials Bill Plunkett and Charles “Trip” Dorkey were also on hand.
So, along with former Newt Gingrich aides like Carney and Rob Johnson as well as the many still-unaffiliated Republican operatives across the country, the bodies exist to staff and seed a Perry campaign.
They just need a candidate.
Perry doesn’t have a Mitch Daniels problem. The Texan’s wife, Anita, is enthusiastic about a run, according to multiple sources. If he were to opt out it would be more for reasons along the lines of why Barbour decided not to pull the trigger — a lack of total commitment and more practical concern about whether it’s feasible at this relatively late stage in the process.
“Is there the time available and is real money still available?” asked Carney, explaining their assessment. “It’s not very wise to just say, ‘Hey, lemme get in the race’ and just jump and not have an idea if there is the political support, the financial support. It’s a matter of trying to make a prudent decision.”
A central part of Perry’s challenge will be in trying to build a war chest. He’s raised tens of millions over his decade as governor and for the Republican Governors Association, but has never had to do so with a $2,300 per-person federal limit.
Still, he’s been getting exposure in situations where he could win favor with high rollers. For instance, he spoke last month at a conference of major conservative donors convened near Aspen, Colo., by the billionaire brothers Charles and David Koch.
And next week, Perry will join about a dozen of his fellow chief executives for a gathering of about 200 major donors for a two-day RGA retreat in Aspen.
The confab — one of a handful the Perry-led group holds each year — is an effort to woo new donors for the GOP governors’ association. But it comes at a key moment for Perry, as he tests his appeal to a swath of contributors who remain on the sidelines.
Several sources involved in New York fundraising said Perry has gotten mixed feedback about how many bundlers in the city that functions as the nation’s political ATM would embrace his candidacy. While there is a raft of Texas money that would almost certainly be available to him, it’s less clear how he would fare among the Wall Street and business elite of Manhattan.
Still, as one veteran fundraising source noted, “It may not matter.” As the sort of tea party-establishment hybrid candidate missing from the current field, Perry may have such appeal with tea party voters and grass-roots activists that he may be able to raise large sums of “energy-driven” money.
Perry associates, though, say it’s not just money or any one specific issue that will ultimately sway Perry.
“I don’t know if anything is holding him back, it’s just the process of making a decision and thinking about what a race entails,” said the governor’s pollster, Mike Baselice, noting that he has not yet taken a survey for Perry.
Another source familiar with Perry’s deliberations emphasized that the governor was still uncertain and predicted he’d ultimately go with his gut.
“I think he’s still weighing it,” said this Republican. “If he feels like he’s being called to do this then he’ll do it.”
A decision isn’t imminent. Two events in August — a day of prayer rally in Houston Perry is helping to organize and the Ames Straw Poll — may delay a decision. It may be difficult to participate in the former as a presidential candidate, and he likely wouldn’t be able to aggressively compete with such little time before the latter.
He may need to put together an infrastructure by the end of summer, but key Republicans say most primary voters still won’t have decided at that point.
“There is still a very significant vacuum, and people are still evaluating candidates,” said Iowa House Speaker Kraig Paulsen. “My expectation is that that will go maybe into October, most definitely September. I don’t see any scenario where the electorate firms up before September.”
Paulsen said Perry called him last weekend but didn’t indicate whether he was going to run.
“He said he was coming to Iowa at some point and wanted to know if it would be ok to stop by and visit me,” Paulsen recalled.
For all the buzz among GOP insiders, though, Perry is still not a household name among the party’s rank-and-file.
“He’s relatively unknown here, unlike Rudy Giuliani who can walk in with a cache of name recognition,” said New Hampshire tea party favorite Ovide Lamontagne, who also talked to Perry over the weekend and found him to be seriously thinking about running, but still clearly in the “final stages” of an unfinished process.
Back in Texas, though, there’s little doubt as to his intentions.
“Absolutely, I think he will run,” said Texas Monthly’s Paul Burka, one of Austin’s most respected chroniclers. “He’s always been in the right place at the right time. It’s as if the fates have him as their favorite son. The Mitch Daniels’, the Huckabees and the Barbours have all dropped out. Everything has gone right.”
© 2011 POLITICO LLC
The Texas governor and his top advisers are feeling out early-state Republican activists on the phone. He met for lunch in Austin Tuesday with former Pakistani President Pervez Musharraf. Next week, he’ll join a group of top national Republican donors for dinner in the state capital, POLITICO has learned.
GOP governors and members of Congress, in not-for-attribution comments, and leading strategists like Karl Rove all say the same thing: Perry’s in.
So what’s the hold up?
Those close to Perry say despite the strong hints that both he and his high command are dropping in conversations with senior Republicans — hints that have left party elites in Texas and beyond convinced that Perry will enter the race — the country’s longest-serving governor has not yet made up his mind. Questions about money and infrastructure remain. Not only that, he isn’t in a rush to decide.
Dave Carney, Perry’s chief strategist, said they had no “hard deadline,” but called Labor Day the outer end of when Perry will have to make up his mind.
“I have always expected him to make a decision by the end of the summer,” the strategist said.
Perry’s carefully weighing the difficulties inherent in trying to put together a presidential campaign from scratch after the contest has already begun.
“It’s a matter of doing what others have been doing over years in in a matter of few weeks,” Carney said.
As the will-he-or-won’t-he buzz moves from hum to roar, the usually-accessible governor isn’t offering any public clues. He’s done few interviews since first acknowledging he was considering a run and hasn’t yet made exploratory trips to Iowa or New Hampshire. His schedule this week includes only in-state trips to San Antonio and Denton — and he won’t go to the press-heavy National Governors Association meeting this weekend in Salt Lake City.
Behind the scenes, however, the Texan and his confidantes have stepped up their outreach efforts.
In addition to ringing up early-state Republicans, Perry has spent the last week calling some of his fellow GOP governors to discuss running, including Mississippi’s Haley Barbour, perhaps the most influential of the 29-member group.
While Barbour has said he’ll remain neutral in the presidential contest for the near-term, the nucleus of a Perry campaign could feature remnants from the organization the Mississippian put in place for his own abortive run.
Henry Barbour, the governor’s nephew and a well-connected Republican player, has been recruiting many of the operatives who had signed up with his uncle.
“Perry is the most natural fit for us,” said Barbour.
Some of Rudy Giuliani’s top moneymen are also being wooed by Perry, who endorsed and served as a top surrogate for the former New York City mayor in 2008.
Former Ambassador Peter Terpeluk, financier Roy Bailey and veteran lobbyist Dirk Van Dongen, each of whom raised cash for Giuliani in 2008, are all attending a meeting of major GOP donors next week in Austin and will attend a dinner with the governor. (They wouldn’t discuss Perry or meetings involving him, though.)
When Perry was in New York City last month he met privately with Giuliani and attended a luncheon with a group that included a well-known and longtime supporter of the ex-mayor, John Catsimatidis. Longtime New York political influentials Bill Plunkett and Charles “Trip” Dorkey were also on hand.
So, along with former Newt Gingrich aides like Carney and Rob Johnson as well as the many still-unaffiliated Republican operatives across the country, the bodies exist to staff and seed a Perry campaign.
They just need a candidate.
Perry doesn’t have a Mitch Daniels problem. The Texan’s wife, Anita, is enthusiastic about a run, according to multiple sources. If he were to opt out it would be more for reasons along the lines of why Barbour decided not to pull the trigger — a lack of total commitment and more practical concern about whether it’s feasible at this relatively late stage in the process.
“Is there the time available and is real money still available?” asked Carney, explaining their assessment. “It’s not very wise to just say, ‘Hey, lemme get in the race’ and just jump and not have an idea if there is the political support, the financial support. It’s a matter of trying to make a prudent decision.”
A central part of Perry’s challenge will be in trying to build a war chest. He’s raised tens of millions over his decade as governor and for the Republican Governors Association, but has never had to do so with a $2,300 per-person federal limit.
Still, he’s been getting exposure in situations where he could win favor with high rollers. For instance, he spoke last month at a conference of major conservative donors convened near Aspen, Colo., by the billionaire brothers Charles and David Koch.
And next week, Perry will join about a dozen of his fellow chief executives for a gathering of about 200 major donors for a two-day RGA retreat in Aspen.
The confab — one of a handful the Perry-led group holds each year — is an effort to woo new donors for the GOP governors’ association. But it comes at a key moment for Perry, as he tests his appeal to a swath of contributors who remain on the sidelines.
Several sources involved in New York fundraising said Perry has gotten mixed feedback about how many bundlers in the city that functions as the nation’s political ATM would embrace his candidacy. While there is a raft of Texas money that would almost certainly be available to him, it’s less clear how he would fare among the Wall Street and business elite of Manhattan.
Still, as one veteran fundraising source noted, “It may not matter.” As the sort of tea party-establishment hybrid candidate missing from the current field, Perry may have such appeal with tea party voters and grass-roots activists that he may be able to raise large sums of “energy-driven” money.
Perry associates, though, say it’s not just money or any one specific issue that will ultimately sway Perry.
“I don’t know if anything is holding him back, it’s just the process of making a decision and thinking about what a race entails,” said the governor’s pollster, Mike Baselice, noting that he has not yet taken a survey for Perry.
Another source familiar with Perry’s deliberations emphasized that the governor was still uncertain and predicted he’d ultimately go with his gut.
“I think he’s still weighing it,” said this Republican. “If he feels like he’s being called to do this then he’ll do it.”
A decision isn’t imminent. Two events in August — a day of prayer rally in Houston Perry is helping to organize and the Ames Straw Poll — may delay a decision. It may be difficult to participate in the former as a presidential candidate, and he likely wouldn’t be able to aggressively compete with such little time before the latter.
He may need to put together an infrastructure by the end of summer, but key Republicans say most primary voters still won’t have decided at that point.
“There is still a very significant vacuum, and people are still evaluating candidates,” said Iowa House Speaker Kraig Paulsen. “My expectation is that that will go maybe into October, most definitely September. I don’t see any scenario where the electorate firms up before September.”
Paulsen said Perry called him last weekend but didn’t indicate whether he was going to run.
“He said he was coming to Iowa at some point and wanted to know if it would be ok to stop by and visit me,” Paulsen recalled.
For all the buzz among GOP insiders, though, Perry is still not a household name among the party’s rank-and-file.
“He’s relatively unknown here, unlike Rudy Giuliani who can walk in with a cache of name recognition,” said New Hampshire tea party favorite Ovide Lamontagne, who also talked to Perry over the weekend and found him to be seriously thinking about running, but still clearly in the “final stages” of an unfinished process.
Back in Texas, though, there’s little doubt as to his intentions.
“Absolutely, I think he will run,” said Texas Monthly’s Paul Burka, one of Austin’s most respected chroniclers. “He’s always been in the right place at the right time. It’s as if the fates have him as their favorite son. The Mitch Daniels’, the Huckabees and the Barbours have all dropped out. Everything has gone right.”
© 2011 POLITICO LLC
Welcome to Jimmy Carter's 2nd term
It has taken three decades, but Americans are finally living through Jimmy Carter's second term.
Now we've got Jimmy Jr. barking at us from the White House about eating our peas and ripping off our Band-Aid. He might not even let us have our Social Security checks.
These are just the latest in a long line of nagging lectures. Already, we have been taught how we should sneeze into the crook of our arm. We need to drive less. And we need to caulk up those drafty houses of ours.
What ever happened to the soaring rhetoric and big bold ideas President Obama promised us in that historic election of his?
Is this what he meant by a new kind of politics? If so, no thanks. Oh, and it is not new. Jimmy already dragged us through all this once and we just barely survived it.
One of the most unpleasant things about Mr. Carter was the condescending disdain he could barely disguise for struggling Americans and their irritating malaise.
Increasingly, Jimmy Jr. is having difficulty concealing that very same disdain for us as the political winds around him turn hostile and all of his bright ideas lie fallow as nothing more than socialist hocus-pocus.
But even Mr. Carter never laid bare so baldly and plainly as Mr. Obama did earlier this week his deep-seated contempt for this whole annoying process we call "democracy."
The problem with reaching a deal to raise the debt ceiling, he explained in a long sermon, is that there is this huge wave of Republicans who won control of the House in the last election by promising not to raise any more taxes and to cut the absurd overspending that has driven this town for decades.
He bemoaned - in public - that these Republicans are more concerned about the "next election" rather than doing "what's right for the country." In other words, he is saying the honorable thing would be for these Republicans to ignore the expressed wishes of voters, break their campaign promises and raise taxes. Wow.
As if the whole problem of Washington spending us into oblivion is the fault of stingy taxpayers and stupid voters. And what we really need is Jimmy Jr., who knows what is best for us despite what we may think.
Continuing his lecture, Mr. Obama then complained about America's "political process, where folks are rewarded for saying irresponsible things to win elections."
How did this man get past sixth-grade social studies, much less Iowa?
When Mr. Obama finished his sermon about the contemptible Republicans keeping faith with their voters like a bunch of chumps, he then turned to his own intentions - and revealed even more of his contempt for us.
All this talk about "raising revenue" - the deceitful line he uses to describe raising taxes - has been most unhelpful, he said. "I want to be crystal clear," he said. "Nobody has talked about increasing taxes now. Nobody has talked about increasing taxes next year."
So when would these tax hikes that he is demanding take effect?
In 2013, well after Mr. Obama must face voters for re-election.
Lucky for us, it appears more and more unlikely every day that we will have to suffer through a third term of Jimmy Carter's.
• Charlie Hurt's column appears Wednesdays. He can be reached at charleshurt@live.com.
Now we've got Jimmy Jr. barking at us from the White House about eating our peas and ripping off our Band-Aid. He might not even let us have our Social Security checks.
These are just the latest in a long line of nagging lectures. Already, we have been taught how we should sneeze into the crook of our arm. We need to drive less. And we need to caulk up those drafty houses of ours.
What ever happened to the soaring rhetoric and big bold ideas President Obama promised us in that historic election of his?
Is this what he meant by a new kind of politics? If so, no thanks. Oh, and it is not new. Jimmy already dragged us through all this once and we just barely survived it.
One of the most unpleasant things about Mr. Carter was the condescending disdain he could barely disguise for struggling Americans and their irritating malaise.
Increasingly, Jimmy Jr. is having difficulty concealing that very same disdain for us as the political winds around him turn hostile and all of his bright ideas lie fallow as nothing more than socialist hocus-pocus.
But even Mr. Carter never laid bare so baldly and plainly as Mr. Obama did earlier this week his deep-seated contempt for this whole annoying process we call "democracy."
The problem with reaching a deal to raise the debt ceiling, he explained in a long sermon, is that there is this huge wave of Republicans who won control of the House in the last election by promising not to raise any more taxes and to cut the absurd overspending that has driven this town for decades.
He bemoaned - in public - that these Republicans are more concerned about the "next election" rather than doing "what's right for the country." In other words, he is saying the honorable thing would be for these Republicans to ignore the expressed wishes of voters, break their campaign promises and raise taxes. Wow.
As if the whole problem of Washington spending us into oblivion is the fault of stingy taxpayers and stupid voters. And what we really need is Jimmy Jr., who knows what is best for us despite what we may think.
Continuing his lecture, Mr. Obama then complained about America's "political process, where folks are rewarded for saying irresponsible things to win elections."
How did this man get past sixth-grade social studies, much less Iowa?
When Mr. Obama finished his sermon about the contemptible Republicans keeping faith with their voters like a bunch of chumps, he then turned to his own intentions - and revealed even more of his contempt for us.
All this talk about "raising revenue" - the deceitful line he uses to describe raising taxes - has been most unhelpful, he said. "I want to be crystal clear," he said. "Nobody has talked about increasing taxes now. Nobody has talked about increasing taxes next year."
So when would these tax hikes that he is demanding take effect?
In 2013, well after Mr. Obama must face voters for re-election.
Lucky for us, it appears more and more unlikely every day that we will have to suffer through a third term of Jimmy Carter's.
• Charlie Hurt's column appears Wednesdays. He can be reached at charleshurt@live.com.
Tuesday, July 12, 2011
It's Different This Time; Sell Stocks
"We need to stop being surprised by the continued weakness of job creation and start being prepared for it. We need to confront a changed global system and the place of the United States in it, as well as the challenges of future growth for what is on balance an extremely affluent society compared with the rest of the world. The cycles of the 20th century are not and will not be the cycles of the 21st. This time, it's different."
-- Zachary Karabell, Daily Beast ("Jobs Aren't Coming Back")
On Friday, I wrote that there was no way to put lipstick on the (employment) pig.
The mistake many have made and are continuing to make is that they view the jobs weakness of 2009-2011 as cyclical. It is not -- rather, it is a structural phenomenon. Employment will not resume (relative to bullish expectations and relative to past cycles) as the overall economy recovers.
The economy in the 21st century will not resemble the economy of the 20th century.
It's different this time.
Public policy of throwing money at the jobs problem (quantitative wheezing) is misplaced. Nor will lowering tax rates for corporations and the wealthy help -- both groups have more than enough liquidity. Corporations, in particular, have never had more liquidity and more solid balance sheets, yet they are still not hiring.
So, from my perch, trickle-down economic theory is dumb theory -- it's yesterday's theory.
Indeed (with the benefit of hindsight), the policy of quantitative wheezing had adverse consequences in raising the costs of the necessities of life and by penalizing the savings class, placing more pressure on the middle class. (Screwflation of the middle class remains an important theme to the last decade and to the next 10 years.)
The wrong tools are being used to deal with elevated unemployment that is being influenced by new factors that include globalization, austerity, the shedding of municipal jobs (associated with local, state and federal fiscal imbalances), technological innovation and the use of part-time employees as a permanent part of the workplace, reflecting mounting health care costs and the costs of regulatory burdens.
Structural unemployment will be a consistent drag on domestic economic growth -- and, in the fullness of time, corporations will be victimized by lower demand for their products -- until authorities recognize the source of the secular problem and deal with it in a more focused and aggressive manner.
Investors will soon recognize that correcting our structural issues requires time and patience. When they finally do, share prices and valuations will be lower than they are today.
The notion of a self-sustaining and smooth recovery in the U.S. is in jeopardy and is now further complicated by the sovereign debt contagion in the eurozone, which, too, is being addressed by kicking the can in a temporary but not meaningful way.
In the final analysis, the budget impasse in the U.S. will be "resolved" but only with some more can kicking.
As to the U.S. stock market viewed as a leading indicator of growth, that is bogus, too. In 2002, 2007 and in the first half of 2010, the direction of the U.S. stock market gave the wrong signals on the direction of economic growth. Stated simply, the recent two-week rally in stocks is, too, giving the wrong signal of smooth and self-sustaining growth.
Over the weekend, I received numerous emails from some of my more thoughtful friends in the investment business. With few exceptions, they have acquiesced to the strong price momentum of stocks. Some saw the rally as a "good overbought," and many remarked that skepticism remained high and that, until there was a more pronounced shift to optimism, stocks would continue to rise. Others expressed the view that stocks have discounted the problems and, with inflation "low" and interest rates near zero, stocks were cheap and the best house in a bad neighborhood. Some were even more honest and simply said that their investors paid them to be long not to be skeptical, especially when stocks were rising. (In other words, don't fight the tape.)
It should be noted, however, that sentiment has shifted to a more optimistic mood with advancing share prices:
The AAII individual investor survey is at five-month high (42% bullish/26% bearish).
The CBOE 10-day put/call ratio has fallen from 1.15 to 0.92.
ISI's hedge fund study indicates a swift and sudden rise in net long positions in the past seven days (from 49.4% to 52.6%).
My overall view?
As I wrote on Friday, I would now sell stocks as the risk/reward is currently unfavorable.
-- Zachary Karabell, Daily Beast ("Jobs Aren't Coming Back")
On Friday, I wrote that there was no way to put lipstick on the (employment) pig.
The mistake many have made and are continuing to make is that they view the jobs weakness of 2009-2011 as cyclical. It is not -- rather, it is a structural phenomenon. Employment will not resume (relative to bullish expectations and relative to past cycles) as the overall economy recovers.
The economy in the 21st century will not resemble the economy of the 20th century.
It's different this time.
Public policy of throwing money at the jobs problem (quantitative wheezing) is misplaced. Nor will lowering tax rates for corporations and the wealthy help -- both groups have more than enough liquidity. Corporations, in particular, have never had more liquidity and more solid balance sheets, yet they are still not hiring.
So, from my perch, trickle-down economic theory is dumb theory -- it's yesterday's theory.
Indeed (with the benefit of hindsight), the policy of quantitative wheezing had adverse consequences in raising the costs of the necessities of life and by penalizing the savings class, placing more pressure on the middle class. (Screwflation of the middle class remains an important theme to the last decade and to the next 10 years.)
The wrong tools are being used to deal with elevated unemployment that is being influenced by new factors that include globalization, austerity, the shedding of municipal jobs (associated with local, state and federal fiscal imbalances), technological innovation and the use of part-time employees as a permanent part of the workplace, reflecting mounting health care costs and the costs of regulatory burdens.
Structural unemployment will be a consistent drag on domestic economic growth -- and, in the fullness of time, corporations will be victimized by lower demand for their products -- until authorities recognize the source of the secular problem and deal with it in a more focused and aggressive manner.
Investors will soon recognize that correcting our structural issues requires time and patience. When they finally do, share prices and valuations will be lower than they are today.
The notion of a self-sustaining and smooth recovery in the U.S. is in jeopardy and is now further complicated by the sovereign debt contagion in the eurozone, which, too, is being addressed by kicking the can in a temporary but not meaningful way.
In the final analysis, the budget impasse in the U.S. will be "resolved" but only with some more can kicking.
As to the U.S. stock market viewed as a leading indicator of growth, that is bogus, too. In 2002, 2007 and in the first half of 2010, the direction of the U.S. stock market gave the wrong signals on the direction of economic growth. Stated simply, the recent two-week rally in stocks is, too, giving the wrong signal of smooth and self-sustaining growth.
Over the weekend, I received numerous emails from some of my more thoughtful friends in the investment business. With few exceptions, they have acquiesced to the strong price momentum of stocks. Some saw the rally as a "good overbought," and many remarked that skepticism remained high and that, until there was a more pronounced shift to optimism, stocks would continue to rise. Others expressed the view that stocks have discounted the problems and, with inflation "low" and interest rates near zero, stocks were cheap and the best house in a bad neighborhood. Some were even more honest and simply said that their investors paid them to be long not to be skeptical, especially when stocks were rising. (In other words, don't fight the tape.)
It should be noted, however, that sentiment has shifted to a more optimistic mood with advancing share prices:
The AAII individual investor survey is at five-month high (42% bullish/26% bearish).
The CBOE 10-day put/call ratio has fallen from 1.15 to 0.92.
ISI's hedge fund study indicates a swift and sudden rise in net long positions in the past seven days (from 49.4% to 52.6%).
My overall view?
As I wrote on Friday, I would now sell stocks as the risk/reward is currently unfavorable.
Unknown Unknowns
Unknown Unknowns
By Thomas Sowell
When Donald Rumsfeld was Secretary of Defense, he coined some phrases about knowledge that apply far beyond military matters.
Secretary Rumsfeld pointed out that there are some things that we know that we know. He called those "known knowns." We may, for example, know how many aircraft carriers some other country has. We may also know that they have troops and tanks, without knowing how many. In Rumsfeld's phrase, that would be an "unknown known" -- a gap in our knowledge that we at least know exists.
Finally, there are things we don't even know exist, much less anything about them. These are "unknown unknowns" -- and they are the most dangerous. We had no clue, for example, when dawn broke on September 11, 2001, that somebody was going to fly two commercial airliners into the World Trade Center that day.
There are similar kinds of gaps in our knowledge in the economy. Unfortunately, our own government creates uncertainties that can paralyze the economy, especially when these uncertainties take the form of "unknown unknowns."
The short-run quick fixes that seem so attractive to so many politicians, and to many in the media, create many unknowns that make investors reluctant to invest and employers reluctant to employ. Politicians may only look as far ahead as the next election, but investors have to look ahead for as many years as it will take for their investments to start bringing in some money.
The net result is that both our financial institutions and our businesses have had record amounts of cash sitting idle while millions of people can't find jobs. Ordinarily these institutions make money by investing money and hiring workers. Why not now?
Because numerous and unpredictable government interventions create many unknowns, including "unknown unknowns."
The quick fix that got both Democrats and Republicans off the hook with a temporary bipartisan tax compromise, several months ago, leaves investors uncertain as to what the tax rate will be when any money they invest today starts bringing in a return in another two or three or ten years. It is known that there will be taxes but nobody knows what the tax rate will be then.
Some investors can send their investment money to foreign countries, where the tax rate is already known, is often lower than the tax rate in the United States and -- perhaps even more important -- is not some temporary, quick-fix compromise that is going to expire before their investments start earning a return.
Although more foreign investments were coming into the United States, a few years ago, than there were American investments going to foreign countries, today it is just the reverse. American investors are sending more of their money out of the country than foreign investors are sending here.
Since 2009, according to the Wall Street Journal, "the U.S. has lost more than $200 billion in investment capital." They add: "That is the equivalent of about two million jobs that don't exist on these shores and are now located in places like China, Germany and India."
President Obama's rhetoric deplores such "outsourcing," but his administration's policies make outsourcing an ever more attractive alternative to investing in the United States and creating American jobs.
Blithely piling onto American businesses both known costs like more taxes and unknowable costs -- such as the massive ObamaCare mandates that are still evolving -- provides more incentives for investors to send their money elsewhere to escape the hassles.
Hardly a month goes by without this administration coming up with a new anti-business policy -- whether directed against Boeing, banks or other private enterprises. Neither investors nor employers can know when the next one is coming or what it will be. These are unknown unknowns.
Such anti-business policies would just be business' problem, except that it is businesses that create jobs.
The biggest losers from creating an adverse business climate may not be businesses themselves -- especially not big businesses, which can readily invest more of their money overseas. The biggest losers are likely to be working people in America, who cannot just relocate to Europe or Asia to take the jobs created there by American multinational corporations.
By Thomas Sowell
When Donald Rumsfeld was Secretary of Defense, he coined some phrases about knowledge that apply far beyond military matters.
Secretary Rumsfeld pointed out that there are some things that we know that we know. He called those "known knowns." We may, for example, know how many aircraft carriers some other country has. We may also know that they have troops and tanks, without knowing how many. In Rumsfeld's phrase, that would be an "unknown known" -- a gap in our knowledge that we at least know exists.
Finally, there are things we don't even know exist, much less anything about them. These are "unknown unknowns" -- and they are the most dangerous. We had no clue, for example, when dawn broke on September 11, 2001, that somebody was going to fly two commercial airliners into the World Trade Center that day.
There are similar kinds of gaps in our knowledge in the economy. Unfortunately, our own government creates uncertainties that can paralyze the economy, especially when these uncertainties take the form of "unknown unknowns."
The short-run quick fixes that seem so attractive to so many politicians, and to many in the media, create many unknowns that make investors reluctant to invest and employers reluctant to employ. Politicians may only look as far ahead as the next election, but investors have to look ahead for as many years as it will take for their investments to start bringing in some money.
The net result is that both our financial institutions and our businesses have had record amounts of cash sitting idle while millions of people can't find jobs. Ordinarily these institutions make money by investing money and hiring workers. Why not now?
Because numerous and unpredictable government interventions create many unknowns, including "unknown unknowns."
The quick fix that got both Democrats and Republicans off the hook with a temporary bipartisan tax compromise, several months ago, leaves investors uncertain as to what the tax rate will be when any money they invest today starts bringing in a return in another two or three or ten years. It is known that there will be taxes but nobody knows what the tax rate will be then.
Some investors can send their investment money to foreign countries, where the tax rate is already known, is often lower than the tax rate in the United States and -- perhaps even more important -- is not some temporary, quick-fix compromise that is going to expire before their investments start earning a return.
Although more foreign investments were coming into the United States, a few years ago, than there were American investments going to foreign countries, today it is just the reverse. American investors are sending more of their money out of the country than foreign investors are sending here.
Since 2009, according to the Wall Street Journal, "the U.S. has lost more than $200 billion in investment capital." They add: "That is the equivalent of about two million jobs that don't exist on these shores and are now located in places like China, Germany and India."
President Obama's rhetoric deplores such "outsourcing," but his administration's policies make outsourcing an ever more attractive alternative to investing in the United States and creating American jobs.
Blithely piling onto American businesses both known costs like more taxes and unknowable costs -- such as the massive ObamaCare mandates that are still evolving -- provides more incentives for investors to send their money elsewhere to escape the hassles.
Hardly a month goes by without this administration coming up with a new anti-business policy -- whether directed against Boeing, banks or other private enterprises. Neither investors nor employers can know when the next one is coming or what it will be. These are unknown unknowns.
Such anti-business policies would just be business' problem, except that it is businesses that create jobs.
The biggest losers from creating an adverse business climate may not be businesses themselves -- especially not big businesses, which can readily invest more of their money overseas. The biggest losers are likely to be working people in America, who cannot just relocate to Europe or Asia to take the jobs created there by American multinational corporations.
Monday, July 11, 2011
Mr. President, do the math: $250,000 per year isn't rich - Washington Times
President Obama made $5.5 million in 2009. His $400,000 salary as president was mere walking-around money. He paid more in taxes - $1.8 million - than 90 percent of Americans earn in 10 years. More than some in a lifetime.
Now it makes sense that he wants to pay more in taxes. So let's add another $1.2 million to his taxes. Thus, $3 million off to the federal government, leaving him just - $2 million. With that, he could definitely lease a private jet -- although even that much money would make buying his own out of the question. (Plus, there's no need. He's already got one. It's called Air Force One.)
But Mr. President, you really have no idea about how the rest of America suffers from taxes. And your definition of what is "rich" is so skewed as to be nonsensical. Let's work the numbers.
Mr. Obama pledged throughout his campaign that he would not raise taxes on middle-class America by one dime, that he'd only target those absurdly rich people making $250,000 or more. And he's making good on his pledge - he refuses to negotiate with Republican lawmakers over the debt ceiling unless tax hikes are part of the plan. (Oh, and it's another plan, like health care, that we'll have to pass to find out what's in it - even top congressional reporters still have no idea.)
Right now, a couple making $250,000 pays a whopping 33 percent of that to the feds. That's right, $83,333. Just to make clear, that means that couple works two months for themselves, then a full month for the government every quarter - four months of income per year straight to the feds.
But still, after paying their taxes, they still have $166,667, nothing to scoff at. Oh wait, forgot state and local taxes. Roughly 6 percent for the state - that's $15,000. About 3 percent for county tax - $7,500. So they're down to $144,167.
That's $12,014 per month - lotta cash. But let's break that down even further. (Pay special attention to this part, Mr. P.) Let's give them a nice house - $2,500 a month for the mortgage. $9,514 left. (Don't worry, they only have the one house - can't afford a second place.) Let's give them two teenagers, so $500 for food per week. (If you have teenagers, you'll know that's no exaggeration.)
Down to $7,514. Now the nitty-gritty. Roughly $250 a month for heating fuel. Another $150 for electricity. About $125 for cable TV and Internet. Another $125 for car insurance. And a whopping $250 per month to the mobile phone company (again, teenagers!) With gas prices, let's say $100 a week in fuel for two cars.
That leaves them roughly $6,200 per month after all the bills are paid. But wait, there's more. They're self-employed, so they pay their own health care - $1,000 a month. Down to $5,200. And one of those teenagers is in college. (Don't worry; they couldn't afford an Ivy League school, just a state school.) Still, with that whopping income, they get no help from the feds or the state, so they pay $2,000 a month to the university.
That means at month's end, they've got just $3,200 left. With that, they could afford a couple weeks at the beach in the summer, maybe a trip to Florida in the winter. But they certainly can't secure their own future with investments. In fact, they'd hardly be able to afford a string of calamities - a bad roof, a busted furnace, a dead car.
Still, the president thinks these folks are rich. And he wants even more of their money. If he raised the tax rate on the highest incomes to that of President Clinton, the feds would take nearly 40 percent from these folks. That'd take another $1,389 per month from them, leaving $1,811. When that second teenager hits college, they'd have to - yes, you got it - borrow $189 per month to make ends meet. And yeah, forget buying clothes, going to movies, dinners out, etc.
Of course, they could trim back their lifestyle - halve their cable bill, take the kids' phones, maybe set that thermostat to 68 in the winter. But should they really have to? They've worked their whole lives, are in their 50s, and have finally made it - they make a quarter of a million dollars a year. Yes, says President Obama - they MUST pay more to the federal government.
So, scratch that beach house, that trip to Florida. And you can forget about these people setting up their own retirement. They'll now have to depend on the federal government giving them back some of the money they paid in taxes - $2 million over 20 years, $3 million in 30.
Mr. President, just fyi, a couple making $250,000 is not, contrary to your opinion, "rich." But shouldn't you already know that?
• Joseph Curl covered the White House and politics for a decade for The Washington Times. He can be reached at jcurl@washingtontimes.com
Now it makes sense that he wants to pay more in taxes. So let's add another $1.2 million to his taxes. Thus, $3 million off to the federal government, leaving him just - $2 million. With that, he could definitely lease a private jet -- although even that much money would make buying his own out of the question. (Plus, there's no need. He's already got one. It's called Air Force One.)
But Mr. President, you really have no idea about how the rest of America suffers from taxes. And your definition of what is "rich" is so skewed as to be nonsensical. Let's work the numbers.
Mr. Obama pledged throughout his campaign that he would not raise taxes on middle-class America by one dime, that he'd only target those absurdly rich people making $250,000 or more. And he's making good on his pledge - he refuses to negotiate with Republican lawmakers over the debt ceiling unless tax hikes are part of the plan. (Oh, and it's another plan, like health care, that we'll have to pass to find out what's in it - even top congressional reporters still have no idea.)
Right now, a couple making $250,000 pays a whopping 33 percent of that to the feds. That's right, $83,333. Just to make clear, that means that couple works two months for themselves, then a full month for the government every quarter - four months of income per year straight to the feds.
But still, after paying their taxes, they still have $166,667, nothing to scoff at. Oh wait, forgot state and local taxes. Roughly 6 percent for the state - that's $15,000. About 3 percent for county tax - $7,500. So they're down to $144,167.
That's $12,014 per month - lotta cash. But let's break that down even further. (Pay special attention to this part, Mr. P.) Let's give them a nice house - $2,500 a month for the mortgage. $9,514 left. (Don't worry, they only have the one house - can't afford a second place.) Let's give them two teenagers, so $500 for food per week. (If you have teenagers, you'll know that's no exaggeration.)
Down to $7,514. Now the nitty-gritty. Roughly $250 a month for heating fuel. Another $150 for electricity. About $125 for cable TV and Internet. Another $125 for car insurance. And a whopping $250 per month to the mobile phone company (again, teenagers!) With gas prices, let's say $100 a week in fuel for two cars.
That leaves them roughly $6,200 per month after all the bills are paid. But wait, there's more. They're self-employed, so they pay their own health care - $1,000 a month. Down to $5,200. And one of those teenagers is in college. (Don't worry; they couldn't afford an Ivy League school, just a state school.) Still, with that whopping income, they get no help from the feds or the state, so they pay $2,000 a month to the university.
That means at month's end, they've got just $3,200 left. With that, they could afford a couple weeks at the beach in the summer, maybe a trip to Florida in the winter. But they certainly can't secure their own future with investments. In fact, they'd hardly be able to afford a string of calamities - a bad roof, a busted furnace, a dead car.
Still, the president thinks these folks are rich. And he wants even more of their money. If he raised the tax rate on the highest incomes to that of President Clinton, the feds would take nearly 40 percent from these folks. That'd take another $1,389 per month from them, leaving $1,811. When that second teenager hits college, they'd have to - yes, you got it - borrow $189 per month to make ends meet. And yeah, forget buying clothes, going to movies, dinners out, etc.
Of course, they could trim back their lifestyle - halve their cable bill, take the kids' phones, maybe set that thermostat to 68 in the winter. But should they really have to? They've worked their whole lives, are in their 50s, and have finally made it - they make a quarter of a million dollars a year. Yes, says President Obama - they MUST pay more to the federal government.
So, scratch that beach house, that trip to Florida. And you can forget about these people setting up their own retirement. They'll now have to depend on the federal government giving them back some of the money they paid in taxes - $2 million over 20 years, $3 million in 30.
Mr. President, just fyi, a couple making $250,000 is not, contrary to your opinion, "rich." But shouldn't you already know that?
• Joseph Curl covered the White House and politics for a decade for The Washington Times. He can be reached at jcurl@washingtontimes.com
Friday, July 8, 2011
The Elmendorf Rule - Completely unserious President
Here we go again. An approaching crisis. A looming deadline. Nervous markets. And then, from the miasma of gridlock, rises our president, calling upon those unruly congressional children to quit squabbling, stop kicking the can down the road and get serious about debt.
This from the man who:
• Ignored the debt problem for two years by kicking the can to a commission.
• Promptly ignored the commission’s December 2010 report.
• Delivered a State of the Union address in January that didn’t even mention the word “debt” until 35 minutes in.
• Delivered in February a budget so embarrassing — it actually increased the deficit — that the Democratic-controlled Senate rejected it 97 to 0.
• Took a budget mulligan with his April 13 debt-plan speech. Asked in Congress how this new “budget framework” would affect the actual federal budget, Congressional Budget Office Director Doug Elmendorf replied with a devastating “We don’t estimate speeches.” You can’t assign numbers to air.
President Obama assailed the lesser mortals who inhabit Congress for not having seriously dealt with a problem he had not dealt with at all, then scolded Congress for being even less responsible than his own children. They apparently get their homework done on time.
My compliments. But the Republican House did do its homework. It’s called a budget. It passed the House on April 15. The Democratic Senate has produced no budget. Not just this year, but for two years running. As for the schoolmaster in chief, he produced two 2012 budget facsimiles: The first (February) was a farce and the second (April) was empty, dismissed by the CBO as nothing but words untethered to real numbers.
Obama has run disastrous annual deficits of around $1.5 trillion while insisting for months on a “clean” debt-ceiling increase, i.e., with no budget cuts at all. Yet suddenly he now rises to champion major long-term debt reduction, scorning any suggestions of a short-term debt-limit deal as can-kicking.
The flip-flop is transparently political. A short-term deal means another debt-ceiling fight before Election Day, a debate that would put Obama on the defensive and distract from the Mediscare campaign to which the Democrats are clinging to save them in 2012.
A clever strategy it is: Do nothing (see above); invite the Republicans to propose real debt reduction first; and when they do — voting for the Ryan budget and its now infamous and courageous Medicare reform — demagogue them to death.
And then up the ante by demanding Republican agreement to tax increases. So: First you get the GOP to seize the left’s third rail by daring to lay a finger on entitlements. Then you demand the GOP seize the right’s third rail by violating its no-tax pledge. A full-spectrum electrocution. Brilliant.
And what have been Obama’s own debt-reduction ideas? In last week’s news conference, he railed against the tax break for corporate jet owners — six times.
I did the math. If you collect that tax for the next 5,000 years — that is not a typo — it would equal the new debt Obama racked up last year alone. To put it another way, if we had levied this tax at the time of John the Baptist and collected it every year since — first in shekels, then in dollars — we would have 500 years to go before we could offset half of the debt added by Obama last year alone.
Obama’s other favorite debt-reduction refrain is canceling an oil-company tax break. Well, if you collect that oil tax and the corporate jet tax for the next 50 years — you will not yet have offset Obama’s deficit spending for February 2011.
After his Thursday meeting with bipartisan congressional leadership, Obama adopted yet another persona: Cynic in chief became compromiser in chief. Highly placed leaks are portraying him as heroically prepared to offer Social Security and Medicare cuts.
We shall see. It’s no mystery what is needed. First, entitlement reform that changes the inflation measure, introduces means testing, then syncs the (lower) Medicare eligibility age with Social Security’s and indexes them both to longevity. And second, real tax reform, both corporate and individual, that eliminates myriad loopholes in return for lower tax rates for everyone.
That’s real debt reduction. Yet even now, we don’t know where the president stands on any of this. Until we do, I’ll follow the Elmendorf Rule: We don’t estimate leaks. Let’s see if Obama can suspend his 2012 electioneering long enough to keep the economy from going over the debt cliff.
letters@charleskrauthammer.com
This from the man who:
• Ignored the debt problem for two years by kicking the can to a commission.
• Promptly ignored the commission’s December 2010 report.
• Delivered a State of the Union address in January that didn’t even mention the word “debt” until 35 minutes in.
• Delivered in February a budget so embarrassing — it actually increased the deficit — that the Democratic-controlled Senate rejected it 97 to 0.
• Took a budget mulligan with his April 13 debt-plan speech. Asked in Congress how this new “budget framework” would affect the actual federal budget, Congressional Budget Office Director Doug Elmendorf replied with a devastating “We don’t estimate speeches.” You can’t assign numbers to air.
President Obama assailed the lesser mortals who inhabit Congress for not having seriously dealt with a problem he had not dealt with at all, then scolded Congress for being even less responsible than his own children. They apparently get their homework done on time.
My compliments. But the Republican House did do its homework. It’s called a budget. It passed the House on April 15. The Democratic Senate has produced no budget. Not just this year, but for two years running. As for the schoolmaster in chief, he produced two 2012 budget facsimiles: The first (February) was a farce and the second (April) was empty, dismissed by the CBO as nothing but words untethered to real numbers.
Obama has run disastrous annual deficits of around $1.5 trillion while insisting for months on a “clean” debt-ceiling increase, i.e., with no budget cuts at all. Yet suddenly he now rises to champion major long-term debt reduction, scorning any suggestions of a short-term debt-limit deal as can-kicking.
The flip-flop is transparently political. A short-term deal means another debt-ceiling fight before Election Day, a debate that would put Obama on the defensive and distract from the Mediscare campaign to which the Democrats are clinging to save them in 2012.
A clever strategy it is: Do nothing (see above); invite the Republicans to propose real debt reduction first; and when they do — voting for the Ryan budget and its now infamous and courageous Medicare reform — demagogue them to death.
And then up the ante by demanding Republican agreement to tax increases. So: First you get the GOP to seize the left’s third rail by daring to lay a finger on entitlements. Then you demand the GOP seize the right’s third rail by violating its no-tax pledge. A full-spectrum electrocution. Brilliant.
And what have been Obama’s own debt-reduction ideas? In last week’s news conference, he railed against the tax break for corporate jet owners — six times.
I did the math. If you collect that tax for the next 5,000 years — that is not a typo — it would equal the new debt Obama racked up last year alone. To put it another way, if we had levied this tax at the time of John the Baptist and collected it every year since — first in shekels, then in dollars — we would have 500 years to go before we could offset half of the debt added by Obama last year alone.
Obama’s other favorite debt-reduction refrain is canceling an oil-company tax break. Well, if you collect that oil tax and the corporate jet tax for the next 50 years — you will not yet have offset Obama’s deficit spending for February 2011.
After his Thursday meeting with bipartisan congressional leadership, Obama adopted yet another persona: Cynic in chief became compromiser in chief. Highly placed leaks are portraying him as heroically prepared to offer Social Security and Medicare cuts.
We shall see. It’s no mystery what is needed. First, entitlement reform that changes the inflation measure, introduces means testing, then syncs the (lower) Medicare eligibility age with Social Security’s and indexes them both to longevity. And second, real tax reform, both corporate and individual, that eliminates myriad loopholes in return for lower tax rates for everyone.
That’s real debt reduction. Yet even now, we don’t know where the president stands on any of this. Until we do, I’ll follow the Elmendorf Rule: We don’t estimate leaks. Let’s see if Obama can suspend his 2012 electioneering long enough to keep the economy from going over the debt cliff.
letters@charleskrauthammer.com
Thursday, July 7, 2011
Obamacare Tragedy Primed To Further Explode the Deficit
By Peter Ferrara on 7.6.11 @ 6:08AM
President Obama bludgeoned Obamacare through Congress on the claim, backed by CBO, that it would not add to the deficit, even though it adopts or wildly expands three entitlement programs. As I discuss in my new book, America’s Ticking Bankruptcy Bomb, close analysis of the CBO score and additional new data indicates that, quite to the contrary, Obamacare will likely add $4 to $6 trillion to the deficit over its first 20 years, and possibly more.
Of course, the deficit is not the biggest problem. Even bigger is that regardless of the deficit, Obamacare involves trillions of increased government spending and taxes. Worst of all is that it involves a loss of control over, and the quality of, our own health care. All of this is ultimately a tragedy because as my book also explains, the uninsured could all easily be covered without any individual or employer mandate for just a small fraction of the cost of Obamacare, as discussed below.
Deficits and Debt
CBO made three enormous conceptual errors in scoring the program as not adding to the deficit, explained in detail in my book. The first relates to the new middle class welfare entitlement adopted by Obamacare, providing government handouts for the purchase of health insurance for families earning up to four times the poverty level, or $88,000 for a family of four, indexed to grow to over $100,000 shortly.
These health insurance handouts go only to those who buy insurance on their own individually through the state based health insurance exchanges established under the legislation. Those who receive employer provided coverage are not eligible. CBO assumed that only 19 million workers will qualify for the handouts, out of a work force estimated at 162 million in 2014 mostly still receiving employer provided coverage. It consequently estimated the cost at only $450 billion over the first 10 years, or actually first 6 years of implementation of Obamacare.
But with the mandated insurance likely to cost $15,000 or more by 2016, employers will have powerful incentives to dump their employee coverage and pay the $2,000 per worker fine that applies to such termination of coverage. Employers are all the more likely to do this, and just pay their workers higher wages in place of the health coverage, precisely because the workers would then be able to get the huge welfare handouts for purchasing their insurance through the exchanges, resulting actually in a net income increase. As former CBO Director Douglas Holtz-Eakin reported in a paper for the American Action Forum,
“For example, a family earning about $59,000 a year in 2014 would receive a premium subsidy of about $7,200. A family making $71,000 would receive about $5,200; and even a family earning about $95,000 would receive a subsidy of almost $3,000. By 2018,…a family earning about $64,000 would receive a subsidy of over $10,000, a family earning $77,000 would receive a subsidy of $7,800 and families earning $102,000 would receive a subsidy of almost $5,000.”
In fact, in the exchanges, qualifying workers can even get subsidies covering their out-of-pocket expenses.
These are the reasons why a new study released by McKinsey & Company earlier this month concluded that Obamacare will result in “a radical restructuring of employer-sponsored heath benefits.” It found that “30 percent of employers will definitely or probably stop offering” employer health coverage after Obamacare is implemented, and “among employers with a high awareness of reform, this proportion increases to more than 50 percent.”
In the Wall Street Journal on June 8, Grace-Marie Turner, President of the Galen Institute, estimated based on the numbers in the McKinsey report that as many as 78 million Americans would lose their employer provided coverage. If those workers ended up receiving the new Obamacare exchange handouts, the estimated costs for those subsidies in the first 6 years alone would soar by 4 times, adding nearly $2 trillion to the costs and deficits of Obamacare during that time.
What happened to President Obama’s oft-repeated pledge that if you like your health insurance you can keep it? Another transparent manipulation of the public was Obama telling us on national television there is no way Obamacare’s individual mandate can be considered a tax, and then sending his government lawyers into court to argue that the individual mandate is constitutional because it is simply a tax. I predict that the Fourth Circuit Court of Appeals will issue a ruling soon upholding the individual mandate on the grounds that it is a tax.
The second conceptual fallacy in the CBO score was revealed in full by the 2010 Financial Report of the United States Government, released last December by the Treasury Department. It documents the total present value of the future cuts to Medicare under President Obama’s policies already enacted under current law as $15 trillion, primarily in payments to doctors and hospitals for health care provided to seniors.
Such draconian cuts in Medicare payments would create havoc and chaos in health care for seniors. Doctors, hospitals, surgeons and specialists providing critical care to the elderly such as surgery for hip and knee replacements, sophisticated diagnostics through MRIs and CT scans, and even treatment for cancer and heart disease would shut down and disappear in much of the country, and others would stop serving Medicare patients. If the government is not going to pay, then seniors are not going to get the health services, treatment and care they expect.
In fact, within a decade after Obamacare is implemented, Medicare’s payments to doctors and hospitals will be less than under Medicaid, where the poor face grave difficulties in finding timely treatment, and are documented to suffer worse health outcomes as a result.
Medicare’s Chief Actuary reports that even before these cuts already two-thirds of hospitals were losing money on Medicare patients. Health providers will either have to withdraw from serving Medicare patients, or eventually go into bankruptcy. The unworkable, draconian effect of these Medicare cuts is why the U.S. Government Accountability Office issued a disclaimer of opinion on the Statement of Social Insurance component of the federal government’s 2010 Financial Statement, saying, “Unless providers could reduce their cost per service correspondingly, through productivity improvements, or other steps, they would eventually become unwilling or unable to treat Medicare beneficiaries.”
Yet, reversing these unworkable Medicare cuts would add $15 trillion to the future deficits caused by Obamacare.
Finally, the Obamacare tax increases won’t raise nearly the revenues that CBO projected. The capital gains tax rate would increase by close to 60 percent in 2013, with the expiration of the Bush tax cuts and Obamacare applying the Medicare payroll tax to capital gains as well. But over the last 40 years, every time the capital gains tax rate has been increased, revenues have declined.
Similarly, the tax rate on dividends would nearly triple in 2013, due again to the expiration of the Bush tax cuts and the application of the Medicare payroll tax to dividends as well. The last time dividend taxes were that high, corporate dividend payments were greatly reduced. Corporations just kept the money internally for corporate investment. Corporate earnings are already subject to the 35 percent corporate income tax rate, which is on top of any tax on dividends. So revenues from the tax on dividends will decline sharply as well, exactly the opposite of what happened when President Bush cut the tax rate on dividends in 2003. CBO, of course, has a horrid record of wildly failing to estimate the revenue effects of tax changes relating to capital gains and corporate dividends in particular.
The Tragedy of Obamacare
My book explains the Obamacare tragedy by showing how everyone can be assured essential health care for just a small fraction of the cost of Obamacare. Moreover, this is accomplished with no individual mandate and no employer mandate. Obamacare, by contrast, for all of its trillions in future taxes and spending, and its individual and employer mandates, still does not cover everyone.
Such reform would begin with Medicaid, which already spends over $400 billion a year providing substandard health care coverage for 50 million poor Americans. Congress should transform Medicaid to provide assistance to purchase private health insurance for all those who otherwise could not afford coverage, ideally with health insurance vouchers. This one step would enormously benefit the poor already on Medicaid. The program today pays doctors and hospitals only 60% of costs for their health care services for the poor. As a result, close to half of all doctors and hospitals won’t take Medicaid patients. This is already a form of rationing, as Medicaid patients find obtaining health care increasingly difficult, and studies show they suffer worse health outcomes as a result. Health insurance vouchers would free the poor from this Medicaid ghetto, enabling them to obtain the same health care as the middle class, because they would be able to buy the same health insurance in the market.
Ideally this would be done by reforming Medicaid financing to provide the federal assistance to the states for the program through fixed, finite block grants, which do not vary by matching increased state Medicaid spending as under the current system. With finite block grants, states that innovate to reduce costs can keep the savings. States that operate programs with continued runaway costs would pay those additional costs themselves. Such reforms worked spectacularly to stop the runaway costs of the old AFDC program when Congress adopted welfare reform in 1996. The voters of each state can then decide how much assistance for the purchase of health insurance to provide each family at different income levels to assure that the poor would be able to obtain essential health care. This would rightly vary with the different income and cost levels of each state.
This would not cost much because only about 12 million Americans arguably cannot afford health insurance without some public assistance. Out of the 47 million uninsured we keep hearing about, 9.7 million are already eligible for current government programs like Medicaid or SCHIP but haven’t signed up. Another 6 million are eligible for employer sponsored insurance but have not signed up for that either. Another 9 million are in families earning more than $75,000 per year. Another 10.2 million are immigrants, legal or illegal, and not U.S. citizens. Just give the assistance necessary, counting what they can reasonably pay based on their income, to the 12 million Americans that need it to buy private health insurance.
But a second step is necessary as well to ensure a complete safety net. Federal funding should also be provided to help each state set up a High Risk pool. Those uninsured who become too sick to purchase health insurance in the market, perhaps because they have contracted cancer or heart disease, for example, would be assured of guaranteed coverage through the risk pool. They would be charged a premium for this coverage based on their ability to pay, ensuring that they will not be asked to pay more than they could afford. Federal and state funding would cover remaining costs. Such risk pools already exist in over 30 states, and for the most part they work well at relatively little cost to the taxpayers because few people actually become truly uninsurable.
The law already provides that insurers cannot cut off already existing policyholders, or impose discriminatory rate increases, because they become sick while covered. That would be like allowing fire insurers to cut off coverage for houses once they catch on fire. If this law needs to be modernized, it should be.
With these reforms, those who have insurance can keep it, those who can’t afford it are given the necessary help to buy it, and those who nevertheless remain uninsured and then become too sick to buy it have a back up safety net in the risk pools. Again this completely solves the problem of the uninsured without any individual or employer mandate, which are unnecessary gateways to enormous trouble. Once the government adopts such mandates, it is inexorably led down the path to socialized medicine.
President Obama bludgeoned Obamacare through Congress on the claim, backed by CBO, that it would not add to the deficit, even though it adopts or wildly expands three entitlement programs. As I discuss in my new book, America’s Ticking Bankruptcy Bomb, close analysis of the CBO score and additional new data indicates that, quite to the contrary, Obamacare will likely add $4 to $6 trillion to the deficit over its first 20 years, and possibly more.
Of course, the deficit is not the biggest problem. Even bigger is that regardless of the deficit, Obamacare involves trillions of increased government spending and taxes. Worst of all is that it involves a loss of control over, and the quality of, our own health care. All of this is ultimately a tragedy because as my book also explains, the uninsured could all easily be covered without any individual or employer mandate for just a small fraction of the cost of Obamacare, as discussed below.
Deficits and Debt
CBO made three enormous conceptual errors in scoring the program as not adding to the deficit, explained in detail in my book. The first relates to the new middle class welfare entitlement adopted by Obamacare, providing government handouts for the purchase of health insurance for families earning up to four times the poverty level, or $88,000 for a family of four, indexed to grow to over $100,000 shortly.
These health insurance handouts go only to those who buy insurance on their own individually through the state based health insurance exchanges established under the legislation. Those who receive employer provided coverage are not eligible. CBO assumed that only 19 million workers will qualify for the handouts, out of a work force estimated at 162 million in 2014 mostly still receiving employer provided coverage. It consequently estimated the cost at only $450 billion over the first 10 years, or actually first 6 years of implementation of Obamacare.
But with the mandated insurance likely to cost $15,000 or more by 2016, employers will have powerful incentives to dump their employee coverage and pay the $2,000 per worker fine that applies to such termination of coverage. Employers are all the more likely to do this, and just pay their workers higher wages in place of the health coverage, precisely because the workers would then be able to get the huge welfare handouts for purchasing their insurance through the exchanges, resulting actually in a net income increase. As former CBO Director Douglas Holtz-Eakin reported in a paper for the American Action Forum,
“For example, a family earning about $59,000 a year in 2014 would receive a premium subsidy of about $7,200. A family making $71,000 would receive about $5,200; and even a family earning about $95,000 would receive a subsidy of almost $3,000. By 2018,…a family earning about $64,000 would receive a subsidy of over $10,000, a family earning $77,000 would receive a subsidy of $7,800 and families earning $102,000 would receive a subsidy of almost $5,000.”
In fact, in the exchanges, qualifying workers can even get subsidies covering their out-of-pocket expenses.
These are the reasons why a new study released by McKinsey & Company earlier this month concluded that Obamacare will result in “a radical restructuring of employer-sponsored heath benefits.” It found that “30 percent of employers will definitely or probably stop offering” employer health coverage after Obamacare is implemented, and “among employers with a high awareness of reform, this proportion increases to more than 50 percent.”
In the Wall Street Journal on June 8, Grace-Marie Turner, President of the Galen Institute, estimated based on the numbers in the McKinsey report that as many as 78 million Americans would lose their employer provided coverage. If those workers ended up receiving the new Obamacare exchange handouts, the estimated costs for those subsidies in the first 6 years alone would soar by 4 times, adding nearly $2 trillion to the costs and deficits of Obamacare during that time.
What happened to President Obama’s oft-repeated pledge that if you like your health insurance you can keep it? Another transparent manipulation of the public was Obama telling us on national television there is no way Obamacare’s individual mandate can be considered a tax, and then sending his government lawyers into court to argue that the individual mandate is constitutional because it is simply a tax. I predict that the Fourth Circuit Court of Appeals will issue a ruling soon upholding the individual mandate on the grounds that it is a tax.
The second conceptual fallacy in the CBO score was revealed in full by the 2010 Financial Report of the United States Government, released last December by the Treasury Department. It documents the total present value of the future cuts to Medicare under President Obama’s policies already enacted under current law as $15 trillion, primarily in payments to doctors and hospitals for health care provided to seniors.
Such draconian cuts in Medicare payments would create havoc and chaos in health care for seniors. Doctors, hospitals, surgeons and specialists providing critical care to the elderly such as surgery for hip and knee replacements, sophisticated diagnostics through MRIs and CT scans, and even treatment for cancer and heart disease would shut down and disappear in much of the country, and others would stop serving Medicare patients. If the government is not going to pay, then seniors are not going to get the health services, treatment and care they expect.
In fact, within a decade after Obamacare is implemented, Medicare’s payments to doctors and hospitals will be less than under Medicaid, where the poor face grave difficulties in finding timely treatment, and are documented to suffer worse health outcomes as a result.
Medicare’s Chief Actuary reports that even before these cuts already two-thirds of hospitals were losing money on Medicare patients. Health providers will either have to withdraw from serving Medicare patients, or eventually go into bankruptcy. The unworkable, draconian effect of these Medicare cuts is why the U.S. Government Accountability Office issued a disclaimer of opinion on the Statement of Social Insurance component of the federal government’s 2010 Financial Statement, saying, “Unless providers could reduce their cost per service correspondingly, through productivity improvements, or other steps, they would eventually become unwilling or unable to treat Medicare beneficiaries.”
Yet, reversing these unworkable Medicare cuts would add $15 trillion to the future deficits caused by Obamacare.
Finally, the Obamacare tax increases won’t raise nearly the revenues that CBO projected. The capital gains tax rate would increase by close to 60 percent in 2013, with the expiration of the Bush tax cuts and Obamacare applying the Medicare payroll tax to capital gains as well. But over the last 40 years, every time the capital gains tax rate has been increased, revenues have declined.
Similarly, the tax rate on dividends would nearly triple in 2013, due again to the expiration of the Bush tax cuts and the application of the Medicare payroll tax to dividends as well. The last time dividend taxes were that high, corporate dividend payments were greatly reduced. Corporations just kept the money internally for corporate investment. Corporate earnings are already subject to the 35 percent corporate income tax rate, which is on top of any tax on dividends. So revenues from the tax on dividends will decline sharply as well, exactly the opposite of what happened when President Bush cut the tax rate on dividends in 2003. CBO, of course, has a horrid record of wildly failing to estimate the revenue effects of tax changes relating to capital gains and corporate dividends in particular.
The Tragedy of Obamacare
My book explains the Obamacare tragedy by showing how everyone can be assured essential health care for just a small fraction of the cost of Obamacare. Moreover, this is accomplished with no individual mandate and no employer mandate. Obamacare, by contrast, for all of its trillions in future taxes and spending, and its individual and employer mandates, still does not cover everyone.
Such reform would begin with Medicaid, which already spends over $400 billion a year providing substandard health care coverage for 50 million poor Americans. Congress should transform Medicaid to provide assistance to purchase private health insurance for all those who otherwise could not afford coverage, ideally with health insurance vouchers. This one step would enormously benefit the poor already on Medicaid. The program today pays doctors and hospitals only 60% of costs for their health care services for the poor. As a result, close to half of all doctors and hospitals won’t take Medicaid patients. This is already a form of rationing, as Medicaid patients find obtaining health care increasingly difficult, and studies show they suffer worse health outcomes as a result. Health insurance vouchers would free the poor from this Medicaid ghetto, enabling them to obtain the same health care as the middle class, because they would be able to buy the same health insurance in the market.
Ideally this would be done by reforming Medicaid financing to provide the federal assistance to the states for the program through fixed, finite block grants, which do not vary by matching increased state Medicaid spending as under the current system. With finite block grants, states that innovate to reduce costs can keep the savings. States that operate programs with continued runaway costs would pay those additional costs themselves. Such reforms worked spectacularly to stop the runaway costs of the old AFDC program when Congress adopted welfare reform in 1996. The voters of each state can then decide how much assistance for the purchase of health insurance to provide each family at different income levels to assure that the poor would be able to obtain essential health care. This would rightly vary with the different income and cost levels of each state.
This would not cost much because only about 12 million Americans arguably cannot afford health insurance without some public assistance. Out of the 47 million uninsured we keep hearing about, 9.7 million are already eligible for current government programs like Medicaid or SCHIP but haven’t signed up. Another 6 million are eligible for employer sponsored insurance but have not signed up for that either. Another 9 million are in families earning more than $75,000 per year. Another 10.2 million are immigrants, legal or illegal, and not U.S. citizens. Just give the assistance necessary, counting what they can reasonably pay based on their income, to the 12 million Americans that need it to buy private health insurance.
But a second step is necessary as well to ensure a complete safety net. Federal funding should also be provided to help each state set up a High Risk pool. Those uninsured who become too sick to purchase health insurance in the market, perhaps because they have contracted cancer or heart disease, for example, would be assured of guaranteed coverage through the risk pool. They would be charged a premium for this coverage based on their ability to pay, ensuring that they will not be asked to pay more than they could afford. Federal and state funding would cover remaining costs. Such risk pools already exist in over 30 states, and for the most part they work well at relatively little cost to the taxpayers because few people actually become truly uninsurable.
The law already provides that insurers cannot cut off already existing policyholders, or impose discriminatory rate increases, because they become sick while covered. That would be like allowing fire insurers to cut off coverage for houses once they catch on fire. If this law needs to be modernized, it should be.
With these reforms, those who have insurance can keep it, those who can’t afford it are given the necessary help to buy it, and those who nevertheless remain uninsured and then become too sick to buy it have a back up safety net in the risk pools. Again this completely solves the problem of the uninsured without any individual or employer mandate, which are unnecessary gateways to enormous trouble. Once the government adopts such mandates, it is inexorably led down the path to socialized medicine.
Federal Judge Forces Interior to Decide on Drilling Leases
Typically when someone buys something, that person receives some good or service in return. That’s not always the case when it comes to the federal government.
The Department of Interior failed to issue leases after several oil and gas companies purchased them from the Bureau of Land Management. Consequently, the six companies that won and bought the leases and Western Energy Alliance, which represents more than 400 independent natural gas and oil producers, sued the government. They earned a partial victory last week when a federal judge in Wyoming ordered Interior to decide on 47 leases in Utah and Wyoming but not necessarily issue them.
Between 2005 and 2010, these oil and gas companies purchased a number of leases on federal lands to explore and drill for oil and gas. Before the companies can move forward, however, Interior must issue the leases. The Mineral Leasing Act requires that “leases shall be issued” by the Secretary of the Interior 60 days after a company wins the bid, but Secretary Ken Salazar hasn’t done so. According to The Wall Street Journal, “The Wyoming office of Interior’s Bureau of Land Management, where many of the leases were purchased, said leases were held up by objections from environmental groups.”
The government offered no refund for the money paid for the leases. One company, Baseline, “paid more than $1.3 million for Wyoming leases and nearly $545,000 for Utah leases. At the time of the lawsuit’s filing, Baseline had only received some of its leases in Wyoming and none of the Utah leases. The Utah leases were won during auctions held as long as six years ago.”
The tag-team of radical environmental groups and onerous regulatory red tape continues to halt America’s energy production and stifle job creation and economic activity. Environmental activists delay new energy projects by filing endless administrative appeals and lawsuits. Shell cited regulatory delays and legal challenges preventing it from moving forward with exploration programs in the Beaufort and Chukchi Seas.
This is the second time the federal courts have sided with America’s energy producers. Federal District Court Judge Martin Feldman held the Interior Department in contempt of court for ignoring his ruling to cease the job-killing drilling moratorium imposed by President Obama last year.
The Obama Administration touted that U.S. crude oil production in 2010 was the highest it has been since 2003. While this is true (as a result of increased horizontal drilling in North Dakota), the Energy Information Administration projects that oil production will decline in the coming years as a result of Obama’s anti-drilling policies. Oil and gas production drives the economy in significant portions of the western United States. It’s nonsensical to unnecessarily hold up energy production at a time when it’s badly needed.
The Department of Interior failed to issue leases after several oil and gas companies purchased them from the Bureau of Land Management. Consequently, the six companies that won and bought the leases and Western Energy Alliance, which represents more than 400 independent natural gas and oil producers, sued the government. They earned a partial victory last week when a federal judge in Wyoming ordered Interior to decide on 47 leases in Utah and Wyoming but not necessarily issue them.
Between 2005 and 2010, these oil and gas companies purchased a number of leases on federal lands to explore and drill for oil and gas. Before the companies can move forward, however, Interior must issue the leases. The Mineral Leasing Act requires that “leases shall be issued” by the Secretary of the Interior 60 days after a company wins the bid, but Secretary Ken Salazar hasn’t done so. According to The Wall Street Journal, “The Wyoming office of Interior’s Bureau of Land Management, where many of the leases were purchased, said leases were held up by objections from environmental groups.”
The government offered no refund for the money paid for the leases. One company, Baseline, “paid more than $1.3 million for Wyoming leases and nearly $545,000 for Utah leases. At the time of the lawsuit’s filing, Baseline had only received some of its leases in Wyoming and none of the Utah leases. The Utah leases were won during auctions held as long as six years ago.”
The tag-team of radical environmental groups and onerous regulatory red tape continues to halt America’s energy production and stifle job creation and economic activity. Environmental activists delay new energy projects by filing endless administrative appeals and lawsuits. Shell cited regulatory delays and legal challenges preventing it from moving forward with exploration programs in the Beaufort and Chukchi Seas.
This is the second time the federal courts have sided with America’s energy producers. Federal District Court Judge Martin Feldman held the Interior Department in contempt of court for ignoring his ruling to cease the job-killing drilling moratorium imposed by President Obama last year.
The Obama Administration touted that U.S. crude oil production in 2010 was the highest it has been since 2003. While this is true (as a result of increased horizontal drilling in North Dakota), the Energy Information Administration projects that oil production will decline in the coming years as a result of Obama’s anti-drilling policies. Oil and gas production drives the economy in significant portions of the western United States. It’s nonsensical to unnecessarily hold up energy production at a time when it’s badly needed.
Saturday, July 2, 2011
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