Leadership by Elected Representatives: Transcending the Politics of Slashing Vulnerable Federal Programs and Avoiding Tax Increases

On January 20, 2011, months before the Republicans would use leverage of a baleful debt-ceiling-default to extract additional cuts, the Republican Study Committee (RSC)—a group of fiscally conservative members of the U.S. House of Representatives—announced a plan by which $2.5 trillion could be cut from the U.S. Government's spending over ten years. According to The New York Times, the proposed cuts “would exclude the military, and would not touch the big entitlement programs, Medicare and Social Security. As a result, [their] effect on the entire array of government programs, among them education, domestic security, transportation, law enforcement and medical research, would be nothing short of drastic." The leaders of the RSC claimed that the cuts were “appropriate and necessary, given the government’s $14 trillion debt and annual deficits at their highest levels since the years just after World War II." The RSC "proposed generally reducing agency budgets to their levels in 2006 — the last time Congressional Republicans controlled the budget process — and then freezing them, with no annual inflation adjustments.” The RSC also recommended “slashing the federal workforce by 15 percent and canceling pay raises for five years, for a total of $2.29 trillion in savings.” Finally, the proposal included “an additional $330 billion in cuts to specific programs, including Amtrak, foreign aid and even the Washington subway system" (Source #1).

Analysis:

Back in July 2009, The New York Times reported that most Americans continued to want "the federal government to focus on reducing the budget deficit rather than spending money to stimulate the national economy" (Source #2). Nevertheless, Congress and the President went ahead in 2010 with extending the Bush tax cuts, which were expected to add an expected $850 billion to the deficits of 2011 and 2012. The President had proposed to extend the tax cuts for the lower and middle classes, which would be more apt to spend rather than save the difference and thus stimulate the economy then in a weak, jobless recovery. The congressional Republican leadership demanded that the tax cuts be continued for the wealthy as well, even though the latter could afford to pay more in tax and would be less apt to spend than save the money from the cuts. If the proposed spending cuts were “necessary” given the sizes of the deficits and debt, it would seem that the tax cuts—even those likely to be spent and thus stimulating—would have been a luxury the U.S. Government could ill-afford. That is to say, the deficits and debt could play second fiddle to stimulating the economy, only to be the reasons for “necessary and appropriate cuts.”

Besides dovetailing with the Republican goal of less government—particularly at the federal level—the combination of tax cuts and budget cuts sends mixed signals as to the importance of the U.S. Governments deficits and accumulated debt. Within the proposed spending cuts alone, cutting in some areas while leaving others—notably defense—completely untouched sends similarly schizophrenic signals regarding the seriousness of the deficits and debt. If the financial affairs are perilous, the U.S. Government could ill-afford protecting defense contractors and other sacred cows.

To be sure, Americans polled overwhelmingly said that they prefer cutting government spending to paying higher taxes, according to The New York Times (Source #3). The RSC's proposal was in line with this finding. Also, the proposal was in line with the poll's finding that nearly two-thirds of Americans do not want Medicare or Social Security benefits cut even to reduce deficits. At the same time, unlike the RSC’s proposal, the poll indicated that Americans by a wide margin preferred cutting the Pentagon's budget to cutting benefits in Medicare and Social Security; the RSC proposal treats all three areas the same (leaving them all off the chopping block).

However, those who are led by polls cannot lead, for leading involves moving the polled rather than being moved by them. Furthermore, the citizenry may not have fully aware of how serious deficits of over $1 trillion and a debt of over $14 trillion are to the viability of the United States. The seriousness of the deficits and debt require tax increases and spending cuts (including sacred cows) even if the general populous is not much bothered by the threat.

Representatives have to use judgment to know when to be agents reflecting the will of the people who sent them and when to lead constituents who sent them but would view the indebtedness as more precarious had they studied the matter more fully. In other words, elected representatives sometimes need to be critical of what their constituents think is in their true interest and that of the United States as a viable system. As faithful agents, representatives must look in such cases to the best interest of their district and to the United States as a viable concern. Going beyond polls, leaders are oriented to protecting the led even from themselves.

Sources:

1.      David M. Herszenhorn, “G.O.P. Bloc Presses Leaders to Slash Even More,” The New York Times, January 20, 2011.

2.      Dalia Sussman, “New Poll: Bring Down Debt, Don’t Spend More,” The New York Times, July 29, 2009.

3.      Jackie Calmes and Dallia Sussman, "Poll Finds a Willingness to Cut Spending, Just not Medicare or Social Security," The New York Times, January 21, 2011, p. A11.

E Pluribus Unum: Unity without Uniformity

On January 12, 2011, President Obama spoke at the memorial service for the fallen victims of the assassination attempt on Rep. Giffords. “What we can’t do is use this tragedy as one more occasion to turn on each other,” the President said. “That we cannot do. As we discuss these issues, let each of us do so with a good dose of humility.” Had we really been turning on each other? It is as though a bystander had pointed out to two people arguing that they were indeed shouting.  "Were we really shouting?" one might ask the observer in astonishment--to which the observer would nod and add, "You guys might try a bit of humility," rather than, as the President observed, "pointing fingers or assigning blame.” 

The night after the president's speech, I watched Karen Armstrong, the former nun and author of History of God, on the PBS program, Charlie Rose. Armstrong pointed out that discussion in which others' motives are presumed and impugned involve a certain arrogance.  Each of us is a mystery to ourselves, she added.  How can we be so sure of the other partisan's motives? 

Similarly, President Obama said in his speech, “Let us use this occasion to expand our moral imaginations, to listen to each other more carefully, to sharpen our instincts for empathy, and remind ourselves of all the ways that our hopes and dreams are bound together.” Empathy and humility are attributes antipodal to anger and pride. How often are the former two invoked in political discourse? How often are two partisans reminded that they have been turning on each other, in effect?  Are Americans really turning on each other?  Is the house so divided and thus acrimonious?  It could indeed be that we, the American people, have allowed ourselves to be unwittingly drawn into a fight in which the pundits on television and radio benefit financially from the escalation.

I do not believe that we are a warring people intrinsically, though we do seem to be vulnerable to artful and manipulating public figures.  Perhaps we are too readily inclined to engage in hero worship.  Indeed, there could have been some of that involved in the 2008 Presidential election. We do tend not always to rise to the occasion in managing or resolving real differences, whether in campaigns or in voting. Popular sovereignty, our Founders averred, relies on a virtuous and informed electorate. This involves the citizens feeling a sufficient civic duty to take a serious look at real differences and make a solid decision on election-day that reflects their own respective political and moral ideologies. To be sure, fundamental differences do exist.

Paul Krugman, for example, pointed to a "deep divide in American political morality," in which he believed there is "no middle ground." He took the health reform law passed in 2010 as a case in point. "One side saw health reform, with its subsidized extension of coverage to the uninsured, as fulfilling a moral imperative: wealthy nations, it believed, have an obligation to provide all their citizens with essential care. The other side saw the same reform as a moral outrage, an assault on the right of Americans to spend their money as they choose." This difference can perhaps be characterized as pitting a moral imperative of a right to life in terms of survival (and the immorality of selfishness) against the moral imperative of property rights (and the immorality of theft via high taxes).  It is no wonder that tempers flared in the debate amid such emotionally-charged language.

Politics involves conflict over things that people hold dear—their values and beliefs. Representative democracy has the beneficial feature whereby relatively cool representatives debate and decide such policy. How quickly the Rights of Man became savage mobs in Paris in 1792. Does liberty translate into a mass of people, out of control and rushing into a prison to disembowel priests and slice limbs off aristocrats? Political discourse can be much worse than that to which President Obama had in mind when he characterized the American people as having been turning on each other. The extent of the "deep divide" in America can, with the aid of human nature, issue in violence, but this need not be, and I contend that we are a too peaceful a people to be led so astray by our passions abetted by media personalities and demagogues.  We may be making it more difficult on ourselves by willowing practically all public policy through the federal government.

We do have fifty republics we can draw on to have the sort of diversity of policy that could reduce the pressure on us to resolve the deep divide into one size as if one way could fit all. However, this solution would require tolerance. Burgess avers that there "is an important moral dimension to federalism, as it is all about toleration, mutual respect, and equality of partnership, amongst other principles" (Burgess, p. 70). For example, people in Idaho who not want government mandated health-care coverage must be willing to tolerate Massachusetts's mandate (and subsidies), and vice versa. With empathy and humility can come tolerance.

We are doing pretty well with religious tolerance, at least relative to historical instances of persecutions. In the seventeenth century, for example, four Quakers were burnt in New England—ostensibly for refusing to pay a church-tax that would go to a church they did not support. In the case of the contemporary uncivil public discourse, perhaps it would help to recognize that one size does not fit all in an empire-scale union--that ironically unum is strengthened precisely by tolerating more pluribus. I suspect this point has been lost on Americans since the founding.

We should not be surprised that there are substantial differences in a country that stretches across a continent and then some. In European terms, we are a union of nations--our states are equivalent in scale and political type (i.e., semi-sovereign political units of a union) to their countries. Accordingly, I contend that the U.S. Government ought to start dealing with those countries at the E.U. level.

In short, perhaps we have turned on each other because we have forgotten what we--the United States--are. Having lost sight of our polities, we have unwittingly suffered our differences to fit into the narrow funnel of uniformity, which we assume is requisite for unity. According to Burgess, “the formal organization of human relations [undergirding federal systems] must be founded upon ‘diversity’ as its cardinal principle. Consequently, we require unity but not uniformity” (Burgess, p. 68).  This is especially applicable where the federal system is on an empire-level.

In effect, we have forgotten the meaning of e pluribus unum; we have lost touch with what we are. Perhaps our angry public discourse is in part an eruption of our own subterranean angst, whose existential source is simply a hazy sense of being lost or adrift in some way. One cannot but be lost if one has forgotten what one is. We have forgotten that we, the U.S., are a union of republics that are commensurate to European countries. 

Sandra Day O'Conner once remarked at a small group setting, "Congress is acting like a state legislature." Evidently, Congress had forgotten what it is. If a person or group loses touch with what they intrinsically are, it likely won't be long before the wayward ship runs up against a reef. So it is only natural to feel a sense of angst while adrift without a sense of what one is. The tenor of our public discourse is merely a symptom. The question is whether we will treat it as such and dive deeper to get at the real problem, which lies in our own lack of understanding of what we are.

Sources:

Paul Krugman, “A Tale of Two Moralities,” The New York Times, January 13, 2011.

Burgess, Michael, “Federalism and federation,” in European Union Politics, Michelle Cini, ed. (Oxford: Oxford University Press, 2003), pp. 65-79.

Vertical and Horizontal M&A: A Bias in Antitrust Policy?

The Obama Justice Department developed a track record in challenging horizontal mergers and acquisitions—those in which a company buys a direct competitor—in industries that are already highly concentrated. In deals that are not between direct rivals, such as those that occur in vertical integration, the Obama Administration approved the deals, albeit with the imposition of legally binding restrictions on the acquirer’s ability to use its “in house” supplier to engage in unfair competition.
As one example of unfair competition through the use of a purchased distributor, Standard Oil under John D. Rockefeller bought a company that owned and operated pipelines through which oil was transported. Besides using the company to obtain competitive information, he made sure that higher rates were charged to competitors—even though who had no other means of transport available. Where practicable, going by pipeline was preferable to barges and railroads from a cost standpoint—although Rockefeller obtained substantial rebates from the railroads (from his volume or market power—this point is subject to debate). In addition, the railroads granted Standard Oil drawbacks—a cut from the railroad’s business in servicing other customers, including competitors of Standard. Given Standard’s sheer volume, the rationale went, trains being used to haul others’ product were not available for Standard and thus represented a cost in terms of foregone volume transported. Even so, from the ethical standpoint of fairness, both the rebates and especially the drawbacks were subject to substantial critique—especially that of Ida Tarbell, whose text (History of the Standard Oil Company, 1904) on Rockefeller’s helmship of Standard was scathing.
More than a century later, the Obama Justice Department allowed Comcast to take control of NBC Universal and Google to buy travel software maker ITA Software. The government’s rationale is that companies can save money from synergies and thus lower prices for consumers (or increase salaries, retained earnings or dividends). Even in a competitive market, however, the “lower prices” scenario seems to have doubtful validity, given tacit collusion on price, non-price means of competing, and executive managers’ interests in increasing their compensation and keeping investors happy.  Similarly, by the way, reducing companies to being “job creators” is not only reductionistic; it also demonstrates an ignorance of what businesses are designed to do (i.e., earn profit by selling widgets—jobs being merely a means).
Moreover, the assumption that “legally binding restrictions on the acquirer’s ability to use its prize to unfairly harm competitors” are a sufficient means of checking or thwarting baleful consequences from what is an institutional or structural conflict of interest seems to be highly tenuous, in my opinion. Just as water in a stream “seeks” ways to go downstream even when temporarily blocked (and a cat obstructed from food laid out continuously seeks ways to get around the obstacles), the managers of company A that owns company B, which acts as a supplier or distributor for competitors of company A, will doubtlessly (and inevitably) seek ways around the restrictions. In the parlance of trade, such ways are known as “non-tariff barriers.” They are notoriously difficult to stop (think: stop the cat).

                                                                                WSJ

In conclusion, the Obama administration’s differential treatments of vertical and horizontal mergers and acquisitions evince a bias caused by understating the strength of a structural conflict of interest that is inherent in one company buying a distributor or supplier that services competitors of said company. Perhaps the underlying culprit is an understating of the more sordid aspects of human nature combined with an overstating of the efficacy of government regulation. If highly concentrated, massive stocks of capital, such as are evinced in banks or companies that are too big to fail, represent a risk both to competitive markets and to representative democracy, then not only should both vertical and horizontal mergers and acquisitions be subject to higher hurdles, but also existing companies that are too big to fail should be broken up, as the U.S. Supreme Court broke up Standard Oil a century ago.

Source:

Thomas Catan and Brent Kendall, “After AT&T: The New Antitrust Era,” The Wall Street Journal, December 21, 2011. 

The U.S. House of Representatives: An Aristocratic or People’s House?

“Between 1984 and 2009, the median net worth of a member of the House rose by more than 2 ¹/₂ times, according to the analysis of financial disclosures, from $280,000 to $725,000 in inflation-adjusted 2009 dollars, excluding home ­equity. Over the same period, the wealth of an American family has declined slightly, with the comparable median figure sliding from $20,600 to $20,500, according to the Panel Study of Income Dynamics from the University of Michigan.” This comparison excludes home equity because it was not included in congressional reporting.
These statistics support the view extant in the U.S. Federal Constitutional Convention that relative to all of the representatives in the legislatures of the several states, the “few” in the U.S. House of Representatives gave that body an aristocratic quality. This fear did not necessarily translate into a belief that the federal system itself would be consolidated as a consequence. Even so, aside from the growing economic distance between the U.S. House reps and their constituents, the increasing wealth can be taken as a baleful indication of a funneling of wealth and political power in ever tighter circles. In other words, the statistics support those who urge that more governmental power be shifted from Congress back to the semi- and residual-sovereign state legislatures.
While it is true that the delegates at the federal convention feared excess democracy, which was notably against the interest of creditors such as themselves, in the state legislatures (e.g. Massachusetts), it can be argued that his bias left them (and the constitution they drafted) vulnerable to political (and economic) consolidation, with Congressional power (and wealth) effectively setting its own limits. The statistics may give an unsuspecting public pause in taking seriously the proposition that the federal system should be readjusted so as to achieve better balance, which in turn enables more viable checks on the abuse of power—whether in Washington, D.C. or Topeka.

Source:

Peter Whoriskey, “Growing Wealth Widens Distance Between Lawmakers and Constituents,” The Washington Post, December 26, 2011.

Anti-Corruption and Federalism in India

At the end of 2011, India’s coalition government adjourned the upper chamber of the federal legislature without passing legislation that would have created an independent anticorruption agency. India was a the time rife with governmental corruption. A college wants its foreign students protected from crime? A payment is made to local police employees, who pocket the money for themselves. Someone wants a government contract? Well, that goes without saying.

The lower house having passed the legislation, the inaction of the upper chamber was particularly frustrating, particularly to the supporters of Hazare, whose hunger strike  during the summer had led to a promise by the government that the legislation would be introduced. It would have been impractical, and even anti-democratic, for the government to have sidestepped the legislative process simply because a demonstrator of Hazare’s stature was undergoing a hunger-strike. Even heroes should not be lionized too much. Lest it be thought that the federal parliament’s inaction would provoke Hazare to renew hunger-strike, he had actually attempted during the week leading up to the anticipated vote to rally public support against the government’s bill—calling it too weak—by undergoing a hunger-strike, but the large crowds of the summer did not materialize so he called off his hunger-strike “prematurely,” according to the New York Times, “blaming poor health.” It is odd that a person who risks his or her life in a hunger-strike would call it off on account of poor health. “I’m risking death, but I don’t want to get too sick” belies the claim to authenticity and thus undermines the credibility of the movement itself. Ironically, Hazare’s lobbying against the government’s bill may have contributed to the eventual inaction, so the inaction does not necessary constitute a failure for Hazare.

Furthermore, concerns other than corruption legitimately contributed to the inaction. Specifically, the New York Times reports that “(m)uch of the argument centered on an often-technical discussion about India’s federalist structure and whether the provision concerning the creation of state-level anticorruption agencies was unconstitutional.” As the example of the United States suggests, the encroachment of a general government of a federal system on the state governments can compromise the sovereignty retained by the latter, and thus the “checks and balances” feature of federalism between the two government systems (i.e., that of the states and that of the general government). In the case of the anti-corruption bill, whether the federalist arguments were a smokescreen or not, it is significant and highly valuable that federalism was raised as a factor explicitly. In the U.S., the factor is not typically raised even where it is relevant and even vital; typically, the federalism being affected is simply compromised.

Therefore, both with regard to Hazare’s anti-corruption crusade and federalism, the inaction of the upper federal legislative chamber is complex. Ideally, corruption should be rooted out systemically while federalism should be fortified rather than enervated. Both objectives can be achieved—meaning that federalism need not be compromised in riding the society of corruption.

Source:

Jim Yardley, “Bill to Create Anticorruption Agency Stalls in India,” The New York Times, December 30, 2011.