A Plan For Sequestration

The Democrats must take the lead to solve the sequestration issue. The President and the Democratic leadership in the house should present a plan that is delivered to the Republicans and shared with the public. The plan should have several steps. During this next term President Obama must become an expert at using the bully pulpit. He  has the oratory skills to do it. Here is what needs to happen.

1. Clearly define the problem. Our projected future expenditures are greater than our expected future revenues and this is not sustainable. This means our spending must be reduced and our income must rise.

2. We must look at all alternatives and have a general consensus as to what our priorities should be. Is our defense budget too large? Can we reduce the cost of operating existing government departments by 10-15%? Do we need to invest more in education, infrastructure, research and development?

With limited resources we must collectively decide how much are we willing to help our less fortunate citizens. Further what demands should we place on those who are less fortunate to help themselves dig out of poverty? Everyone agrees that each individual should provide for themselves whenever possible. The debate is going to center around “whenever possible”.

3. As a result of 1 and 2 above develop and implement a plan.

The above process is not going to happen in the next 45 days. The above are long term problems with long term ramifications. We must do it right and therefore more time is needed. Admit up front that setting the deadline of December 31st was not very wise in the first place and extend it to March 31, 2013.

Obama’s Personality Flaw.

Barack Obama showed some weaknesses during the first debate that he needs to control if the country is to make headway on debt sequestration and other issues. In an article in the New York Times, referring to how badly Obama did in the first debate, it says,

“He emerged newly combative, newly contrite and newly willing to recognize how his disdain for Mr. Romney had blinded him to his opponent’s strengths and ability to inflict damage.”, New York Times, How A Race In The Balance Went To Obama, November 8, 2012

This kind of attitude does not sit well with members of the opposite party when you are trying to carve out a deal on debt reduction that will have an impact on generations. Compromise is in order and if you do not respect your opponents the attitude shows and you lose; just like he lost the first debate. In our country we have three branches of government and they share power.
The President must reach out to John Boehner, Paul Ryan and Mickey Cantor. They must do the same or no deal will be made. The first order of  business is to push the sequestration date back to at least March 31, 2013. The decisions are too important to be rushed to meet a self imposed deadline. The country and our financial markets need to see a change in mood in Washington. They must gain confidence that we have leaders that can work together and get things done.

Everyone has been saying that business is reluctant to invest because of the political uncertainty in Washington. Debt reconciliation is at the heart of this uncertainty. The solution is a balanced approach of spending cuts and revenue increases. Representative Boehner has already come out and indicated that he would be in favor of some revenue increase as long as they are reasonable and as long as there are also spending cuts.

President Obama should also be willing to put his recently passed Health Care Plan on the table and be willing to look at common sense adjustments to it including allowing health insurance companies to compete across state lines and breaking up health care crony capitalists where they exists.

Washington, get to work and do what is right for the country. Your year long paid leave of absence to campaign is officially over.

Education Is Part Of Defense

Washington needs to implement a plan reducing our debt over the long term and avoid the automatic cuts that are due to take affect on January 1, 2013. President Obama must nurture a more cooperative environment in Washington and become an expert at using the bully pulpit. The excuse that Congress refuses to do so is not acceptable.

There are two mistakes to avoid during the budget talks:

1) Do not allow the automatic cuts that are scheduled to take place at years end and,
2) Do not do something just to meet the deadline.

The core problem is the expected future growth of the economy is slower than the expected rise in expenditures and repayment of debt. The culprits for the expected rise in expenditures are medicare, medicaid and social security. The solution must be long term in nature. It must include a stimulus package up front to reduce unemployment and increase growth. The appropriate action is to pass a resolution allowing an extension of the deadline to March 31, 2013. This is what should have been done in the first place.

The nation must first agree on some core issues.

1) We must agree on what is meant in today’s world to “provide for the common defense”. At the creation of our constitution our Founders surely meant that the federal government must have the ability to defend the nation from physical attack. In the 21st century a major threat to the livelihood of our citizens is economic as well as militarily. As many nations in the world are converting to democracy and free markets, the planet is much more economically competitive than anytime in history. We are falling behind other nations relative to our quality of education and basic research. 

World War II gave us an economic jump start on the rest of the world. We were the last industrialized country standing and we had no competition. That is no longer the case. If we wish to maintain and improve our standard of living we must step up and spend more on education, research and infrastructure. Just as it is not realistic to leave the task of physical defense to the states, we cannot ignore education at the federal level. If we choose to do so, we will loose out on the next Einstein who is impoverished, black and living in Detroit. She looses, however so do we.

2) We have always been a generous nation. Now with limited resources we must collectively decide just how much are we willing to help our less fortunate citizens. Further what demands should we place on those who are less fortunate to help themselves dig out of poverty? Everyone agrees that each individual should provide for themselves whenever possible. The debate is going to center around “whenever possible”. 

At the same time the nation needs to fix its tax code so it is fair for everyone. The tax code should no longer be used to interfere with how free markets work.

Reducing Deficits, Sequestration And Jobs

Politicians need to take a lesson from the average household. When a family reviews its budget it first identifies the amount of funds it has to spend and then decides what it needs and wants. First are the necessities; food, clothing and shelter. It then ascertains the funds remaining and decides how best to spend or invest it. The family budget also takes into account how much debt it needs to pay down each year.

This is the approach government must take with our national budget. One expenditure in our budget cannot be looked at in a vacuum. The country needs to get a handle on its spending. Yes, we need to look for ways to generate revenue, including trying to jump start the economy with a targeted stimulus package; however, we also need to gain control of the governments spending habits. The up front stimulus package must be a part of our long term budget. If the stimulus is done right, it will increase our net revenues in the long run because it allows us to build infrastructure making us more efficient in the future and put to work our greatest asset; its citizens.

One of the first steps in the budgeting process is to estimate revenues generated over the next decade. If done right, this will tell us the constraints on our spending in future years. A top priority in a families budget is to pay the mortgage on time. Our nation needs the same perspective. Built into the national budget must be a plan to reduce out outstanding debt relative to our Gross National Product.

In the past we were able to grow ourselves out of our debt problems. The economy grew at such a fast pace that we reduced our debt to Gross Domestic Product by increasing our GDP at a faster pace than debt. This will be a bigger challenge in the future. At the end of World War II we were the last industrialized country standing. We put people to work by converting to a peace-time economy and assisting nations in Europe and elsewhere, such as Japan and South Korea, to get back on their feet and be viable competitors with us. Economies of other countries like China, India and Brazil begun emerging. In 1989 the USSR dismantled and went towards a “free-market”, competitive economy. Countries in southern Africa are starting to emerge. Don’t be surprised to see counties in the Mid-East start to be strong competitors over the next twenty five years.

The above realities must be taken into account while projecting our future revenues. It is doubtful that we will grow in the future at the same pace as we did in the past because of these emerging competitors. We must also acknowledge that much of the growth in the last decade was from borrowing from China and not internally generated.

To budget on a rational basis, we must look at total spending and prioritize expenditures. If we look at each line item of expenditures separably, without considering the total revenues available, we will never get our budget in balance. A good example is how we went to war in Iraq. When President Bush led us to war, there was no discussion as to how much it was going to cost and how we were going to pay for it. In fact our President encouraged us citizens to not change the way we were living, including our shopping habits. He made the case if Americans changed their life style as a result of 911 and the Iraq war the enemy would have already won. He encouraged Middle America to continue buying ice cream from Cold Stone.

This is a primary reason why our budget is out of control. The nation starts to spend before determining how it is going to pay for it.

Medicare and other social programs may be a high priority; however, first we must put it into the context of the revenues available and the importance of medicare relative to other expenditures that we deem to be worthwhile. This is not the time for our politicians to be partisan. It is time to face reality. It is time to stop being a Republican or Democrat and be an American.

Obama, after November 6th, take one day off and get back to work.