How can Republicans reverse their awful polling numbers?

Posted by Shyam Moondra

A recent CBS News/NYT opinion poll reveals growing populous dissatisfaction over the performance of the Congress in general and Republicans in particular. The congress has an approval rating of only 12%, a record low. Among the Republicans, a whopping 84% of the people think that the incumbent members of the Congress do not deserve to be re-elected. Clearly, the Republican strategy of saying “No” to everything that Democrats proposed or hitching with the extremist Tea Party or pushing the country over the cliff on the debt issue (that resulted in the downgrade of the Treasury securities by S&P) has backfired. The Republicans, especially in the House, seem to have pursued a policy of deliberately harming the economy to drive President Obama’s approval rating down thinking that a weakened incumbent president will be easier to defeat in 2012. However, the polls show that the Republican tactics and intransigence have hurt them more than Obama, who still enjoys an approval rating of 43% which is much higher than that of the Congress.

The American people understand that Obama inherited most of the problems from his predecessor President George W. Bush. Bush started a costly war in Iraq (that many believe was a war of choice rather than need), gave unnecessary tax cuts to the rich and tax subsidies to the corporations at a time of war when you normally expect everyone to pay higher taxes to cover the cost of the war, and budgeted hundreds of billions of dollars to bailout financial institutions that were on the verge of collapse (thanks to Bush’s lax regulations). When Obama became the president, he inherited an economy sliding into recession (2.6 million jobs lost in 2008, the final year of the Bush presidency), bulging budget deficits and national debt, and national icons such as GM headed for bankruptcy (and possibly hundreds of thousands of lost jobs). Obama had no choice but to stabilize the financial sector and the auto industry, undertake a big stimulus program to immediately create jobs, and extend the Bush tax cuts for two more years to help economy recover. Had Obama not done all of that, the unemployment rate would probably have gone up to 15%. Obama was correct in negotiating a long-term plan with House Speaker, John Boehmer, to reduce deficit by over $4 trillion over ten years (that included tax and entitlement reforms), a plan from which Boehner walked away because he failed to muster the support of the Tea Partiers within his party ranks.

The economy is still struggling and the people have pretty much given up on Congressional Republicans, as is clear from the polling data. So now the question is what should Republicans do in the next fourteen months to position themselves to win the White House, keep the control of the House, and possibly win the control of the Senate?


Republicans’ fallacious reasoning:

First, let’s look at the faulty thinking of the Republicans on many issues that suggests that they don’t really understand Economics 101:

• Republicans say that higher taxes on the rich will hamper job creation, but that's not true. In the current environment, it’s the increased consumer spending and not capital availability that will drive the economy. The U.S. corporations are hoarding close to $2 trillion cash, so it is not the capital that will motivate them to hire more workers. They need more demand for their products and services. However, as the polls show, this recession has decimated the middle-class and low-income families (they lost the most ground in terms of their income while the upper-income people lost the least) that generate most of the consumer demand in our economy. That means if millionaires and billionaires pay more in taxes, it will not lead to fewer jobs but to the contrary it will help reduce deficit and bring about more favorable effects on economy. In any case, Bush gave the rich people tax breaks at a time when we were engaged in two costly wars. The wars cost $1 trillion and he gave away $1 trillion in tax breaks; if he had not given away tax breaks, we would not have had huge deficit and debt as we have today.

• Republicans, especially the Tea Partiers, say that balancing the budget quickly will be positive for the economy, but that’s not true. A precipitous cut in government spending will hit the middle-class and low-income families more than the rich people and that will in fact reduce consumer spending even more. As a result, economy will revert back to recession with unemployment rate going up. In fact, most economists would readily affirm that what we really need is a short-term plan to stimulate economy and a long-term plan to bring down deficit, rather than try to balance the budget right away at a time when the economy is still struggling.

• Republicans keep saying that health care mandate is unconstitutional. Today, all of the states have mandatory car insurance and Texas even requires mandatory controversial HPV injections for 11- and 12-year old school girls. There are times when the larger public good requires government’s mandatory actions. In case of health care, if the insurance were not mandatory, the people would buy insurance only when they get sick, putting the burden of treating the uninsured people on those who do have insurance and thereby increase the cost of health care for everybody. You cannot apply a broad brush to all government mandates and label them as intrusion in the lives of the people.


This is what Republicans should do:

• Bring more civility in how the federal government works. The poll shows that 84% of the people are dissatisfied or angry about the political gridlock. The people want economic problems solved and that means Republicans and Democrats must compromise to move forward on job creation, etc.

• Stop taking a rigid ideology to the extreme that makes rational policy decisions almost impossible. It is fine to have convictions on smaller government and lower taxes, but Republicans must be flexible enough to develop pragmatic policy alternatives. President Ronald Reagan strongly believed in lower taxes, and yet, from time to time, he agreed to increase certain taxes in return for other reforms that would help him achieve his overall broader policy goals. In a democracy, especially when you have a divided government, horse trading is inevitable. Drawing a line in sand based on rigid ideology leads to a path of “my way or highway” that almost never bears fruits and it turns off the voters. In the eyes of the people, Republicans appear to be unreasonable and obstructionist.

• Embrace the concept of “smaller government” but disassociate from the toxic Tea Party. When economy was doing really bad and deficit was running high, many people were angry and they enthusiastically supported Tea Party out of frustration. However, since then, the people are coming to the conclusion that the Tea Partiers are too extreme and they have gotten in the way of economic recovery. Many of the Tea Partiers openly advocated a default on the U.S. debt that would have brought catastrophic results for the global economy. Their unyielding stand forced the Republicans to engage in an ugly debate on increasing the debt ceiling limit that eventually led S&P to lower the U.S. debt rating from AAA to AA. Republicans would be wise to disassociate themselves from Tea Party and, as Senate Minority Leader, Mitch McConnell, put it, save the Republican brand from being irreparably damaged. The extreme tendencies of the Tea Partiers are detrimental to effective governing.

• Focus on what people want. The recent poll shows that 59% of the people are concerned about economy and jobs and only 8% think that budget deficit and national debt are immediate problems. Republicans need to get off the deficit wagon and focus more on job creation. Republican presidential candidate Gov. Mitt Romney has put forward a jobs plan; the people want to see more ideas from Republicans on this issue.

• In terms of public policy issues, the polls show that over 80% of the people support reducing taxes for small businesses and increasing spending on infrastructure improvement projects (needed to be competitive in global trade); 58% support temporarily reducing payroll taxes to stimulate economy; 52% support federal aid to states to avoid layoffs of teachers (decimating education will negatively affect our global competitiveness), police officers, and fire fighters; and 56% of the people support Warren Buffett’s idea of increasing income taxes on millionaires and billionaires. These issues have a wide support among the Independents and even many Republicans. The poll also shows that there is no support for repealing the Obama health care plan which seems to be high on the Republican agenda.
• To stimulate consumer demand, we need more spending by the government in the interim, and at the same time we need a long-term plan to reduce deficit by at least $4 trillion over the next ten years that should be accomplished by a combination of tax increases on the rich, closing corporate tax loop-holes, and spending cuts (including entitlement reforms) as recommended by the bi-partisan Deficit/Debt Commission. Republicans must negotiate with Democrats a short-term stimulus plan and a long-term deficit reduction plan now, not after the 2012 election.

Republicans should stop being obstructionist and get on with the job of fixing the economy without any further delay. If they don’t, their poll numbers will only get worse and they will lose their bid for the White House in 2012.

Economic recovery is contingent upon strengthening the middle-class

Posted by Shyam Moondra

The latest Census Report for 2010 includes some startling and yet not totally unexpected statistics on income distribution in the United States. Below are the highlights from this report:

• In 2010, the number of American households living under poverty (i.e., earning less than $22,113 per year) increased by 2.6 million to 46.2 million, the largest increase in the last 50 years. These families accounted for over 15% of the population.

• The median income of the U.S. households declined for the third straight year since the recession began in 2007 and stood at $49,445. The Blacks and Hispanics suffered the biggest losses.

• Among the various income groups, the top 5% of households saw the smallest decline in income in 2010, while the bottom 20% of households saw the biggest decline of 38%.

• The richest 20% of the population accounted for more than half of the 2010 pre-tax income, while the bottom 20% got only 11%.

The above data suggests the following:

• The cherished middle class has steadily lost ground relative to the affluent upper-class over the last decade. The decline of the middle-class began with the presidency of George W. Bush, who showered the rich individuals with income tax cuts and special deductions and credits and gave away tax subsidies to corporations that ultimately benefited the rich people more than the average Americans.

• The rich got richer and poor got poorer, with the gap between the rich and the poor widening to the point that there is legitimate worry about a possible popular revolt against the government policies and resentment against the rich and powerful.

We have near zero interest rates and low inflation, and yet the economy is not getting a lift. It seems as if the old proven economic theories don’t work any more. In general, plentiful money supply, low interest rates, and increased government spending should boost the economy, but not this time. Here are the plausible reasons why we are having such a hard time in recovering from the 2007 recession that officially ended in June of 2009:

• The demise of the middle-class, the backbone of the U.S. economy, has reduced the spending capacity of the average consumers, which, in turn, is making it harder for the economy to recover. The Republicans say that businesses create jobs, which is true only if consumers spend. So, ultimately, it's the robust middle-class that will pave the way for job creation.

• The continuing weakness in the housing sector, caused by contradictory and often confusing government policies on home foreclosures, is contributing to the economic sluggishness. The government bailed out the financial institutions burdened with the collapse of the mortgage-based securities market, but more recently entities such as Freddie/Fannie and AIG, partially owned by the federal government, are orchestrating to recover the losses they sustained on their investments in those securities. Also, State Attorney Generals are pushing for huge monetary penalties on the banks for faulty procedures used by the banks to foreclose the properties. The State AGs are asking for expensive remedies such as forgiving part of the mortgage loans and/or reducing mortgage interest rates. The government’s uncoordinated actions are pushing the banks towards another financial crisis; unfortunately, thanks to the new financial regulations bill passed by the Congress, the banks cannot be bailed out any more. This raises the specter of another round of credit freeze that will devastate the economy. These government’s not-so-well-thought-out approaches are also prolonging the misery of the homeowners and thus making it difficult for the housing market to recover.

• Recent regulatory regimes adopted by the Congress for the financial sector and for health care have created a lot of uncertainty and that’s why the corporate world is not aggressively spending their cash hoard of $2 trillion on new capital projects and they are not hiring new employees. Without new hiring, the unemployment rate is stuck at an uncomfortable level of over 9% and consumers are holding back, creating a vicious cycle that is making it harder for the economy to gain traction.

The Republican Party’s focus on cutting government spending is ill timed. Most of their targeted spending cuts will affect the struggling middle-class people, which means no economic recovery and a wider gap between the rich and the poor. The stalled economy definitely needs a stimulating jolt, but the Republicans are resisting new stimulus spending, e.g., on infrastructure projects. At the same time, our budget deficit keeps growing and national debt reaching to dangerously high levels. Because of the ideological divide, we are at a cross road with no clear path to prosperity. Republicans want to balance the budget by cutting spending (which will decimate the middle-class and economy and the unemployment rate will go up) and Democrats want to balance the budget by increasing taxes (that will also negatively affect the economy).

Clearly, neither approach is correct. What we need is a balanced approach that will provide stimulus in the near-term to boost the economy but also put us on a long-term path to fiscal sanity. We need to provide some stimulus now (meaning more government spending) and, at the same time, have a long-term plan to cut spending (including reforms of entitlement programs) and enhance tax revenues. Right now, the American people desperately want more jobs; they don’t care about the deficit and debt.

The Congressional Super Committee has been tasked to come up with a $1.5 trillion plan to reduce deficit by November. Such a plan is just a first step. The financial markets are actually looking for a grand plan to reduce deficit by $4-5 trillion over ten years that consists of spending cuts (mostly in later years) and net tax revenue enhancement via tax law reforms to reduce the overall tax rates and eliminate all special interest deductions and credits. The rich people and corporations must pay their fair share of taxes. I believe the American Jobs Act, proposed by President Obama, achieves the desired balanced approach. Republicans must work cooperatively with Obama and Congressional Democrats to move swiftly on this bill right now rather than wait until after the 2012 election which is fourteen months away.