As I sat, watching the Vice Presidential debate the other night, I found myself rooting for both guys. Joe Biden has been a decent Vice President, and my daughter got to hear him speak last spring at Maury High School in Norfolk. Paul Ryan went to my university--Miami of Ohio. Unfortunately, I didn't listen with the expectation that either man would help President Obama, or Governor Romney, respectively, institute the ideas they were bickering about. Instead, I wondered about which of them, or their bosses, would fight the hardest against a system designed to stop them from carrying out those ideas. But let me not be cynical, that is the way American government was designed: To prevent one man (or two) from having unfettered ability to impose his will on the country.
Let's consider the most important economic issues facing the next President and follow that up with my analysis of what , if not who, is the right way to pursue them:
1) Are government spending cuts important? I tell economics classes there is little evidence that net government spending cuts have ever occurred. Therefore, if government spending cuts are important and they have never occurred it is extremely important to understand prior to the election how the current candidates will propose accomplishing the impossible. What will Mitt Romney or Barack Obama do that George Washington, Thomas Jefferson, Abraham Lincoln, Teddy Roosevelt, Franklin Roosevelt, Harry Truman, John Kennedy, Ronald Reagan, and Bill Clinton could not do?
2) Is cutting the budget deficit important? If cutting the budget deficit is important, consider number one above: Must the deficit be cut with spending cuts, or are tax increases feasible? If it is impossible to tax anyone more because the economy is so weak, and if it is impossible to cut spending just because it is then should Americans, like lambs to slaughter, simply wait until budget deficits cause a bigger problem?
3) Is there an entitlement mentality in the United States and if so, is it important to change that? I have said in economics classes that the danger of the budget deficits in the United States is that they will create an entitlement mentality. Please note that I am not referring to entitlements as defined by the federal government. Social Security and Medicare are entitlements and this means that American citizens have paid for them and therefore are entitled to them. By contrast, I am referring to a way of life that suggests that a person is entitled to a standard of living whether he or she earns it or not.
4) Are large defense cuts feasible? This relates to number one above, but two related questions must be answered: Can the country be protected from all reasonable threats with significantly lower defense costs? and...Could President Obama or Governor Romney actually work with Congress to preserve a net government spending cut if there are significant defense cuts?
5) Is it feasible to cut Social Security, Medicare, or Medicaid? This relates to number one, and it sounds good to push health care and survival costs for the elderly, children, and relations without comparative advantage to families and off of the government. But will it work?
Well...I conclude that government spending cuts are not particularly important. From statistics I have seen, the United States is not out of step with other major world economies in the level of government spending as a percentage of GDP. To the extent that President Obama or Governor Romney insist on spending cuts only, as a way to balance the federal budget deficit, I will be tempted to vote against him.
Moving the federal budget toward balance is somewhat important though. It is true that our Federal Reserve (FED) and money system provide significant opportunities to print money and borrow without Americans truly feeling pain. On the other hand, I think recent FED policy has pushed the envelope, or been aggressive, and cannot be sustained. It is not lost on me that the only time a federal budget has been balanced in my adult lifetime was by President Clinton (a Democrat) and a Republican Congress. Although, President Obama does not possess the exact same strengths (or weaknesses) as Mr. Clinton, and the current Republican Congress does not posses the exact same attributes as the one in the late 1990's either, the party and ideological comparisons are striking and tempting.
President Dwight Eisenhower, the World War II hero, warned of a vast military industrial complex, which would prevent frugal defense decisions from being made: Generals, admirals, and defense contractors would threaten that any decision to save money would actually put national security in jeopardy if for no other reason than to preserve their own interests. He was right of course. And yet, who among us, other than those generals and admirals (if not the defense contractors), is qualified to tell us what will or will not threaten national security? I will be tempted to vote against either the President or Governor Romney if either argues that balancing the budget is possible by significantly cutting defense.
Skepticism is necessary with regard to the feasibility of cutting Social Security, Medicare, and/or Medicaid. While cost increases in these programs need to be minimized as our entire population ages, the likelihood that there can be significant cuts to them appears unlikely at best. Put another way...it would be great if everyone else's family cared for their elderly, children, and incapable relatives, but I can't care for mine. Oh, I do pretty well by my daughter I think, but as a single parent, that leaves me little in the way of extra resources (financial or attention-wise) to care for my two parents who need nursing level care, or those family skeletons one finds in every hard-working American's closet. Faced with the prospect of quitting my job to provide the necessary attention, or spending my daughter's college fund, the mortgage payment, and automobile maintenance costs on their care, I'm not sure there is a serious alternative to letting Mom, Dad, Uncle Fester and the other closet skeletons starve on the street corners in the absence of the government programs. I will be tempted to vote against anyone who plans to balance the federal budget with significant cuts to these government programs unless the candidate addresses how the fallout would be dealt with.
This brings us to the entitlement mentality problem. I am not aware of an American who has seen an increase in any federal tax since 1993. On the other hand, wealthy and middle-income Americans received tax cuts under President George W. Bush on income, capital gains, and dividends in 2001 and 2003. They also got a Social Security tax cut under President Barack Obama in 2010. Poor and middle-income Americans received Bush's tax cut on income and Obama's on Social Security although they generally can't afford stocks or other capital investments and therefore didn't benefit much from those related cuts. In my opinion, shielding any of the aforementioned revenue-skimping Americans from some tax increase amounts to encouragement of an entitlement mentality.
What then of Mom, Dad, Uncle Fester and the other family skeletons? In my mother and father's case, they worked hard all of their lives and paid every required cent to Social Security and Medicare. Those programs protect them today for that reason. But my Uncle Fester (and other skeletons), and many moms, dads, and relations of other Americans have simply shrugged hard work, low pay, and/or the Social Security and Medicare with holdings. These people have little income, great expenses, and in some cases have thrust their dysfunction on their minor children. How do we alter Social Security, Medicare, and Medicaid to make them look at these entitlements as last resorts rather than water at the trough? Although politicians are notoriously poor at telling their voters they will have to endure pain and sacrifice, I will be tempted to vote for either man that proposes logical alternatives to make the entitlements last resorts rather than first ones. However, because I would not take a candidate seriously who said he would make the other guy's voters do all of the sacrificing, I'd be tempted to vote against one who did that. For example, I don't take the proposal to let tax cuts expire only for the rich seriously or as reasonable.