Monday, April 25, 2011

Campaign Fund-raising and the Pre-Primaries for Elections 2012

Something of a myth of American democracy is that decisions are made in the ballot box by voters on election day. Actually, these outcomes are structured by fundraising efforts by would-be candidates years in advance.

Aspirants to the GOP presidential nomination, now entering the crucial second quarter before election year and on the eve of their formal declarations of candidacies, are now racing for credibility by racing for cash. And those without name recognition, in particular, have to rake in as much as they can before June 30 and the slower summer months begin, so that their second quarter federal disclosure reports do not look so pitiful that their campaigns would end before they even began.

President Barack Obama, for his part, appears on top of his own game. Having quickly declared his candidacy, his campaign manager Jim Messina has already mapped out a plan of getting 400 major donors to raise $350,000 each by the end of the year. By forcing the campaign finance issue so early and so soon on GOP hopefuls, he is already shaping the GOP primary outcome. Even more so than in the typical cycle, Republican primary voters will face pressure to forego a candidate of purer conservative principle with less fund-raising potential such as Rick Santorum in favor of a candidate with more fund-raising potential (or the name-recognition to achieve to same) such as Mitt Romney. Obama's early campaign kick-off, then, has heightened the GOP's dilemma between boring but credible candidates, and exciting but unknown candidates -- a reason why the party has not already settled on a clear frontrunner the way it had done for every campaign since 1952.

In the House and Senate, both parties understand that elections have to be bought as much as they must be fought. Democrats in both chambers appear to have begun to narrow the "enthusiasm gap" of 2010, and raised a little more money than Republicans in the first quarter of this year in spite of the expectation that donors are typically unenthusiastic in the fundraising cycle which follows their party's defeat at the polls. The Democratic Senatorial Campaign Committee raised $11.69 million, just slightly more than the Republican Senatorial Campaign Committee's figure of $11.2 million. A positive sign for Democrats is that the senators holding important swing seats the GOP hopes to re-capture, such as those of Bill Nelson (FL), Debbie Stabenow (MI), Claire McCaskill (MO), and Sherrod Brown (OH), did well by raising over a $1 million each in the first quarter. But this could merely mean that these senators are gearing up for a tough, and perhaps uphill battle ahead.

Democrats fared better in the House as well, but the numbers again are very close. The Democratic Congressional Campaign Committee raised $19.6 million, compared to the National Republican Campaign Committee, which raised $18 million. The DCCC is taking comfort in the fact that the average freshman Republican congressman raised less in the first quarter of 2011 than the average freshman Democratic congressman did in the first quarters of 2007 and 2009 - the years after the Democrats had just enjoyed their victories. There were, however, clear winners on the Republican side, and topping that list was Michelle Bachmann, who raised over $2 million in the first quarter. The critical question for the year ahead is whether the Tea-Party's enthusiasm for Bachmann is portable enough to help other Republican members achieve their fund-raising goals. If the Tea Party proves capable of inspiring cheques as well as it has inspired hearts, the Republican party will have no problem keeping the House and gaining in the Senate next year.

For American politics, look not to the polls; for where the money goes, so goes the elections.

Sunday, April 17, 2011

What is Driving the Republican Position on the Budget Battles?

What exactly, for Republicans, is the budget debate about? It is not primarily about the public debt; it is not even about economic growth.

The last two Democratic presidents, Carter, and Clinton both reduced the size of the public debt as a percentage of our GDP. On the other hand, Richard Nixon was the last fiscally conservative Republican. Every Republican president since has contributed to the rise of the public debt's share of GDP. Indeed, between Reagan and the first Bush, the gross public debt in nominal terms increased fourfold. (Data from CBO.)

Closer to our time, the combined 2 trillion dollar swing between the last year of budget surplus enjoyed during the Clinton administration and the budget deficits of Obama was principally the doing of the Republican president between the two. According to the New York Times' analysis of CBO data, the business cycle (or recession) accounted for 37 percent of this 2 trillion. About 33 percent came from Bush's tax cuts, wars, and prescription drug benefit bill. Obama's main contribution of 20 percent came from his continuation of the Bush tax cuts and wars. His own policies, namely, the bailouts and health-care reform contributed just 3 percent. If Democrats are the party of tax-and-spend, Republicans are the party of cut-taxes-and-spend, and the latter are the reason why the public debt has risen to an unsustainable level.

There are three solutions to reducing the debt. One is to only raise taxes, one is to only cut spending, and one is to do both. And it is a reflection of the rightward political equilibrium of our times that the Republican party is insisting on its predictably single-pronged strategy of just cutting spending, whereas the Democratic party is at least making a perfunctory effort to do both. Republicans justify their call to cut government spending to encourage economic growth. However, if we accept the popular (but mistaken) view that the Carter years were the recent nadir of US economic performance, it is still worth observing that every Republican president since Herbert Hoover, with the single exception of Ronald Reagan, experienced lower annualized GDP growth during their administrations compared to Carter. Clinton, as most would remember, actually enjoyed high growth rates than did even Reagan. (Data from BEA.)

Put yet another way, the ratio of the public debt as a percentage of GDP has decreased for every Democratic president since Franklin Roosevelt, and it has increased for every Republican president except for Eisenhower and Richard Nixon's first term.

What do these details tell us? It's not primarily about the debt, and its not primarily about growth for most in the Republican party now, except perhaps those among the Gang of Six. There are lots of avenues to cut spending and at least a whole other way, raising taxes, to reduce the public debt.  Instead, it is no wonder that on the Budget Committee Republicans' webpage about "Today's Major Domestic Challenges," over half the words deployed focussed on Social Security and healthcare, while the word "debt" appears only once. What Republicans want today, even more than reducing the debt, is to shrink the size of the federal government, and in particular Social Security, Medicare, Medicaid, and "Obamacare." In the end, Republicans care most about the liberty and virtue of individuals, and less about the goals of collectivities -- whether these be the healthcare of the indigent, the social security of the old, or the economic growth of the nation as an aggregated abstract. And that is why the public "debt" is ultimately only the political lever conveniently at hand for an ideological end born out of their first principle -- not necessarily misguided I should add -- that liberty from government should always come first.

Monday, April 11, 2011

More Sound than Fury in the Budget Battles Ahead

The strategic gamesmanship leading up to the budget compromise that was reached late last week suggests a blueprint for the budget battles to come. But while many observers believe that Washington is bracing for even more epic battles to come, when Congress considers the budget for the rest of the fiscal year and legislation to raise the debt ceiling, my guess is that there will be more sabre-rattling than a serious effort to avoid raising the debt ceiling. Here are three reasons why.

First, even Democrats agree that cuts are necessary; and even Republicans know that deep cuts are difficult. There will be collusion to fight, but not necessarily to disagree. Certainly, Republicans and Tea Partiers still enjoying the honeymoon from last November's elections have successful set the frame of "spending cuts" such that Democrats have been forced to fight the battle on Republican turf. But everyone already accepts that the federal government has to rein in its spending. Now, Republicans will have to take their pick between fiscal restraint and their social agenda. So far they have been consistent in prioritizing the former, for when push came to shove, even Senator Tom Coburn dropped his insistence on the Planned Parenthood rider. For Democrats, the question is not whether they can beat Republicans at their own game and propose a bigger budget slash than Republicans want, but whether they can reset the political agenda, postpone the issue, or talk about something else. Both sides however, will be sure to start off each new debate with maximal bluster and deliberately over-reach, so as to win the maximal concession from the other side and to achieve a final resting point closest to one's original pre-bluster preference.

Second, last week revealed that neither side wants to risk the political fallout of a government shut-down. Conventional wisdom holds that Bill Clinton was the net political winner when Republicans forced a government shutdown in 1995 and 1996. Last week, even Tea Partiers revealed their interest in seeing government work, not shut down. The budget talks were the first real test of the Tea Party in government, the first test of Speaker Boehner's ability to unite a diverse group of freshmen and veteran Republican congressmen, and the first test of President Obama's ability to reconcile Democrats and Republicans after his announcement to seek a second presidential term. Because nobody wants to risk appearing obstructionist, the irony of divided party control in Washington - which was the case the last time a president managed to balance the budget - is that it may well prove to be more constructive than gridlocked in the short-term. The long run, of course, is a different matter. Nobody in Washington thinks about that.

Third, while Democrats are hailing the $38 billion cut in spending they acceded to as the biggest real spending cut in history, the fact is this amount represents 12 percent of the amount (about $300 billion) we would have to cut from the budget so that Congress would not have to raise the public debt ceiling of $14.294 trillion, which the Treasury Department expects we will hit in about a month. Not even Congressman Paul Ryan or Senator Marco Rubio have proposed plans aggressive enough to save us $300 billion in one month. When politicians make the most noise, then we know that they are interested more in the semblance of trying than confident in the possibility of a solution.

If the last ten years, in which we have raised the debt ceiling ten times is any guide, it is very likely that we are going to have to raise the debt ceiling, if not the US government would not be able to raise money to fund its operations, or more important, to pay its creditors. That’s when talk of default comes in, but no politician wants that to happen, at least not on their watch. Because politicians are re-elected in the short term, most have preferred to raise the debt ceiling rather than countenance cuts draconian enough to reduce the public debt in the long term, when they would not be around the reap the political benefits. The end result of the short-sightedness generated, in part, by our zippy electoral time-horizon is that we are already defaulting by stealth, by the gradual depreciation of the US dollar so that the value of our debt measured in foreign currencies can be lowered.

So epic fights aren’t really on the way. There is going to be a lot of noise, but American politics evinces substantive policy changes only when we are at the brink. But as long as we are allowed to raise the debt ceiling year after year – and we have done this 79 times since 1940 – we will continue to hear more sound than fury.

Sunday, April 3, 2011

Obama $et to Announce Re-election Bid

For weeks, President Barack Obama seemed consumed with the challenges in governing. With the turmoil in the Middle-East taking one unanticipated turn after another, the White House has been in crisis management mode for the past several weeks. Decisions that matter to millions of people around the world, as well as to our allies, who want more of us than we are willing give in Libya, have had to be made. Despite our democratic fantasy, leadership occurs behind a barricade of confidentiality. Both Obama and George Bush well know that leaders must sometimes push on behind the scenes, with or without public and congressional support.

But just two years into office, the president is emerging from the woodwork because the campaign beckons. Last week, he delivered his address explaining the mission in Libya, after several days of criticisms about Mission: Unclear. Then on Saturday, he re-entered the debate about the federal budget for this year, after staying away from the fray for weeks, by calling Senator majority leader Harry Reid and Speaker John Boehner to tell them that he is supporting a deal to cut another $23 billion from last year's spending levels. Obama is back in the public eye in part because he had a bit of political windfall on Friday when the Labor Department reported that unemployment dipped slightly to 8.8 percent. Because the public (still) cares more about the economy than what is happening abroad,the president must wade back into economic and spending issues. So the machinations begin, and the wires are now reporting that Obama is likely to announce his re-election bid early next week.

There is one reason why Obama is making the obvious official so soon. He can start raising money as soon as he registers with the Federal Election Commission, and the sooner he starts, the more likely his would become the first billion dollar campaign in the history of American politics. (Obama raised $750 million in 2008.) So whereas Republicans have no incentive to declare early (because the first in is also the first attacked by would-be contenders in a crowded primary field, especially one in which the balance of power of the Tea Party movement remains too unclear in the face of ongoing budgetary debates for potential contenders to dare to come down firmly or tepidly for it), the President would be off to a head-start. If he forces the inevitable internecine fight in the Republican fold to start earlier, Obama wins. If he doesn't, it doesn't hurt to start building the campaign war-chest. After all, in this day and age, the costs of appearing self-serving at a moment when the nation is mired in budget talks and trying to extricate itself from a third war are nevertheless worth the gain in campaign finance by starting early. This is particularly the case for a Democratic candidate who, in the face of recent political reconfigurations in Ohio, Wisconsin, and Pennsylvania, might well have to find a different way to the 270 than the one which worked for him in 2008.

So expect a text, an email, or a tweet soon. The White House hopes to downplay the event because it doesn't need a boost the way it would if primary challengers are expected, and it is more important that the president does not appear like he is taking time out from governing to raise money. But raise a lot of money Obama will, starting from his first re-election fundraiser in Chicago - where the heart of the campaign will be located, as in 2008 - on April 14.