The Three-Headed Republican Party


One of my favorite political and economic writers is the Brookings Institute’s William Galston who writes a regular weekly column in the Wall Street Journal.   Most recently his article, “The Three-Headed GOP After Trump, “ is particularly lucid.

Mr. Galston sees three factions in today’s Republican party:

  • Establishment conservatives who favor free trade, immigration reform, are broadly internationalist, believe in climate change, want corporate and individual tax reform, and also support entitlement reform. They would accept tax increases as part of a “grand bargain” to address our debt problem.
  • Small government conservatives ala House Speaker Paul Ryan and his “A Better Way” plan for American renewal. They believe that government is the principal obstacle to growth, especially with excessive regulation. They want major tax cuts and reductions in domestic spending as well as structural changes in Medicare and Medicaid. They are more nationalist than internationalist in outlook and oppose corporate welfare such as the Export-Import Bank.
  • Populist conservatives ala Donald Trump, many of them working class. They distrust all large institutions but do not have an ideological preference for small government. They strongly support Social Security, Medicare and Disability Insurance. They view the world outside the U.S. as more of a threat than an opportunity, and therefore oppose trade agreements and large scale immigration. “America First” is their demand.

Can these three groups coalesce into a single working majority? As I see it, Mr. Trump might have been able to accomplish this but has fallen short because he is such a sleazy individual.  Mr. Galston thinks that, after Trump, the second and third groups will be able to come together but only without the first group. I see the challenge as the traditional Republican Party, consisting of the first two groups, figuring out how to join forces with the third group.
Conclusion. A prosperous and secure future for our country depends on having a strong and viable (fiscally) conservative party.  How will this be achieved?

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Fight or Flight: America’s Choice in the Middle East


The main concerns of this blog are the fiscal and economic problems faced by the U.S. How do we address the very serious issues of a slow economy and rapidly growing national debt.  But like it or not, what we do affects the whole world. If we fail to meet our responsibilities for world leadership, then everyone, including us, will suffer the many serious consequences.
Capture6The Brookings Institution’s Kenneth Pollack has an excellent article in the current issue of Foreign Affairs, “Fight or Flight: America’s Choice in the Middle East,” clearly making the case for strong American leadership.  According to Mr. Pollack, “The costs of stepping up are more manageable than the risks of stepping back, but either option would be better than continuing to muddle through.”  He explains that

  • The problem began after WWII when the Arab states either became secular republics (dictatorships) or monarchies.
  • By the 1990’s popular discontent had risen throughout the Middle East and exploded in the Arab Spring of 2011.
  • Now there are full blown civil wars in Iraq, Libya, Syria and Yemen with nascent conflicts in Egypt, South Sudan and Turkey.
  • Stabilizing the Middle East will require shutting down the current civil wars with at least small numbers of combat forces in Iraq and possibly Syria. Economic assistance and infra-structure development should be given only in return for political reform.
  • The advantage of a reduced U.S. presence in the Middle East is that it would reduce the threat from terrorism.
  • The great challenge to the U.S. in stepping back is the risk of the near-term collapse of Egypt, Jordan, Lebanon, Tunisia and Turkey.
  • The worst outcome of all is for the U.S. to continue muddling through, committing enough resources to enlarge its burden without increasing the likelihood of making things better.

The current European refugee crisis is perhaps the most glaring example of what happens when the U.S. fails to provide the leadership of which only it is capable. Let’s hope that our next president has the ability to turn around the chaotic situation which currently exists in the Middle East.

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Are Democratic Presidents Better for the Economy than Republicans?


In his usual provocative manner, Paul Krugman reminded us yesterday that, according to a recent study by Alan Blinder and Mark Watson, ever since President Truman the economy has grown faster under Democratic presidents than under Republican presidents.  There are a lot of different explanations for this, not necessarily demonstrating better economic policies by Democratic presidents.  Nevertheless, it is a noteworthy finding which fiscally conservative, fix-the-economy types, need to be aware of.
CaptureAmong other things, Republican presidential candidates must become more credible about their economic policies than they have been so far.  They have all proposed big cuts in tax rates to stimulate the economy. But their plans lose trillions of dollars in tax revenue.  At a time of huge deficits and a rapidly growing national debt this is simply unacceptable.
In today’s Omaha World Herald, the economics journalist, Robert Samuelson, reports on a new Brookings Institute study about the effect of raising the top individual tax rate from 39.6% to 50%.  Such a tax hike would raise as much as $100 billion per year.

  • However, if used to lower deficit spending, it would cover less than ¼ of current deficit spending ($439 billion in 2015, for example).
  • If used to reduce income inequality for the poorest 1/5 of Americans, it would give such households an average of $2,650, and the overall effect on income inequality would be very modest.

The point is that neither costly tax cuts to boost economic growth nor a sizable tax increase on the wealthiest Americans represents a viable program to straighten out our economic problems. What we need to grow the economy is:

  • Revenue neutral tax reform, lowering rates across the board, paid for by closing loopholes and shrinking deductions.
  • Lightening the regulatory burden at least on small and mid-size businesses in order to speed up business growth and entrepreneurship.
  • Trade expansion and immigration reform to increase productivity.

Fiscal conservatives are badly needed to implement such policies effectively but neither party can get the job done alone. It will take both parties working together to make progress.

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Poverty, Inequality and the Minimum Wage II. Cities Are Expensive!


Poverty and inequality are getting worse in the United States.  The question is what to do about it.  One proposal is to raise the minimum wage from its current value of $7.25 per hour to $10.10 per hour.  The Congressional Budget Office has studied the tradeoffs in doing this.  Approximately 16 million people, at the bottom end of the wage scale, would see their incomes go up.  But 500,000 people would see their incomes go down because they’d lose their jobs!  Does the positive outweigh the negative?  It’s not clear!
CaptureBut here is another aspect of the problem.  The Brookings Institution has just published a new study “All Cities Are Not Created Unequal”, pointing out that the 50 largest cities in the U.S. have higher rates of inequality than does the country as a whole.  Brookings looks at the so-called 95/20 ratio between the 95th percentile of wage earners compared to the 20th percentile.  The national average for this ratio is 9.1 with the 95th percentile earning (in 2012) $191,770 and the 20th percentile earning $20,968.  But many large cities such as San Francisco (16.6), Boston (15.3) and New York City (13.2) have much higher ratios.  The midsized city of Omaha has a ratio of 8.2 which is below the national average.
In other words the problems of poverty and inequality are much worse in some parts of the country than in others.  This suggests that at least part of the solution to addressing this problem should come at the state and local level.  It makes sense for California, Massachusetts and New York, for example, or at least San Francisco, Boston and New York City, to establish their own higher minimum wages.
This is not to say that a higher minimum wage at the national level is not also needed (more coming).  But the whole country cannot be expected to bail out a few major cities where the problem is much worse than elsewhere.