"Fight With Me"

John McCain's acceptance speech from last night



Also, former Pennsylvania Governor Tom Ridge's speech:



It seemed McCain made a strong attempt to invoke his 2000 "Maverick" image as the candidate willing to tackle the big issues with little regard for political party. Perhaps most impressive, he told the party some things it needed to hear.

The last two minutes of the speech where he begins reciting "Fight With Me" provides a great soundbite with him speaking over the crowd's applause.

Eroding Base

Good article from the Associated Press this morning regarding the Republicans and their fight to hold rural voters in November.

It seems rather obvious to many observers that Republicans will carry these voters in the upcoming election, but tough economic times over the last four years combined with a declining standard of living in some of these rural parts have caused pundits to question how strong that support will be this election season.

The article makes note of the fact that Bush won 60% of rural voters in the last election cycle. While early polling this election still highlights a McCain lead in rural voters, the margin has tightened. Obviously in such a close election, Republicans can't bleed votes in this bedrock category.

Certainly, the economy will be a powerful issue this fall, but it won't exist in a vacuum for most voters. Other social issues could help to stabilize this demographic. Yet, even if Obama is able to make inroads with this group (as he's already started a "Barns for Obama" campaign in Ohio), it may not necessarily motivate people to vote for him. Rather, it could just cause rural voters to stay home which would equally erode McCain's projected base.

Nationally, the importance of connecting with rural voters is significant because in battleground states across the country they represent anywhere from 10% to 20% of the electorate. Reaching out to these voters needs to become an important component of McCain's strategy if he's going to have success.

That's a point Terry Madonna also concedes: "McCain will have problems getting a high turnout among those voters unless he finds some way to identify with them, some way to make them think that, A, he’s not connected to Bush, and B, his economic plan is superior to Obama’s."

Momentum

On the heels of the recent budget developments, the House GOP seemingly took a step to preempt Governor Rendell's next political move.

After the Senate Republicans cut over $100 million from Governor Rendell's education request, it appeared that Rendell was due to make a big fuss over the reversal.

This could complicate things in the House as they move towards passing a budget resolution. Therefore, the House GOP released an ad detailing Gov. Rendell's own difficulties with funding education.

Quote Of The Day

"The elitist liberals (in the party) always find a way to ruin the process."
-U.S. Rep. Tim Holden (D-PA-17th)

The quote comes from a Reading Eagle article discussing Rep. Tim Holden and the superdelegate process. It's such a good quote and applicable to so many situations, but the fact that it comes from a Democrat makes it even better.

Kanporkski

Fox News had a special called "Porked" over the weekend. It detailed congressional earmarking scandals. It just wouldn't have been complete without a segment on Rep. Paul Kanjorski.

Long Way To Go

Rep. Paul Kanjorski is strongly opposed to any attempt to privatize Social Security. In a somewhat surprising move, challenger Lou Barletta released a statement on Social Security essentially agreeing with Kanjorski.

Kanjorski is looking to expand Social Security benefits by increasing cost-of-living-adjustments and Barletta is ruling out most approaches to fixing it: privatization, an increase in the retirement age, and any benefits reductions.

Unfortunately, Barletta's dedication to fixing Social Security may be in rhetoric only. Assuming Barletta's opposition to benefit reductions also means he's ruling out a price indexing (which is tomorrow's benefits being able to buy the same basket of goods as today's benefits--this is different from the current wage indexing) of benefits, he's limiting his options for fixing Social Security. Strictly speaking, he must be looking to fix it through the revenue side of the equation.

In 2017, Social Security will begin to run cash deficits--spending more money than it takes in. Currently, the system is running surpluses since more people are paying into the system than are taking benefits. Once the boomers begin their wave of retirement that equation changes. The excess revenue is being used to pay other government bills and an IOU is left in the Trust Fund which is reflected in the "intragovernmental debt" as money the government owes to itself.

Thus in 2017, Social Security will begin to redeem securities in the Trust Fund to pay for the extra benefits. The Social Security Trust Fund bonds will have to be "redeemed" through the government's general revenue stream. This will mean less funding to pay for other priorities and a larger deficit if nothing is changed.

Therefore, if Barletta wants to ensure Social Security's long-term solvency, he must be considering an increase in the payroll tax. Simply telling the government to keep cash in the current Social Security Trust Fund will do little to alleviate the long-term obligations or produce solvency.

It's frustrating to see Barletta take options "off the table" this early in the campaign. Other proposals like what was offered from Fred Thompson or Republican Paul Ryan have successfully incorporated some of these non-starters for Barletta without drastically changing the nature of the program.

The Republican Brand

Virginia Representative Tom Davis sent a memo to Republican leadership about the problems with the GOP moving forward. It's a well put together strategic memo--recommended reading.

Some of the more important points in the memo:

• using free trade as an issue (which is something we've identified before as a required distinction)
• that health care is the weakest issue for the GOP. I'd agree with Davis in the abstract on this, but given McCain's detailed proposal, it's certainly possible he offers a sensible alternative. It's quite possible this is one are where McCain benefits the GOP. McCain's proposal incorporates a commitment to lower costs and more market based practices which is a big selling point. It's not like previous conservatives--like President Bush in '04--who simply offered a piecemeal approach with health savings accounts, tax credits and a rhetoric to cutting costs. This didn't address the real driver behind health care costs rising. This provided a big discrepancy between the candidates and exploited a vulnerability. McCain's plan seemingly offers a proposal more worthy of a competitive debate--meaning health care won't be an out loser.
• a restructuring of the brand. The GOP needs an energizing platform. This could mean a central platform or allowing individual candidates to brand themselves which is a particularly good idea. Instead of imposing a litmus test for Republicans seeking to run, allow them to define themselves.
  

Karl Rove also has an excellent Op-Ed in today's Wall Street Journal. He states: "The string of defeats should cure Republicans of the habit of simply shouting "liberal! liberal! liberal!" in hopes of winning an election."

This is exactly the same point the post yesterday highlighted. Issues will make the difference, not guilt by association.

Hard Out Here For A GOP'er

Greg Davis' (R) loss last night to Travis Childers (D) in Mississippi portends a tough fall for the Republican Party. This is the third straight special election race in which the GOP has bleed a conservative seat to a Democratic contender (the other two were in Illinois' 14th district and Louisiana's 6th district: both were held by Republicans for two decades). This particular seat up for grabs in Mississippi had been a red district since 1995. The big whigs like VP Dick Cheney, Governor Haley Barbour, and Mike Huckabee had all been brought through to campaign for Davis.

It seems like the two big reasons for defeat were a low turnout among conservatives and little difference on issue between the candidates. Thus, the Republican plan to link Childers to the liberal left-wing failed. Hopefully, rather than continue to play the guilt by association blame game, the GOP will get back to its roots of small government, fiscal conservatism, and family values. A core is desperately lacking, and developing a platform to energize the base (something possibly like a contemporary "Contract With America") will be the only successful strategy.

A Dwindling Majority

The Times Tribune identified today that Republicans in Pennsylvania's 10th Congressional district now make up less than 50% of registered voters.

In Over Their Heads

A great lead editorial today in the Washington Post appropriately called "Who'll Cover the Checks?" The editorial explores the lofty promises made along the campaign trail and the commitment they will require. Granted, it is April and these platforms have a long way to go, but it's always good to stop and look at what's being offered.

It is expected that the Democrats are going to propose increased spending. Frankly, the Democratic fiscal agenda has never sat well with me, but lately I've been growing concerned about the Republican plan.

Tax cuts have become a litmus test within the Republican party. If you want to run, you have to pledge yourself to never raising taxes. Tax cuts aren't a bad thing, nor am I attempting to imply that they are; however, the arguments that Republicans have continually used to justify their pursuit of endless tax cuts are not sound.

For instance, often times you will hear that tax cuts pay for themselves. President Bush has even said: "You cut taxes and the tax revenues increase." This is simply not true, nor close to being true. Nominal revenue declined for three consecutive years (2001, '02, and '03) after the first round of the Bush cuts: this is the first time that has happened since WWII. Furthermore, the Joint Committee on Taxation estimated that the 2001 tax cuts reduced government revenue by $552.5 billion from 2001-2006. The 2003 cuts also added to that reduction.

The macroeconomic effect of any tax cut will not produce enough growth to pay for the revenue lost. Douglas Holtz-Eakin, who is currently McCain's lead economic adviser, was really the first CBO director to do dynamic scoring of tax cuts. He reported that a 10 percent cut in income tax rates would:

... offset between 1 percent and 22 percent of the revenue loss from the tax cut over the first five years and add as much as 5 percent to that loss or offset as much as 32 percent of it over the second five years.

Different tax cuts have different reactions and not all tax cuts are created equal. Some provide more bang for the buck. For instance, a cut in the capital gains rate will spark an increase in short-term revenue because people can choose when they take their gain realizations. Over the long-term though, such a cut does not produce any increased revenue. It is just a short-term spike.

A second popular argument is that tax cuts are needed to "starve the beast." By cutting revenue and producing larger deficits, the government will be forced to lower its spending. Doesn't this sound great in theory? History does not support this idea. If anything, the tax cuts are simply followed by tax increases, and government's hand is not forced to cut spending. Even further proving the point is the recent fiscal track record of Republicans. They enacted Medicare Part D (a significant entitlement increase) and huge increases in both domestic and defense discretionary spending. One thing Congressional Republicans have gotten very wrong is their argument that tax cuts should not have to be paid for with pay-as-you-go rules ("PAYGO"). If Republicans truly believe in "starving the beast," they would fight for these tax cuts to be paid for because PAYGO forces a budget neutral offset--a spending cut. This would be a good thing.

Instead of make the difficult spending choices, tax cuts have been presented as a way to have it all. They have become political handouts for reelection. Using them as political tools instead of strategic economic tools has caused the Republicans to grow fiscally irresponsible.

Targeted taxes cuts can certainly have an economic growth in the short-term. That is not what is being disputed: selling tax cuts as a cure all is. As this blog has noted before, the size of government should and can decrease. By decreasing the size of the government, it is possible to produce an environment where permanent tax relief can exist because there is simply less to pay for. Instead of running large deficits which detrimentally effect our economic future, the government needs to get its house in order. Being fiscally conservative is no easy task, but it will pay in the long run.

How Much Restructuring Are We Talking?

The Pittsburgh Post-Gazette has a well-timed Editorial. Thus far in the campaign, the Democratic rhetoric has been devoted to discrediting free trade and the "restructuring" of our agreements with other countries. In Ohio, it became quite clear that the primary was about who could better demonstrate their opposition of NAFTA. It was a defining moment in the campaign. When you contrast this with the rhetoric of John McCain, it's obvious that free-trade will be an important issue in the fall, particularly in the northeastern battleground states like Pennsylvania and Ohio. Pennsylvania's economy has progressed more than Ohio's as its unemployment rate (4.9%) looks better than Ohio's (5.7%) and Pennsylvania hasn't been as adversely affected from the mortgage crisis as Ohioans have been.

In tough economic times, low hanging political fruit is offered as a quick fix and presents something to rally around. NAFTA presents a fruit on that tree, and there will be temptation to substitute the sound policy of NAFTA for votes on election day.

The Congressional Budget Office (CBO) examined the effect of NAFTA on trade with Mexico. Since trade with Canada was already heavily liberalized before NAFTA, trade with Mexico provides an accurate measure. First, the report estimated that:

NAFTA increased U.S. exports to Mexico by 2.2 percent ($1.1 billion) in 1994—an effect that rose gradually, reaching 11.3 percent ($10.3 billion) in 2001. Similarly, the agreement boosted imports from Mexico by amounts that rose from 1.9 percent ($0.9 billion) in 1994 to 7.7 percent ($9.4 billion) in 2001.

More important than import/exports is how the trade agreement has affected U.S. GDP. The CBO analysis concluded that:

...estimates from CBO’s model leads to the conclusion that NAFTA has increased U.S. GDP, but by a very small amount—probably no more than a few billion dollars, or a few hundredths of a percent.

Even by this measure, NAFTA still produces a net gain. Certainly, there have been jobs and industries more affected, either in a negative or positive manner, than other professions because of this agreement. However, those jobs lost in the short-term will be replaced. As the world grows more globalized, it is imperative that our economy doesn't operate within isolation. America must advance and stay connected so that we can continue to compete on the international stage. It's dishonest and doing a disservice to our economic future to blame economic problems on NAFTA and free trade.

It's worrisome that as our country looks to move forward, the Democrats are looking to tie our country's hands. The Democrats may be able to use this issue to their advantage in November, but that in now way indicates it's a good policy for our future.

An Insincere Committment

From an Opinion piece in the Wall Street Journal:

A presidential candidate could of course swear devotion to the First Amendment, while declaring that the amendment's purpose is to protect sports reporting and book collecting. And that candidate could still support government lawsuits against publishers, local bans on newspapers, and draconian restrictions on political commentary.

Civil libertarians who supported such a candidate because of his alleged love for the First Amendment would be foolish. Civil libertarians who support Mr. Obama or Mrs. Clinton because of their purported fealty to the Second Amendment may be bitterly disappointed.

Small Town Stereotyping

Interesting Op-Ed from Dr. Larry M. Bartels of Princeton University in the NY Times today called "Who's Bitter Now?". It notes the perception of people in small towns clinging to guns and religion, which was recently advanced by Senator Obama, is deceptive. Cosmopolitan voters are just as, if not more, likely to be motivated by social issues when voting. Dr. Bartels has also produced further literature disproving the theory that voters make their decisions solely on the basis of such issues and fail to consider economic issues.

Expanded Government

U.S. News & World Report's most recent cover story detailed "The Return of Big Government." The article references the 2008 Presidential campaign and some of the candidates' various proposals. There are several points worthy of discussion.

The fact that all candidates in the presidential race are appealing for greater government involvement is rather striking. Whether it entails more government regulation of the financial markets, addressing the country's infrastructure, a stimulus for the slowing economy, or ideas for dealing with the housing crisis, a larger allocation of the federal government's resources will be required. Certainly, there is a difference between the candidates over just how "big" government should be, yet the government seems to be on a path towards a decidedly expanded presence. As the article highlights, a growing sentiment exists for an expanded government role. That pressure was clearly visible in McCain's most recent position shift on tackling the housing crisis. While previously advocating government restraint in bailing out homeowners, McCain suggested the government should play an active role. It may be that this is all simply a short-term reaction to economic difficulties and that an increased government presents the best economic options on the table, but it all underscores the current public attitude in this campaign.

Even if the candidates made a concerted effort to restrict the federal government's growth, mandatory spending is essentially on a trajectory to expand without assistance. The projected growth of Medicare is astounding and largely undiscussed. Unlike discretionary spending, it's growth is on autopilot. While everyone seems to think Social Security is in dire straits, health care costs growing faster than the economy have placed Medicare in a position to substantially influence our long-term fiscal future.

From U.S. News & World Report:

Then there's the American public. The free-market policies of the past 25 years were preceded by a huge decline in American trust in government. But there's little sign that a decade of corporate blunders and scandals—from Enron to Citigroup—or even political fiascoes like Katrina has created a renewed enthusiasm for government. It's more like a pox on both their houses.

People have a fundamental distrust of both the private sector and the government, but the lack or political rhetoric devoted to getting "the government off our back" seems to go along way in demonstrating that an increased role for government may soon be coming. Hopefully, this is only a temporary phenomena aimed at capitalizing on current voting attitudes rather than a new public policy direction.