The chickens are still coming home to roost

The Thinker by Rodin

Lost in their euphoria over their victory on November 2nd Republicans are likely missing the bigger picture. Systemic problems don’t go away just because an election is won. Bad policy wreaks bad results that can’t be swept under a rug. By reelecting Bush, Americans have put the onus back on Bush and Republicans to fix problems that they created.

The most visible problem will be the quagmire in Iraq. We can expect a new application of American force in insurgent strongholds like Fallujah in the near future. But I don’t believe the fundamental situation in Iraq will change. I bet in November 2008 the situation in Iraq will be about the same or worse than it is now. The Iraq conflict requires new thinking yet the Administration has no plans on changing course. The fight against insurgents in Iraq is still being fought with 20th century methods. With insurgents refusing to wear uniforms it becomes impossible to tell friend from foe. Insurgents can slip out of places like Fallujah by masquerading as civilians fleeing for their lives. We can kill whatever insurgents choose to stay and fight. But these tactics won’t make much of a difference. As soon as the civilians are let back into these cities the insurgents can trickle in unnoticed, pick up their rifles, reopen their secret stashes of mortars and other explosives and go at us again. As I’ve stated before Iraq is an unwinnable war. Kerry would have been no more successful at ending it to our satisfaction that Bush will have. For some of us Iraq sure looks like the 21st century’s version of Vietnam. Four more years should convince even the most die hard skeptic.

Energy will cost more in the next four years. We may see periods where prices drop below $2 a gallon for gasoline but in general the days of cheap energy are behind us due to emerging economies in India, China and Indonesia. Barring a worldwide recession demand will increase. And petroleum supplies will not improve very much. As a result prices will rise or stay high. The waves of higher energy costs will continue to be felt throughout the economy. While it may not drive us back into recession the higher energy costs will continue to put a damper on growth. Our nation must find better ways to cope with rising energy prices. There is little in the Bush Administration’s approach that suggests they have much of a clue on how to really solve the energy problem. Even tapping oil that may exist in the Arctic National Wildlife Refuge would only increase our supply of oil by a tiny amount. We need to find new technologies for a post oil era. But the Bushies still think the future will allow us to drive our SUVs at dollar a gallon prices.

The Bush Administration talks about reducing the deficit in half during the next four years. That’s all it is likely to be. The most likely scenario: deficits will continue to increase over their current levels. Neither the Republican controlled Congress nor the Bush Administration has demonstrated any fiscal discipline. There is already talk of more tax cuts. In addition Bush has a plan to allow younger workers to invest part of their social security withholdings in stocks and bonds. However this diversion of cash from the social security system simply exacerbates the deficit since the government is currently borrowing from the social security trust fund.

Of course this assumes that people and institutions continue to be willing to loan the U.S. government money. In August a Treasury bill sale attracted no international investors. While this may be a fluke it is worrisome if it recurs periodically. If foreign institutions are unwilling to lend our government money then interest rates for government bonds will have to go up. If they go up too high we’ll be perceived as a “junk bond” country and the flow of foreign capital might stop. But if government bonds need higher interest rates in order to attract investors then the private sector will have to match the rate increases to attract the capital it needs. If government and private industry cannot attract foreign capital then growth is likely to falter or stop.

Health care costs are likely to continue to outpace inflation. More Americans will be uninsured. Drug prices will continue to go through the roof. As usual the Bushies “solution” doesn’t really solve the problem. Their solution is medical savings accounts (MSAs). It fails the common sense test. Most Americans are already living beyond their means. Each year Americans put more debt on their credit cards. Americans simply don’t have money to squirrel away into MSAs. Try to imagine a middle class family earning $40,000 a year putting away thousands of dollars into these accounts. How likely is that? Instead this family will be trying to make their mortgage payments and keep up with the increases in energy costs. In addition even with MSAs people still need health insurance; only the very rich can afford to self insure. MSAs are a utopian Republican idea, not a serious solution to the health care problem.

Hopefully sometime in the next four years the economy will finally perk up enough so that all those who lost their jobs in the Bush recession will have found new ones. But currently wage increases are not keeping pace with inflation. Also there are millions of workers who have been outsourced (like my wife) or downsized. They are making a fraction of what they made before. Bush was the first president since Herbert Hoover to lose jobs in his first term in office. Between spiraling deficits, the war in Iraq, potential terrorist attacks inside the United States and possibly higher interest rates the sustained recovery creating tens of millions of new jobs such as we saw under Bill Clinton are unlikely.

I am a big believer in karma. I think it exists on the macro level too. As much as I don’t like the idea of another four years of Bush and Republican domination of Congress unless both show leadership hitherto undemonstrated it will be impossible to dodge accountability during the next four years. The silver lining to Kerry’s defeat is that Kerry cannot be held accountable for the Bush and Republican screw-ups. Given Bush’s mess Kerry would have likely been a one-term president anyhow. Trying to fix their massive problems in the next four years would defeat anyone. The Republicans have made their bed. Let them have their brief moments of gloating. My sense is that they have created problems beyond their control.

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