In his exchange last night with Newt Gingrich, Rick Santorum hit all the buttons that need to be pushed: he went after Gingrich’s penchant for “grandiose” schemes, his lack of organization and focus, his tendency to “pop” and create distracting headlines, the fact that there was a conservative coup against the former House speaker. But I do wonder if he overreached when he brought up the House banking scandal. Santorum accused Gingrich of not doing more about congressional check-kiting because he didn’t want to rock the boat with both parties’ leaders. This set up Gingrich’s rebuttal. Gingrich’s history of being a thorn in the side of leadership, from taking on former House Speaker Jim Wright to fighting George Bush on the 1990 tax increase, is just too well known for that line of attack to be effective. Santorum would have more profitably gone after Gingrich for undermining Republicans to his right, i.e., slowing down the Class of ’94, once he became speaker.
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The Only Santorum Slip
There are two ways to react to President Obama’s latest round of defense spending cuts. One is emotional but somewhat justified. The second is to analyze of Obama’s plans critically to reveal a transformation of our military that is as dangerous as Obama’s transformation of our economy. Since Obama appeared with Defense Secretary Panetta and Joint Chiefs Chairman Gen. Martin Dempsey in the Pentagon press room last Thursday, many commentators have written and railed at length on radio and television about how these cuts will hollow our forces’ readiness to fight. That reaction is understandable but it isn’t on more solid ground than Obama’s plan, because neither the plan nor the common reaction deals with the real dangers our nation faces. Under former Defense Secretary Robert Gates, Obama imposed about $400 billion in defense spending cuts by his “Queen of Hearts” method of budgeting for defense: verdict first, trial after. They ended, for example, production of key weapon systems such as the F-22 fighter, the C-17 transport aircraft, and the DDG-1000 Zumwalt destroyer. Gates imposed those cuts before the Quadrennial Defense Review — “QDR” in the inevitable acronym — was performed. The QDR was supposed to be the congressionally mandated analysis of the threats the Pentagon is expected to deal with and from which its budget is supposed to be derived. But Gates and his team wrote the post-cuts QDR to justify the cuts rather than to justify a budget that answered the threats. In April of last year, Obama praised Gates’s first round of cuts and then ordered a review of defense spending to double them. Last week’s announced plan was the result of that review. It repeated the Queen of Hearts exercise and took it one step further. It took the planned smaller budget, fashioned our military’s future around it, and then made big promises that cannot possibly be kept. The plan announced by Obama and Panetta plans a revision of our force structure: • To refocus our military to meet the rise of China’s military force by “rebalancing” toward the Asia-Pacific region. • To be able to win one conflict and fight another to a stalemate. • To provide standing forces, for a limited time, to engage in new nation-building operations. • To meet every other challenge in space, cyberwar, and other fields of unconventional operations. So if we have to fight China, Israel has to deal with Iran on its own, Europe can deal with Russia, and the Middle East can stew in its own juices. And stalemate is now a strategy. But even that’s a very tall order for a force that may be cut by as much as $1 trillion in spending over the next ten years. Let’s get that bogeyman out of the way first. Just because a Pentagon budget is $700 billion a year doesn’t mean that it will be more effective at deterring or defeating the threats than a threat-based $350 billion a year force might be. The unanswered questions are what capabilities do we need and what will it cost to have them? And there’s the rub. Neither the Pentagon nor, as far as I can determine, the intelligence community has done the essential analysis to determine what we need our military to do. Obama’s plan mentions things such as missile defense, cyberwar, and space operations as targets for investment, but it also plans to pour money into strengthening the failed NATO alliance and other such boondoggles. There’s not enough money to go around. Our NATO allies haven’t invested in their own defense since the fall of the Berlin Wall. With the euro about to slip on Greece and crash down on Italy, that trend isn’t going to be reversed in the foreseeable future. Obama didn’t demand that they do more for themselves, and under his plan we will not be able to do more from them without robbing money from funds essential to performing other plans Obama made. Obama knows that and, to be sure, Vlad Putin, Mahmoud Ahmadinejad, and Hu Jintao know it as well. So with all the broad promises, where’s the leaner budget to be spent, and how do we know that it won’t be spent unwisely? For example, Obama’s new-found dedication to nation-building is limited by its own statement that “U.S. forces will no longer be sized to conduct large-scale, prolonged stability operations.” You can’t have it both ways. George Bush’s biggest mistake since 9/11 was to pour too much blood and treasure into nation-building and it failed comprehensively despite the enormous investment. Planning to do less means you will accomplish less. Does anyone believe that Obama will allow further investment in missile defense or the other capabilities we need to thwart China’s rise? I don’t believe he will, and everything he has done to date reinforces that belief. China is investing unknown billions in an area-denial force. Its ships and aircraft aren’t being designed to defeat the U.S. Navy, but only to deny it the ability to intervene successfully in Chinese operations in the Pacific region. Obama’s plan says he will invest in everything we need to counter the area-denial strategy. But the categories of weapon systems Obama plans to use to respond to China — missile defense, a new stealth bomber, undersea capabilities and space-based capabilities — are among the most expensive weapons we ever buy. (A single spy satellite can cost over $1 billion.) With the cuts already in place, and more to come, we simply won’t be able to spend enough to do what Obama falsely promises. The falsity of Obama’s promises is clear from any serious review of his plan. He’s making plans he knows will not — and cannot — be implemented. Based on his transformation of our economy into a government-run enterprise, Obama is — not coincidentally — making it financially impossible for our military and intelligence services to do what they will have to do even under his reduced vision of U.S. military power. There probably are ways to restructure the Pentagon budget. There could be a much less expensive force that would be more capable and effective in deterring and defeating aggression than the current $700 billion a year force. But, right now, nobody knows what it would look like. Back in the good old days (1981-1988) we had something called “defense guidance,” which was the basis for something else called the “POM.” The annual defense guidance process combined the best thinkers from the intelligence community and the military. They’d sit down and — one by one — assess our adversaries’ intentions and capabilities. Once that assessment was done, they would analyze what we needed to have in the military tool box to deter or defeat the threats and compare it to what we already had or we’d already planned. They would propose to retire outdated weapons, resize and reshape our forces, and then come up with an outline of what we needed to pay for and invest in to ensure the threats were answered. That was the defense guidance for the year. At that point, the Pentagon’s bean counters would turn it into the “program objective memorandum” — the sacred “POM” — from which the Pentagon’s budget would be derived. It sounds simple, but defense guidance was an enormously complex intellectual exercise. Until we perform that process again, we can’t know what our military forces need to be able to do to answer the many threats we face. Obama is leading us down a blind alley, and the only certainty is that what we will have — in ten or twenty years — won’t be what we need. That gap in capabilities will, inevitably, be filled. Either with a properly-designed force, or with the bodies of those serving in one that was designed to fit a budget cut rather than the threats.
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Obama Scissorhands
In 1980, George H.W. Bush was making the same argument against Ronald Reagan that Mitt Romney is making this year. Bush argued that he was the most electable against Jimmy Carter. The big money Republican establishment was behind Bush because they feared that Reagan was too radical to win, and would carry the entire party down to historic defeat, like Goldwater did. Reagan even lost Iowa to Bush on that argument. But Reagan carried forward the pro-growth, supply-side economic message that ultimately swept him to the nomination. That message then led to landslide victory in the fall, carrying the Republicans to control of the Senate, and effective control of the House. Real world election results showed just who was the most electable. After two Reagan landslide wins, it took George Bush just one term to trash the Reagan coalition, crawling out of town in 1992 with just 38 percent of the vote, barely better than Alf Landon in 1936. Long History of Rejecting Conservatism Romney assured Massachusetts voters when he was running for the Senate in 1994 that he did not want to go back to Reaganomics. He said during that campaign, “I was an independent during the time of Reagan-Bush. I’m not trying to return to Reagan-Bush.” Romney was also one of the few Republicans in 1994 to refuse to sign on to Newt Gingrich’s Contract with America. He said during that campaign, “In my view, it is not a good idea to go into a contract, like what was organized by the Republican Party in Washington, laying out a whole series of things that the party says ‘these are the things we are going to do.’ I think that’s a mistake.” That mistake led to an historic Republican takeover of Congress in 1994. But Romney was one of the few Republicans to lose that year. True to form, even today Romney is effectively promising not to take America back to pro-growth Reaganomics. Cowed by President Obama’s class warfare rhetoric, Romney promises to eliminate taxes on capital gains, interest, and dividends, but only for middle income Americans. He says he would do that because they, not the wealthy, were the ones most hurt by the recession. But effective tax policy does not distribute tax cuts based on who “needs” a tax cut the most. That is Obama neo-socialist class rhetoric. Effective tax policy enacts tax cuts that will do the most to promote economic growth and prosperity. That is what Reagan did in cutting tax rates across the board for everybody, including the wealthy who have the most resources to invest. That is what the middle class and working people actually need most, cutting tax rates that will promote their jobs, higher wages, and personal prosperity. Romney the Republican establishment businessman is telling us with his limited, crabbed policy kowtowing to Obama’s class warfare rhetoric that he feels, like Bush I and Republican RINO moderates generally, that he cannot explain and defend good supply-side policy to the public. Given his background and who he is as a rich Wall Street takeover artist, he personally may be right about that. Who is going to take seriously a Wall Street millionaire calling for tax cuts for millionaires? That is why he personally is not a good vessel for carrying the Republican standard this year. He is actually a perfect caricature for the neo-Marxist class warfare arguments of Obama and the Occupy Wall Street rabble. That is one reason why Romney, in fact, is the least electable. Romney’s understanding of economic policy as a businessman is overblown. There is no real history of those with private business experience coming to Washington and making good policy there as a result. See, for example, Bush Treasury Secretary Henry Paulson. The term that free market activists use in Washington to refer to the business reps they know from first hand experience is “corporate pukes.” Only those from private business steeped in ideology and intellectual battle have done well advancing the free market cause in Washington, such as William Simon. RINO Country Club Republican Establishment Takeover On monetary policy, Romney again thinks like an establishment, country club, Republican businessman. He thinks devaluing the dollar against the Chinese currency is the key to restoring growth to America. But that cheap dollar policy actually only discourages the investment in America essential to getting the economy booming, as investors fear lower returns from a declining dollar, inflation, and the boom and bust cycles that such policies cause. Reagan favored a strong dollar policy that slew a historic inflation, and drew skyrocketing investment capital to America from around the world, resulting in a historic, 25 year, economic boom. With Mitt Romney as the nominee, the Republican Washington Establishment will be back in charge, and the Reagan Revolution will be long forgotten history. That was the meaning of the endorsement of Romney by John McCain, embraced by Romney with such relish. The greatest tipoff of Romney’s Bush III establishment Republicanism is the Bush retread economic advisers around him. Given those advisers, I predict the first thing President Romney would do is agree to the same type of budget deal that President Bush did in 1990. In that deal, Bush agreed to permanent tax increases that are still with us. But the economy declined into recession as a result, so revenues actually declined as a percent of GDP as well. In return, Bush was supposed to get spending cuts. But spending actually rose as a percent of GDP after the 1990 budget deal. As a result, the deficit soared after that deal as well, from $221 billion in 1990, to $269 billion in 1991, to $290 billion in 1992. No wonder the voters booted Bush out in the 1992 election. Today, Romney cheerleader and former Bush White House Chief of Staff John Sununu has been lambasting Gingrich in New Hampshire for leading a House Republican revolt against that budget deal. Sununu was the genius who brought us liberal Supreme Court Justice David Souter, who denied conservatives the Supreme Court majority they had earned at the ballot box. But the rejection of Bush’s failed budget deal by his own House Republicans was the defining moment that led to the historic Republican takeover of Congress in 1994, after still another tax increase to balance the budget in 1993. Gingrich’s leading role in that is a primary reason for conservatives to be supporting him. But so far it is being used against him, in New Hampshire and in the so-called mainstream, Democrat-controlled media. Shouldn’t conservatives be standing up for one of their own who fought so bravely and successfully against the odds for them before? Clinton’s 1993 tax increase failed as well. The new Republican majorities in 1995 were greeted with a Clinton 1996 budget that still projected $200 billion deficits indefinitely into the future. That was confirmed by the CBO with a projection of $2.7 trillion in deficits over the next 10 years. Those Gingrich Republican Congressional majorities then balanced the budget the supply-side way, cutting tax rates, on investment, and cutting spending. They adopted the largest capital gains tax cut in history, reducing the rate by nearly 30%, from 28% to 20%. Despite that cut, actual capital gains revenues soared $84 billion higher for 1997-2000 than projected before the rate cut. Total federal discretionary spending, as well as the subcategory of non-defense discretionary spending, declined from 1995 to 1996 in actual nominal dollars. In constant dollars, adjusted for inflation, the decline was 5.4%. As a percent of GDP, federal discretionary spending was slashed by 17.5% in just 4 years, from 1995 to 1999. Total federal spending relative to GDP declined from 1995 to 2000 by 12.5%, a reduction in the federal government relative to the economy of about one-eighth in just five short years. This was accomplished not just by reducing discretionary spending, but through fundamental structural reforms of some programs, such as the old New Deal AFDC entitlement program. The Gingrich Congress succeeded in block granting that program back to the states, after two vetoes from Clinton. Those block grants replaced the old federal matching funding formula with fixed finite funding that left the states responsible for 100% of increased spending, but gaining 100% from any savings. With those radically reversed incentives, within a few years two-thirds of those on the old AFDC program went to work, ultimately saving taxpayers 50% from where spending was heading under prior trends. But the poor going to work benefitted as well, with documented income increases of 25%. This is a model for further entitlement reform today. Gingrich also led his Republicans to adopt a phase-out of Depression-era farm subsidy programs through Freedom to Farm, which was later unfortunately reversed under Speaker Hastert and President Bush after Gingrich left. As a result of these policies, the $200 billion annual federal deficits, which had prevailed for over 15 years, were transformed into record breaking surpluses by 1998, peaking at $236 billion by 2000. Over four years, the national debt held by the public was reduced by a record $560 billion in surpluses. When Gingrich left office, instead of CBO projections of $2.7 trillion in deficits over the next 10 years, CBO projected surpluses of $2.3 trillion over the next 10 years, a positive turnaround of $5 trillion. This is what we need again today. But that is not what we will get from Romney’s establishment Republicans, who like the Bourbons of France, forget nothing, and learn nothing. Social Security Tax Increases Besides an income tax increase through a 1990 style budget deal, Romney’s establishment RINOs will bring us a payroll tax increase as well. That is because they are promoting substantial Social Security benefit cuts from what is promised under current law, including delaying the retirement age, and changing the basic Social Security benefit formula to reduce future benefits to be paid under current law eventually by as much as one-third. The liberal Washington establishment will never allow such future benefit cuts even to be considered without accompanying payroll tax increases (for upper income workers no doubt). That would be a “balanced” package that will not solve Social Security’s long-term financing problem entirely “on the backs of seniors,” as the liberal establishment will put it. Just mark my words and pay me homage when it comes true. No such benefit cuts will ever see the light of day without accompanying payroll tax increases. That is one reason why the intelligent, conservative, free market solution to Social Security is personal savings and investment accounts, which have worked in the South American nation of Chile so successfully for over 30 years now. Such personal accounts would reduce government spending far, far more than trying to cut benefits would, because the accounts don’t just trim the growth of benefits. They shift vast realms of such spending out of the public sector altogether into the private sector. At the same time, because market investment returns are so much higher than what Social Security can even promise, let alone what it can pay, with purely tax and spend redistribution and no investment whatsoever, future seniors with personal accounts would enjoy much higher not lower benefits. That has been proved out in the real world, as has been seen in Chile, and other real world examples of such reform, such as for local government workers in and around Galveston, Texas. This is why personal accounts for Social Security are far more politically feasible than trying to cut Social Security benefits, which will never make much progress in cutting future government spending. Indeed, with personal accounts, rather than the government specifying the retirement age, each worker chooses his or her own retirement age, with market incentives to delay it as long as possible. That is because the longer the worker waits to retire, the more the account funds will accumulate, and the more the worker can ultimately enjoy in benefits, and/or leave to his family. With those incentives, many millions of workers employed in more intellectual work that is not physically taxing will work well into their 70s, a result that could never be imposed through politics. But workers in more manual occupations who really cannot work past their early 60s can still plan to retire then, perhaps with extra contributions from employers during working years to make that more possible and comfortable.
No matter how ineptly Barack Obama continues to govern, his chances of winning reelection remain strong. As the results from Iowa suggest, the GOP is too addled and divided to field a formidable and philosophically coherent opponent against him. Say this at least for the Democrats: They have the sense to run nominees who actually support the platform of their party. This rudimentary task is too tricky for Republicans to perform. They haven’t been able to locate in over a generation a presidential nominee who supports theirs. George Bush Sr., Bob Dole, George Bush Jr., John McCain, and now Mitt Romney in all likelihood: this is a dismal roll call of nominees with little to no interest in the ostensible platform of the GOP. Out of this “Big Tent” came not a larger party, as its proponents promised, but a more bewildered and demoralized one. Romney’s likely coronation is a symbol of this confusion, and not even Obama’s outrages will be sufficient to cut through it. Imagine the Democratic equivalent of a Mitt Romney and one can see how odd it is for the GOP to settle on him. But the Democrats don’t play these games. They prefer philosophical coherence to the Big Tent concept
Is it good for Mitt Romney? That was the question that preoccupied many pundits as the Iowa caucuses became a tight three-way race, concluding with a photo finish between Romney and Rick Santorum. Make no mistake: a Santorum-Romney tie is effectively a Santorum win, even if
