1.’The ‘Anti-Christie’ Agenda Driving Connecticut‘ – Steven Malanga, Real Clear Markets

This is the story of the new Democratic governor of Connecticut, Dannel Malloy, who apparently fancies himself an anti-Gov. Chris Christie. Good luck Connecticut, as it seems likely you are just speeding up the time when you’ll need your own Chris Christie:

But despite proclamations in the press and the statehouse that Dannel Malloy, the state’s first Democratic governor in 20 years, was seeking to distinguish himself from anti-tax governors like Chris Christie and also from Connecticut’s past, the new ruling regime in Hartford is merely taking the state in the same direction it’s been heading for decades, albeit at a quickening pace. Under previous joint rule by Democrats and Northeastern Republicans, Connecticut became one of the nation’s most heavily taxed, heavily indebted, and economically struggling states. The new Connecticut looks suspiciously like the old one, maybe just on steroids.

Back when those ‘tax-cutting’ Republicans were in control of the governor’s office in 2009, for instance, Connecticut already had the highest per capita state and local tax burden in the country, according to the Tax Foundation. The state’s commercial taxes, the foundation estimated, amounted to the third highest burden on businesses in the country.

2. ‘China’s Cyberassault on America‘ – Richard Clarke, Wall Street Journal

Clarke, former head of American counterterrorism, warns that cyber attacks from the Chinese government are becoming more and more threatening to American national security:

Senior U.S. officials know well that the government of China is systematically attacking the computer networks of the U.S. government and American corporations. Beijing is successfully stealing research and development, software source code, manufacturing know-how and government plans. In a global competition among knowledge-based economies, Chinese cyberoperations are eroding America’s advantage.

The Chinese government indignantly denies these charges, claiming that the attackers are nongovernmental Chinese hackers, or other governments pretending to be China, or that the attacks are fictions generated by anti-Chinese elements in the United States. Experts in the U.S. and allied governments find these denials hard to believe.

3. ‘Nobel Prize Winner Analyzes the Obama Growth Gap‘ – Daniel Mitchell, CATO Institute

Mitchell provides us with some telling graphs of the US economy by economist Robert Lucas. These graphs show a sharp fall in GDP growth for the US during the current recovery, a troubling sight to see when many expected a strong turnabout after the recession ended:

I’ve explained before that one of the most damning pieces of evidence against Obamanomics is that the economy is suffering from sub-par growth, something that is particularly damning since normally one expects to see faster-than-average growth following an economic downturn.

In a recent presentation, Robert Lucas of the University of Chicago included a couple of graphs that illustrate this phenomenon. This first chart shows the history of U.S. economic growth over the past 140 years. As you can see, the growth rate was remarkably constant over time, and there were always periods of rapid growth following economic downturns.

4. ‘GOP shifting on anti-tax policy‘ – Lisa Mascaro, Los Angeles Times

This article details the internal debate within the GOP regarding closing tax holes and deductions, highlighted by the recent ethanol subsidy vote in Congress:

The ethanol tax credit provided a glint of a breakthrough for Coburn. But other tax breaks are more complicated. For example, an oil company tax break long in the crosshairs of Democrats also applies to countless other industries nationwide.

Even more politically fraught are tax breaks for individual earners: tax-free employer-sponsored health benefits, the tax-deferred 401(k)-style retirement accounts, and the sacred mortgage interest deduction. Republican congressional leaders have flatly declared that taxes will not be on the table during the summer’s negotiations over increasing the nation’s $14.3-trillion borrowing limit. But proposals to raise revenue are being pushed onto the table over GOP resistance. Both the Obama administration and congressional Republicans want to streamline the tax code, an issue that could come be up for debate later this year or next.

5. ‘Who Is James Johnson?‘ – David Brooks, New York Times

In short, he’s a crook who made a fortune for himself and many other powerful political friends while helping collapse the American housing market, a devastating result for millions of families:

The most devastating scandal in recent history involved dozens of the most respected members of the Washington establishment. Their behavior was not out of the ordinary by any means.

For that reason, the Fannie Mae scandal is the most important political scandal since Watergate. It helped sink the American economy. It has cost taxpayers about $153 billion, so far. It indicts patterns of behavior that are considered normal and respectable in Washington.

The Fannie Mae scandal has gotten relatively little media attention because many of the participants are still powerful, admired and well connected. But Gretchen Morgenson, a Times colleague, and the financial analyst Joshua Rosner have rectified that, writing “Reckless Endangerment,” a brave book that exposes the affair in clear and gripping form.

The mainstream media have finally started to catch on the President Obama may bear some responsibility for the sad present state of the United States economy. With the unemployment rate spiking back up to 9.1% after another disappointing jobs report and the 2012 election season kicking off, we have seen news or blog article titles like these below (H/T James Taranto, WSJ):

• “Obama’s Toughest Re-Election Challenge May Come From Economy”–headline, Bloomberg, June 4
• “Economy Will Force Shift in Barack Obama’s 2012 Strategy”–headline, Politico.com, June 4
• “What Can Barack Obama Do to Fix the Economy? Not Much”–headline, Politico.com, June 3
• “Bad economic numbers and a justified perception that Obama’s leadership is precipitating a decline of America’s fortunes may doom his chances of reelection. But they also may not.”–Jonathan Tobin, Commentary website, June 5

The US economy and American worker have an unparalleled track record of resiliency and I’m still confident that we will get out of this rut eventually, but as of right now, the numbers, trends, and personal outlook (that is how individual Americans view the economy and America’s future) are dismal. It’s hard to believe that the country would probably be thankful for an unemployment rate in 7%, but we are hundreds of thousands of jobs away from that right now. Americans are more pessimistic than ever it seems and this feeling is palpable in daily transactions. According to a Pew Charitable Trusts poll, 55% of Americans still rate the national economy as poor, with only 47% believing their kids will have a higher standard of living than they enjoy, down from 62% in 2009. I used the term rut above and it definitely seems apt.

Jay Cost details in a short paragraph some of the other economic factors that are dragging us down:

Have you noticed that the economy is slowing down once again? The data of late has been pretty unequivocal on that front. In the last few weeks, we’ve seen monthly reports from Fed regional banks that show local economic growth stalling. Industrial production for April was flat. The housing market is in a double dip, despite the fact that mortgage rates are at bargain basement levels. Weekly jobless claims have bounced back up. And while the top-line number of April’s unemployment report showed somewhat good news, though it also revealed clear signs that wages are not keeping pace with inflation, which is bad news, considering how dependent the economy of today is on consumer spending. Looking ahead, the major firms are already starting to cut their growth forecasts for Q2. Japan’s economy slowed more than expected last quarter, and the sovereign debt crisis of Europe is back with a vengeance. Belarus just devalued its currency, Greece remains in very real danger, and China’s now thinking of bailing out Portugal.

Cost sees a ‘Bad Moon Rising’ and who can blame him. Speaking of blame: How much should be laid at the Obama administration’s feet for our current economic malaise? This is an important question and will go along why in determining who will be America’s president in 2013. It is true that presidents are in many ways stuck with an economy, good or bad, that is largely out of their control. Barack Obama himself can largely thank the fiscal crisis of 2008 for the position he currently holds. Senator Obama absolutely went to town bashing Bush/McCain’s handling of the economy and fiscal crisis, riding this into the White House. The problem now is Obama’s now been in charge for three years with an economy that is not only still in the diaper bin, but doesn’t appear to coming up for air anytime soon.

Though it is true that macroeconomic sides of the US economy are mostly out of the executive branch’s hands, they still play can play a major role. For instance, President Obama said it was an absolute necessity for the federal government to pass and implement a massive stimulus plan to get the economy growing and people back to work. Here is the President in 2009:

“I hope that we can continue to strengthen this plan before it gets to my desk. But what we can’t do is drag our feet or allow the same partisan differences to get in our way. We must move swiftly and boldly to put Americans back to work, and that is exactly what this plan begins to do.”

Well, not exactly. The administration also released a chart showing how the Stimulus package (totally nearly $800 million dollars) would lower the unemployment rate. Here is that chart with something extra added on; the actual employment rate (H/T Cato Institute’s Daniel J. Mitchell):

There is no doubt that the Obama administration’s single greatest attempt to revive the economy was a huge failure. We’ve all heard the counterfactual’s (‘unemployment would be 12-13% without the Stimulus’), but we have the administration’s own statistics to judge it by. The administration needs to be held accountable for its policies and their outcomes. According to just released poll by Washington Post-ABC, they are starting to be:

Overall, about six in 10 of those surveyed give Obama negative marks on the economy and the deficit. Significantly, nearly half strongly disapprove of his performance in these two crucial areas. Nearly two-thirds of political independents disapprove of the president’s handling of the economy, including — for the first time — a slim majority who do so strongly.

Ouch.

One more point: I came across this statement from President Obama’s Press Secretary Jay Carney on twitter:

“There is no issue that matters more to this president than the economic health of this country.”

Unfortunately for Mr. Carney, and more importantly for President Obama, is that I and most Americans have memories. Reading this quote, I immediately recalled another key legislative ‘victory’ for the Obama administration and Democrats in Congress: The Patient Protection and Affordable Care Act, otherwise known as Obamacare. Before the Stimulus bill even had time to cool, let alone be implemented, Obama and the Democrats spent the next year attempting to pass one of the most controversial, ideological, and most importantly, economic damaging bills in American history. It was like they said; ‘Stimulus done, economy okay now, onto our liberal dream of government run health care’.

History now tells a different story: ‘Economy not okay, health reform still very unpopular, 2012 election up in the air’.

This picture cost the Pentagon $25 million dollars

My blogging colleague FMFP’s recent writings on the ongoing struggle for the US government to agree on a budget for this coming year highlighted the discrepancy between mandatory (entitlement programs such as Social Security, Medicare, and Medicaid) and discretionary funding, basically everything else the government pays for, including defense spending. FMFP cited a poll that showed that far too many Americans are unaware of the fact that entitlement spending is what is really driving our country toward insolvency and another poll by WSJ/NBC also portrays an American populace unwilling to give up any ‘significant’ portion of these program’s benefits to fix the budget. FMFP, after using Tarrance Group poll results showing that a majority of Americans think the government spends more on defense than on entitlements, accurately pointed out defense/security procurements take up roughly 20% of the budget while Social Security and Medicare take up almost twice as much and are expected to explode in coming decades.

It is this context, that I recently read Robert Kagan’s article ‘The Price of Power‘. Here’s his intro:

In other words, if the US really wants to cut down on our defense spending we are going to have to change or adjust our strategic posture. To some, specifically Jeffersonians and domestic liberals, a smaller US military would be overall beneficial: more money for social programs/less military adventures abroad. For others, a lessening of our international presence will lead us and the world down a potentially dangerous path (great power war, global instability) that will cost us much more than 20% of our budget to get out from under.

I have to admit, though I’m clearly in the ‘US military and global presence is a source for good’ camp, I have to admit that our modern defense industry is bloated and could use some trimming. Greg Scoblete of Real Clear World rightly points out that overall the US currently finds itself in more sure security surroundings compared to the Cold War, WW II, etc. I believe the US needs a strong presence in East Asia to combat a growing China and keep allies such as Japan, Indonesia, and South Korea secure. The scourge of Islamic terrorism is as real as ever and demands a secure homeland and strong military, diplomatic, and intelligence network in numerous hot spots around the globe to deter and defeat. Global trade, which still depends largely on maritime travel, demands safe passage through the earth’s oceans and seas and there is no better guarantor of that than the US Navy. The Middle East, which includes a menacing regime in Tehran, a Turkey posturing away from the West, a vulnerable ally in Israel, oil supplies and pathways up the wazoo, is cauldron of instability and no one knows where these popular uprisings may lead. I could go on…

So in short, yes, I do think the United States could sustain some cuts in our defense spending, but we have to admit that this will come with some costs. which we must choose wisely. and we must not let these cuts distract us from our real budget calamity, ever expanding entitlement programs. This country and the world need a strong American presence and for this to be maintained now and in the future we need not only a capable military, but a fiscal future that doesn’t look so much like present day Greece.

Those are the words of the current American President, Barack Obama. If this statement is true, which of course I believe it largely to be (prosperity = money= power, simple, but hard to argue with), than the charts below should worry all Americans and those around the world that depend on it as the guarantor of their security.

These two charts layout the projected deficits facing the US in the next ten years based on the Obama administration’s just released budget for 2010 and beyond. David Sanger of the New York Times and Gerald Seib of the Wall Street Journal are only the latest to warn how these deeply red numbers, which showcase a new ‘normal’ level of US debt around 5% of GDP, will have a negative impact on the US’s ability to defend itself and project power abroad. Here is Seib’s bleak assessment:

The U.S. government this year will borrow one of every three dollars it spends, with many of those funds coming from foreign countries. That weakens America’s standing and its freedom to act; strengthens China and other world powers including cash-rich oil producers; puts long-term defense spending at risk; undermines the power of the American system as a model for developing countries; and reduces the aura of power that has been a great intangible asset for presidents for more than a century.

Seib, Sanger are not alone as Richard Haass, President of the Council on Foreign Relation, states that “We’ve reached a point now where there’s an intimate link between our solvency and our national security. What’s so discouraging is that our domestic politics don’t seem to be up to the challenge. And the whole world is watching.”

So the US is pretty deep in debt and is not likely to get out from under it anytime soon (Las Vegas…’put it on black! Come on, come on. big money!…… Double Zero! What!… Mr. President, Mr. President….What?! It’s President Hu on the line. He wants to talk about the late interest payments. Uh….tell him to talk to Biden, I’m now the President of Mexico’), but the US has had serious debt issues before (Civil War, WWI, WWII, 1980s) and was able to keep growing economically and militarily. Is this time different? I think it really could be, but don’t count me as one of those ‘it’s only a matter of time before we fall flat on our faces. Many aspects of our debt (social security, medicare) are as difficult to penetrate as a rock inside of diamond that was swallowed by General Patton, but it’s not like other great powers don’t have similar or even more challenging problems themselves. Nevertheless, a growing deficit will have consequences and America will have to face them sometime.

Seib lists four of the ways that budget deficits threaten American’s national security; let’s take a look:

1. They make America vulnerable to foreign pressures.

China is what is on everyone’s mind here, but we must remember that this goes both ways, as it is in China’s interest to have their held reserves stay stable and strong. A recent story regarding Russia’s attempt to dump their Fannie and Freddie Mac holdings during the Georgia-Russian war in 2008 makes this a little more scary though.

2.  Chinese power is growing as a result.

Beijing’s ability to combine budget surpluses with American deficits no doubt puts itself in a more favorable position, but what it can actually do with this situation is less known. China has definitely shown itself to be a more confident and aggressive international power player in recent months.

3. Long-term national-security budgets are put at risk.

This is what worries me the most. If one believes in Paul Kennedy’s theory that great powers fall when they overextend themselves and can no longer support the large national security/power projection apparatus they have built, they have to start scaling back their global ambitions in concrete ways. All aspects of the American state budget will be looked at for cutting, the defense department’s included. A real way to save some money is to close foreign bases, bring troops home, and cut expensive weapons programs. All of these can be detrimental to US national security and international stability.

4. The American model is being undermined before the rest of the world.

If the US can’t keep its house in order, why should other states follow it? A good question and one definitely worth following, but I find this to be the weakest of the four. After all, the US has been deep in the red before and only came out stronger. Not many other countries have this record.

So how important are these current and projected budget deficits to US national security/power projection and to international security? Are these latest numbers just another downturn in otherwise American ascendancy and global power or are they portending the beginning of the end of the US as the world’s sole superpower? Something in between?

So after a long wait of almost 20 hours, I bring you GPP’s first Great Power Top Ten List! Great powers have come to their position of power slowly and have generally left their esteemed place in international politics in a similar fashion, so how can one do a monthly Great Power – Power Ranking system, one may ask? Long term prognosticating will of course be an important aspect of GPP’s rankings, but short term moves, issues, and strategic successes and failures will also be considered. For instance, if I did a power ranking after Russia’s successful invasion of Georgia, which proved Moscow’s hard power was not only still capable, but willing to be used, Russia would have gotten a ‘bump up’ in my rankings. This list is not exhaustive and is of course open for debate and even your own Top Ten. I think this is an exciting time for Great Power Politics as many claim the US is declining as a superpower, there is much focus on the Rising Powers of China, India, Brazil, and older great powers, such as Russia and Iran, are starting to reassert themselves on the global stage.

Here are some of the major criteria for which the states will be considered as Great Powers:

• Power – Basically, how much total influence does your state have in the world. In what ways can your state make other states or actors do something that they don’t necessarily want to do?
• Economy – What is your GDP? Is your economy growing? Declining? (aren’t they all right now?) How much can your economic power be easily translated into ways to influence other actors?
• Permanent/Near Permanent Resources – natural resources controlled, population size, geography
• Ideology/Cultural – How powerful is your state’s governing and lifestyle philosophy in the world? Do your beliefs and ideas translate to influence around the globe?
• Internal State Strength – How strong and legitimate is your domestic government? How stable?

It is time. Below are my Top Ten Great Power Rankings, followed by a Tier breakdown, with short explanations to follow:

1.  United States of America
2.  China
3.  Russia
4.  Germany
5.  Japan
6.  India
7.  Brazil
8.  France
9.  Turkey
10.  Israel

On the GP Bubble – Iran, United Kingdom, South Africa. Indonesia, San Francisco Giants (only in the NL West)        

Tier A – USA

Tier B – China, Russia

Tier C – Germany, Japan

Tier D – India

Tier E – Brazil, France, Turkey, Israel

 1. USA – The United States is still the only state on the planet that can project power to all corners of the globe. Despite the economic crisis, the US economy is still head and shoulders above all others. The US geographic security is second to none and its domestic government holds a tremendous amount of legitimacy. Lastly, its cultural and liberal ideology, though under fire from many directions, is still the most pervasive of any kind throughout the world.
 2. China – The greatest challenger to US supremacy (and for the top spot on GPP’s Rankings!) for this century is the Middle Kingdom. China’s economy has been booming for nearly 20 years now and though it is facing many hardships during this financial crisis, it is still in relatively good economic shape. In the last few years, Beijing has bought up resources and influence throughout the world, especially in Central Asia, Latin America, and Africa. Militarily, China is still relatively weak, but its defensive spending has expanded every year and it is starting to present itself as a regional power player. China’s internal governance, ruled by the Communist Party, though well disciplined and organized, faces social unrest and is challenged by two separatist movements, Tibet and Xinjiang.
 3. Russia – Moscow has been a great power on and off for centuries and though it is currently struggling economically, this has not hurt its ability to effect world events. As the Georgia invasion, Kyrgyzstan Manas Base extraction, and NATO expansion/Missile Shield protests have shown. Moscow is an old fashioned great power as it unabashedly showcases its willingness to use hard power (including cyberwarfare and gas politics). Though the Putin-Medvedev rule is challenged on many fronts, it is nevertheless a strong government with a decent amount of legitimacy from its population.
  4-5. Japan and Germany – These two WWII allies have the 3rd and 4th strongest economies in the world and though their military capabilities are rather weak (thanks to US protection and internal preferences) they each could translate this soft, economic power into hard power in a short time, ie. Japan’s nuclear capability. Lastly, their domestic governments are strong and have high legitimacy at home and abroad.
  6-7. India and Brazil – These two geographic and population giants are both experiencing strong economic growth and are definitely two ‘up and comers’ in the great power game.
 8. France – Strong, if not large economy. Great power history. Though somewhat weak militarily, Paris does hold multiple nuclear weapons and uses diplomacy effectively to spread its influence around the world.
 9. Turkey – Turkey is a real ‘middling’ power. It has decent influence and power in two continents and a strong historical legacy as a great power. Domestic stability and governance has been its achilles heel in the past, but it seems to be weathering that storm rather well in recent years. Ankara’s economic growth has been slow and steady.
 10. Israel – Though it is small in population, economy, and geography, the Jewish state has a tremendous amount of influence in the Middle East and a strategic partnership with No. 1 USA. Israel is in a precarious, to say the least, security situation, but its military, which includes nuclear weapons, is second to none in the region.

Your thoughts? Your Rankings?

Beijing Bling!

As the financial crisis first hit the US and then dominoed around the globe, hope was held out that China’s economy would not only stay strong, but that its strength would help bring the rest of us out of the cold. With poor reports coming in daily now regarding China’s economic viability and future prospects, the above is becoming increasingly less likely.

The World Bank’s Quarterly report for China was not overly pessimestic, but it contained some warnings that tougher times were on horizon:  

The impact of the international financial and economic turmoil on China’s economy has been manageable so far, but is expected to intensify.

Here is an interview with the report’s authors and a breakdown by the Council on Foreign Relations blog and CNreviews.com.  The report asserts that many of the nation’s industries (textiles) have indeed been hurt by a fall in world demand, especially from here in the US, but that other industries (more highly skilled and intensive products) were still strong.  But the most damning news came today, when the Chinese government released statistics stating that exports had dropped 2.2% since last November and that foreign investment had also dropped by 36% during the same time period.  Wang Tao, a securities analyst stated, “We were expecting a slowdown, but the magnitude is a bit shocking.”  There are now fears that China will not maintain its previously forecasted 9% GDP growth rate for the year.  

There are obvious downsides to this news as it is just another sign of the dismal state of the world economy and it falters hopes that the Chinese manufacturing and exporting machine could spur economic growth elsewhere.  But, as the Chinese Communist government surely knows, the nation’s political and social stability is at risk as well, and this will have repercussions around the globe.  I had never heard this before, but Chinese communists have reportedly put a number on the percentage of growth needed to maintain political stability for the large and diverse nation, 7%.  China’s President Hu Jintao is feeling the heat:

“China is under growing tension from its large population, limited resources and environmental problems, and needs faster reform of its economic growth pattern to achieve sustainable development,”

The Chinese Communist government has based its legitimacy largely on its continued stewardship of a growing economy.  If it is seen as not fulfilling this role, all of a sudden protest voices may garner greater sympathy from the populace.  Combine this rising unrest questioning the ruling regime with a greater amount of unemployed workers and bosses with no factories to boss and the situation becomes outright scary for Hu and his buddies.  Instability in China, let alone a change of government, would send ripples throughout the region and create havoc on the world economy, especially in states that depend on its cheap imports, foreign businesses who are knee deep in investments in the Middle Kingdom, and in many third world countries where Beijing has become a powerful investor.  Elizabeth Economy has already called China out for its lack of leadership during the financial crisis, portraying the state as a ‘responsible partner’ not a global leader.

This post is not to scare the bejeebies out of you or predict the Chinese demise, but the slowdown of China is indeed a major story in international politics and economics.  The Chinese government has proven it can handle crisis with a firm and strong hand before, and they are already being proactive in many ways to thwart a further economic tailspin.  

Am I making a mountain out of a mole hill?  What do you predict for the Chinese economic and political future?  Are they as connected as I believe they are?  Is this just a bump in China’s rise as a global power?