Let the games begin

With the appointment of Paul Ryan as his running mate, Mitt Romney has confirmed his intention to focus on the state of America’s economy as a primary issue in the run up to the election. That’s a good thing.

In probability the Republican’s candidate will continue to blame the incumbent for the current state of affairs and promise that he will do much better. He’s already said as much.

What positive effect can a politician’s policies have on an economy?

Efficient government is key. And that’s where the disagreement will start – at least after the blame game’s ended.

Functional overlap
One issue that rarely gets raised is the level of duplication that exists across agencies – sometimes within agencies. For example there are 16 fiefs covering the intelligence responsibility. These agencies duplicate efforts, each trying to outdo the other, instead of sharing critical information. The details of the issues were set out in a Washington Post exposure following a two year investigation.

The challenge of fixing this is the responsibility of the Director of National Intelligence. This position has had a regular change of incumbents who, undermined by a lack of authority, struggle to fulfill the mandate.

Costly tax code
An unnecessarily complex tax code, with thousands of tax breaks that favor interest groups, exacerbates wealth inequality, and costs the country hundreds of billions in breaks and incentives, administrative overhead, and expert advice for tax payers.

Congress
The belief that congressional oversight provides democratic control over the President’s powers is a myth. When dominant party in the house is not the same as the President’s the country sinks into a morass of partisan bickering.

It would preferable for America to adopt a system of referenda, with proper controls and balances to avoid California’s mistakes, to enact significant legislative changes.

Direct involvement demands that electors understand the implications of important decisions. Rather than having partisan commentary, public debates between experts educates voters, and permits them to make decisions that are informed.

Dream on.

More at:
Seeking a new spy-in-chief
A bad job
Shirtsleeve time
What’s your security clearance?
A hidden world, growing beyond control
Another fine mess

Time for a Mandela moment

Muhammad Morsi, the winner of the presidential election in Egypt, does not have a real mandate. That’s an opportunity.

Mr Morsi was not even the Muslim Brotherhood’s first choice. He was put forward to stand after the Brotherhood’s primary candidate was disqualified.

The numbers tell the story. In the first round 11.5% of the registered voters gave Mr Morsi their support, with a low turnout of 46%. In the run-off, the turnout increased to 51%, a sure sign that people were voting against, rather than for one of the candidates who stood on opposite ends of the political spectrum.

Even the final tally of 51.7% of valid votes in favor of Mr Morsi is tentative.

In 1994 there were numerous predictions that South Africa would descend in chaos after the elections there. One man made sure that it did not happen – Nelson Mandela. He did it by looking after everyone’s interests, caring about what was important to them.

He also made sure that South Africa had a solid constitution that entrenched the principles of equity, freedom and the protection of rights and human dignity.

Mr Morsi has already started on that route, saying “I have no rights, only responsibilities. If I do not deliver, do not obey me.”

Now this quiet man needs to let his actions speak.

More at:
Explainer: Egypt’s presidential poll
Egypt’s Morsi calls for unity after poll win
Egypt’s election Two reasons not to be cheerful
Egypt voters’ ‘loss of faith’
As it happened: Egypt election result
Guide to Egyptian presidential election
Voter turnout surges in final hours of Egypt presidential runoff
Language of numbers : The Egyptian Presidential elections
Morsi Meter

Heading towards the fiscal cliff

The “fiscal cliff” is a term that’s creeping into the lexicon of economic journalists. It refers to that bizarre political product borne of the negotiations to the increase America’s debt ceiling in 2011. It is designed to inflict the worst case scenario that either of the parties could conceive, imagining that this would deter the partisan bickering that has brought decision making to a standstill since the beginning of 2011.

At the heart of the problem is the huge government deficit and an inability to agree on a course of action to fix it. So the parties agreed to create a sword of Damocles, hanging over the economy, deferred until after the election on November 6, triggered to fall on December 31. They have seven weeks in which to come up with a solution.

That period is a bad time to make any decisions, let alone ones of such consequence.

Should the sword fall, estimates of the damage to the economy range between of 4% to 6% of GDP.

It is right now that these issues should be addressed. It’s also a good measure of candidacy for the presidency.

Politicians are expert procrastinators. The proficiency on display in Europe is impressive. Hopefully the voters in America won’t be as easily beguiled as those in Europe.

More at:
America’s economy Fiscal cliffs, multipliers, and the myth of central bank independence
The high price of tax breaks Not so easy Closing loopholes is politically painful
Harvard’s gloomy graduates
The cloud of uncertainty Dithering in the dark Quantifying the effect of political uncertainty on the global economy
America’s budget woes Shift this cliff
Fiscal policy Cliff-diving
CBO: Coming Fiscal Cliff Will Devastate The Economy
Fiscal policy Spending by any other name
America’s economy The two Americas
America’s economy A response from Edward Luce
Barack Obama and the economy The choice
Fiscal policy What the Fed fears
Legal language The hardest sentence in the tax code
Collateral damage

Employment will decide the election. Really?

Apparently American voters won’t re-elect a President when unemployment is above 8%. At least the debate is about a substantive issue.

The impact of the jobs figures on the stock markets is an indication of how much relevance employment has. But it needs to be put into perspective.

The shock that hit the world economy in 2008 was on a par with that which launched the Depression. In the 12 months following the economic peak in 2008, industrial production fell by as much as it did in the first year of the Depression. Equity prices and global trade fell more. Yet this time no depression followed. (The Economist Dec 10, 2011)

Unemployment rates in 1933, four years after the 1929 crash and before the economy started to recover, topped 25% . Presently, unemployment in the U.S. is at 8.3%, down from the peak of 10%.

Monetary policy, which failed in 1929, provided most of the relief needed after 2008. The Federal Reserve, which is beyond political control, has the responsibility for monetary policy.

Deciding who should be President, based on something that’s not part of the President’s mandate is crazy. Not only that, the 2008 crash is not over. What happens in the next few weeks in Europe will have a big impact on the world economy, and that’s also out of the President’s hands.

Europe’s problem is much bigger. The European Central Bank, the body that should have control of monetary policy in Europe, doesn’t have the same level of mandate that the Fed has. The politicians from the 17 countries that make up the Eurozone, led by Angela Merkel, need to provide that mandate. They are not even talking about trying, let alone working out how it should be done.

This will be a big decision, and would require relinquishing autonomy that many of the members indicate they have no desire to give up. Voters in the union are increasingly feeling that membership is not beneficial. The chances of getting consensus are low.

What follows next is looking bad.

And in the U.S., the debate is about whether unemployment figures will be above or below 8%.

Nero fiddled while Rome burned. What else could he do?

More at:
Lessons of the 1930s There could be trouble ahead
Business cycles Lessons of the 1930s
Lost economic time The Proust index
The euro crisis The growth problem