UK: US presidential election round-up featuring Romney, Gingrich, Obama, Paul and Perry

The Economist

Mitts off
Bosses fear Mitt Romney’s campaign will hurt them, poor dears

N MANY industries it would be exciting news if one of your former colleagues were running for president. A sympathetic ear in the White House is no bad thing. But many private-equity executives are morose about their former comrade Mitt Romney’s bid for the Republican nomination. Mr Romney, a former boss and joint founder of Bain Capital, a large private-equity firm that now manages $66 billion, may open up the industry to an unwelcome public skewering.

Private-equity bosses, who buy companies, restructure them and sell them for a profit, are already touchy about their reputation. They have been accused of loading companies with debt and firing workers to cut costs. They have already spent years and millions of dollars rebranding themselves. (They used to call themselves “leveraged buy-out” firms before debt became a four-letter word.)

Mr Romney’s campaign will drag their most unpopular practices into the spotlight. “We are getting ready to be bloodied and buried by the election”, says one seer at a buy-out firm. Henry Kravis, the billionaire boss of KKR, the large private-equity firm that was the barbarian in “Barbarians at the Gate” (the definitive book about buy-outs in the 1980s), has warned “they’re going to describe us all as asset strippers.”

Mr Romney claims that he helped create “tens of thousands of jobs” when he was at Bain Capital. They invested in some companies early and helped them grow; take Staples, an office-supplies retailer, and Sports Authority, a sporting-goods chain, for example. But critics, including Barack Obama, will question Bain’s record. A few investment casualties have already been exposed. Several companies Bain once owned—including Dade Behring, a medical-supplies company, and KB Toys, a retailer—went bankrupt after Bain Capital sold them, reportedly for a huge profit.

Mr Obama wouldn’t be the first to make hay with Mr Romney’s time at Bain Capital. In 1994 Mr Romney ran against Ted Kennedy for the Senate, and Mr Kennedy aired adverts attacking Bain Capital for job cuts. This helped secure his victory.

Revelations about money could prove just as wounding. Much of Mr Romney’s fortune, which some estimate at $250m, is thought to come from his stint in private equity, but no one knows how much. If Mr Romney wins the nomination, he will draw attention to the extraordinary wealth of private-equity bosses.

If Mr Romney is forced to disclose more about his finances, he will also shed light on how little many private-equity executives pay in tax, since their investment returns are assessed at the much lower capital-gains tax rate, a practice that even some in the investment business mutter is unfair. They have managed to elude a change in tax treatment for years, but the ascendancy of one of their own may be what finally reverses their fortune.

http://www.economist.com/node/21541037

Newt's travails
Portrait with Arafat

IT IS hard to know what pose to strike when being photographed next to Yasser Arafat. In this sense, I think Newt Gingrich is the victim of a genuine dilemma for Americans. It's hardly surprising that photos would exist of Mr Gingrich or any other major American politician of the 1990s shaking hands and smiling with Mr Arafat. As to how politicians are supposed to handle that interaction given the more unsavoury aspects of Mr Arafat's history, not to mention the way a photo might play to pro-Israeli constituencies at home, well, it's a toughie. A few months ago in Ramallah, a really nice Palestinian journalist who was taking me and an Israeli friend around asked if we'd like to have our photos taken next to Mr Arafat's grave. We found ourselves standing there awkwardly on either side of the sarcophagus trying to decide whether or not to smile. I think we both separately wound up going for a medium smile, lips together, no teeth. Teeth imply endorsement! Afterwards I looked at the photo and I think the Palestinian Authority colour guards behind us couldn't figure out whether they were supposed to smile or not, either.

I'd like to be able to relativise this. Sure, the founding fathers of most countries are pretty warty when you look at them up close. George Washington massacred Native Americans. David Ben-Gurion ordered Israeli troops to carry out ethnic cleansing during the War of Independence; Yitzhak Shamir was personally involved in assassinating the morally irreproachable Swedish diplomat Folke Bernadotte. Mahatma Gandhi...well, he was apparently exploitative with the ladies. But the fact is that the liberation strategy of terror against Israeli civilians that Yasser Arafat and the Palestinian leadership selected in the 1960s-80s was really pretty grotesque and inexcusable, even compared to the sins committed by a lot of other founding fathers. Given repeated chances to pull a Nelson Mandela in the 1990s, he never quite managed to rise to the occasion, and to some extent his people are still paying the price, though obviously Binyamin Netanyahu and Israeli religious-nationalist fanaticism have played a very large role as well.

Nonetheless, Mr Arafat remains the founding father of the Palestinian national movement, so people in positions of authority, as Mr Gingrich was when he was Speaker of the House, have to be photographed shaking hands with him and smiling. We all recognise this. It would be nice if Mr Gingrich consistently recognised it himself. As a major political figure, you can't run around gravely insulting national leaders and entire countries with whom America will, like it or not, have a significant relationship. You can't go around bloviating that Palestinians are an "invented people", implying that their claim to a state is only provisional, threatening to blow up decades of painstaking diplomatic work to reach an Israeli-Palestinian accord. You can't do that when you're a major candidate for the Republican presidential nomination, any more than you can refuse to shake Yasser Arafat's hand when you're Speaker of the House. Mr Gingrich can expect to be forgiven for one or the other of these things, but not for both.

The "invented people" schtick smacks of what Michael Gerson calls Mr Gingrich's penchant for "the passionate embrace of shallow ideas". Obviously the Palestinians are an invented people; so is every people. To quote Benedict Anderson quoting Ernest Gellner: "Nationalism is not the awakening of nations to self-consciousness; it invents nations where they do not exist." There was no American people before the American project of national self-invention began in the 18th century, no German or Russian peoples before the same process took place in the 19th. The Israeli people are the result of a fervent project of ideological self-invention between about the 1880s and the 1950s. As such, they were perhaps the last in the long period of self-invention by European nations that spanned the 19th century, making use of what Mr Anderson called the "toolkit" for nation-building provided by the French Revolution. The encounter with the Israeli nation-building project fed the Palestinian one, much as the French project fed the German one. It is fruitless to attempt to deny the reality of a nation once it has come into being, though it's also a typical strategy of imperial control. The French relied on differences in dialect and political fragmentation to deny there was any such thing as a Vietnamese people, breaking the country up into Tonkin, Annam, and Cochinchine. (That argument recently resurfaced in Mark Moyar's "Triumph Forsaken", an apologia for America's Vietnam War.) I've heard Turkish nationalists insist at great length that there is literally no such thing as Kurds, denying even the existence of the Kurdish language. Chinese will deny the existence of a separate Tibetan people. Serbs long insisted there was no such thing as a Bosnian. Some Russians used to insist that Ukrainians were simply Russians who spoke a difficult dialect. And had a few wars and other political events turned out differently, they might have been right.

But they weren't. In an alternate universe, the Dutch might be Germans, the Americans might be Canadians, and the Palestinians might be Jordanians. But we live in this universe, and presidential candidates, whatever their passion for sci-fi, better do so as well.

http://www.economist.com/blogs/democracyinamerica/2011/12/newts-travails

The president chooses his ground
Barack Obama offers America a new square deal

EVERY time a president seeks re-election, it is something of a parlour game in Washington, DC, to ask which of his predecessors’ campaigns he will take as a template. Will Barack Obama attempt to persuade voters, as Ronald Reagan did in 1984, that the darkness of recession was giving way to “morning in America”? The enduring listlessness of the economy makes that a tricky sell. Could he perhaps emulate Harry Truman’s successful tirade of 1948 against the “do-nothing Congress”? Mr Obama is better at warming cockles than thumping tubs, and in any case control of Congress is divided, making Democrats as responsible for its ineffectiveness as Republicans are. This week Mr Obama put an end to the debate by publicly invoking a different role model: Teddy Roosevelt.

On December 6th Mr Obama travelled to Osawatomie, a small town in Kansas where Roosevelt gave a celebrated speech in 1910, laying out the platform that he would eventually adopt as a third-party candidate for president two years later. Before a crowd of 30,000 he elaborated on his longstanding theme of a “square deal” for working Americans—a concept that had made him wildly popular during his nearly two terms in office. America’s economy and political system were biased towards the rich, the former president complained; he promised to give the little guy a fair shake.

In a speech to a more modest crowd in the local high school, Mr Obama said much the same. Getting into the middle class and staying there has been growing ever harder in recent years, he lamented, and yet the rich have got ever richer. The solution, he maintained, is higher taxes on the wealthy to fund more investment in education and infrastructure while keeping America’s debt in check. The alternative, he said, was a “you’re on your own” economy, marked by falling wages, rising pollution and emasculated unions.

Mr Obama was at pains to make clear that he had no wish to punish success or suggest that government had the solution to every problem. “This isn’t about class warfare,” he said at one point. “This is about the nation’s welfare.” The word “fair” cropped up again and again: the rich should pay their “fair share” of taxes; poorer Americans should get a “fair shot” at success; it was “the height of unfairness” that billionaires should pay a lower effective tax rate than middle-class folk.

All this is quite clever. By invoking a Republican president, Mr Obama can and did claim to be rising above partisan politics. He also shifts attention from his personal stewardship of the economy, which Americans consider inept, to the broader and more abstract question of inequality, where Democrats should be on firmer ground. In essence, he is attempting to direct the widespread sense that America has lost its way—something that would normally count against him—into exasperation with the Republicans.

But Mr Obama must walk a fine line. As Chuck Schumer, a Democratic senator, noted earlier this month, Americans are put off by anything that smacks of soaking the rich, but are attracted to the notion of fairness. (Roosevelt, it should be noted, lost the election following his Osawatomie speech, dividing his party and leaving it in the political wilderness.) The Democrats in the Senate have for months suggested paying for a series of worthy-sounding schemes—most recently an extension and expansion of a soon-to-expire reduction in payroll taxes—by raising tax rates for millionaires. These proposals, all so far stymied by Republican opposition, are intended to show that Republicans, when forced to choose between the interests of the middle class and those of the rich, will abandon the struggling mass of Americans without a second thought.

Most polls suggest that voters agree with Mr Obama and the Democrats in principle. Our own Economist/YouGov poll finds that a majority of Americans would like to see the payroll-tax cut extended, for example, and two-thirds of those think a surtax on millionaires is the best way to pay for it.

Yet Mr Obama has been harping on about raising taxes on the rich since his first election campaign. The Republicans do not seem to have paid an electoral price for dismissing the idea as class warfare and preventing its implementation in Congress. Indeed, Democrats in swing states have often voted with them when the idea has been put to the test, for fear of being labelled tax-and-spend liberals.

Mr Obama seems to be hoping that his Republican opponents, many of whom have put forward proposals for regressive flat taxes, for example, will take their coddling of the rich too far for most voters’ tastes. That case will be harder to make if Mitt Romney, the former governor of Massachusetts, wins the nomination. He has the least doctrinaire tax plan in the Republican field, complete with tax breaks exclusively for middle-income groups.

In our latest poll, however, Mr Romney has seen his support among likely primary voters decline to 15%, less than half the level of Newt Gingrich, a former Speaker of the House of Representatives who appears to be benefiting from the “suspension” of the campaign of Herman Cain, a candidate dogged by multiple accusations of sexual impropriety. Mr Gingrich supports a flat tax and has denounced Mr Romney’s plan as Obama-style class warfare. That presents Mr Obama with a bigger target. He told the crowd at Osawatomie that the debate about inequality “is the defining issue of our time”, meaning that he would like it to be the defining issue of the presidential campaign.

http://www.economist.com/node/21541407

Why Ron Paul is wrong on foreign aid

ANOTHER line on foreign aid that I keep seeing on the internets lately is Ron Paul's quip: "Foreign aid is taking money from poor people in rich countries and giving it to rich people in poor countries." The second half of this quip identifies a real problem: too much foreign aid money gets cornered by local elites in recipient countries. Some of this is illegitimate cronyism or graft. Some is legitimate: foreign aid programmes have to be administered by well-educated locals, who generally come from well-off backgrounds and command relatively high salaries, all the higher as the foreign-aid programmes increase demand for their services. That's a tough nut to crack. Anyway, this is a real problem that merits attention.

The first half of the quip is nonsense.

Foreign aid is funded out of federal taxes. I'm not sure who Ron Paul would consider "poor", but the lower 40% of households in America pay no net federal income tax. They do pay social-insurance taxes, ie Social Security, Medicare and Medicaid, and a share of corporate taxes and federal excise taxes. Social-insurance taxes don't fund foreign aid; they fund social insurance. Any money that poor people in America might be contributing to the foreign-aid budget would come out of corporate and excise taxes. From 2000-2007, according to the Tax Policy Foundation, the bottom quintile of American households paid combined corporate and excise taxes of 2% to 2.8% of income. For the second quintile, the rate was actually lower, maxing out at 2%. Foreign aid accounted for 1.28% of the federal budget in 2009 and 1.5% in 2010. So the most a household in the bottom quintile might be understood to have contributed to foreign aid would be something like 1.5% of 2.8% of its earnings, or 0.042%. Mean household income for the bottom quintile in 2009 was $11,552. So you're talking about at most 0.042% of $11,552, which is $4.85. For the second-lowest quintile, you're talking 1.5% of 2% of an average income of $29,257, or $8.78. The proportion of America's foreign-aid budget that comes from poor people, rather than middle-class or rich people (all of whom, on a global scale, are extremely rich), is negligible, and it represents a negligible burden on those poor people's incomes.

But even this is overstating the case. The purpose of the earned income tax credit (EITC) is to make sure that poor people in America don't bear the burdens of the federal budget, especially those programmes that don't benefit them. At the lower end of the income spectrum, income taxes are a significant disincentive to work and tend to push people onto the welfare rolls; the EITC was introduced to compensate. That's the main reason why poor people pay negative federal income tax, and in fact people in the bottom quintile get more back from the EITC than they pay in income, corporate and excise taxes combined. Foreign aid is precisely the kind of federal budget burden that you don't want poor people to have to bear. The rational way to consider this is to think of the EITC as having exempted poor people from paying for foreign aid, among other programmes they shouldn't really be responsible for. But if Mr Paul thinks the EITC is insufficient to spare poor Americans from that burden, since they do still pay a share of corporate and excise taxes, then he is of course free to propose an additional refundable credit to poor people covering their share of corporate and excise taxes, presumably compensating by increasing the rates paid by rich people.* Somehow I don't think that reform is on Mr Paul's agenda.

* But really, even this overstates the case. Some excise taxes, like the gasoline tax, are dedicated to specific trusts and don't pay for foreign aid; the gas tax pays for highway construction. The main "general fund" federal excise taxes paid by poor people are the alcohol and cigarette taxes. The point of such excise taxes is usually to make people who engage in certain kinds of consumption pay for the externalities of those kinds of consumption, and/or to discourage those kinds of consumption. So the cigarette tax attempts to discourage people from smoking and, in a loose sense, compensates society for their extra medical bills. It would be silly to refund poor people's cigarette taxes to them on the basis that they shouldn't have to pay for various federal programmes; that would frustrate the whole purpose of the cigarette tax. Given that we have a cigarette tax, you could say, each time a poor person buys a pack of smokes and pays excise tax on it, that they've now been forced to contribute to foreign aid or to the annual budget of Yellowstone National Park or what have you, but that's silly. If you don't want to pay for federal budget operations with your excise taxes, don't smoke. If you're really concerned about the regressive nature of excise taxes, you might get working on that problem; since poor people are more price-sensitive, it might make sense that we could get the same amount of dissuasion by charging poor people a $1 excise tax and rich people a $10 tax for the same pack of cigs or bottle of vodka. (That certainly explains why rich people tend to be alcoholic chain-smokers. On "Mad Men", anyway.) But given that Ron Paul actually wants to eliminate income taxes and fund the government almost entirely on excise taxes I again think this isn't his top priority.

http://www.economist.com/blogs/democracyinamerica/2011/11/foreign-aid-0

The nastiness of Rick Perry

Dec 8th 2011, 20:08 by R.M. | WASHINGTON, DC

LIKE most people, I felt a deep pang of sympathy for Rick Perry when he couldn't remember three simple things at a debate last month. There's no pleasure in watching another man, even one who you disagree with, brought low like that. So I thought, at least.

On Tuesday the White House sent out a memorandum "directing all agencies engaged abroad to ensure that US diplomacy and foreign assistance promote and protect the human rights of LGBT persons." This is in keeping with the Universal Declaration of Human Rights, of which America is a signatory, and in response to the tragic violence and oppression gays still face in many countries around the world. The memo is more symbolic than anything else, because in reality the new policy doesn't do all that much. In a speech on the same topic, Hillary Clinton said America has committed more than $3m to help groups working on LGBT issues around the world. Feel free to correct my math, but I believe that's about .0001% of America's budget.

To Rick Perry, this is reprehensible.

"Just when you thought Barack Obama couldn’t get any more out of touch with America’s values, AP reports his administration wants to make foreign aid decisions based on gay rights. This administration’s war on traditional American values must stop... Promoting special rights for gays in foreign countries is not in America’s interests and not worth a dime of taxpayers’ money."

As Andrew Sullivan points out, "not getting murdered isn't a 'special right'". And when a majority of the country believes gays should be allowed to marry, it doesn't seem much of a stretch to suppose that Americans don't want to see gays killed due to their sexual orientation. So who is out of touch with America's values?

America constantly makes foreign-aid decisions based on the rights of disadvantaged groups, like women and Jews. Yet despite his aversion to foreign aid, Mr Perry has not complained about the State Department's 16 days of activism against gender violence, or its efforts to combat anti-Semitism. No, Mr Perry is targeting gays for the sake of targeting anti-gay votes in America, specifically Iowa. This not only reeks of desperation; it is simply nasty stuff.

Update: As a commenter points out, and as Mr Sullivan noted in his post, this is of a piece with Mr Perry's new campaign ad, which also seems strangely out of touch with American values, but disappointingly in touch with Republican primary voters in Iowa.


http://www.economist.com/blogs/democracyinamerica/2011/12/anti-gay-politicking

For more on The Economist's US election coverage go to:
http://www.economist.com/world/us-elections-2012