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One week is an eternity in politics. Just last week Obama looked a weak president without sense of direction. Today, with a tax deal cut with the Republicans he looks a winner.

Republicans are cheering that they got the tax cut for the rich 2%. The left in the Democratic Party is griping that Obama reneged on his 2008 campaign promise to roll back the Bush tax cut for the rich and caved into the Republicans. However, Obama is likely to have the last laugh. The package includes a $56 billion extension of unemployment benefits and a $120b payroll tax holiday that will help the middle class that the Democrats want to help. Add the $280b middle class tax extension, $21b in extension of refundable tax credits for college tuition, child tax credit and earned income and the total comes to $477b.  The $280b tax extension is not stimulus money because it is already factored into household income and spending.  The rest is. The package also includes $146b in capital investment write offs for businesses in 2011. In a total package of $990b the Democrats had to give away only $79b in the form of continuing the tax cut to the richest 2% and another $24b in estate tax changes that favored the very rich that the Republicans alone wanted. These two numbers total $103b or a mere 10% of the entire package. In politics it is a dumb idea to oppose a package when your side gets 90% of what it wanted.

The White House is right to be very pleased with the outcome. Republicans have not much to shout about on the tax side when the new Congress convenes next January. Obama, on the other hand, can keep on reminding the voters that the Republicans favored a tax cut for the rich that the majority of the public do not support, adds a huge hole to the growing budget deficit, makes American society less fair and allows the rich to escape taking on a fair share of the burden in these difficult times.

Ironically, politically it is good for Obama to get criticized by his own party.  To the voters, especially the independents who moved to the Republican side in the recent mid-term election,  he appears as the only sensible guy in town who is willing to compromise to make governing possible for the greater good of the country. The Republican accusation that he is a socialist ideologue is also undermined. The package will definitely give a boost to the economy – an additional 1 percentage point in GDP growth is likely - in the next two years that will also help Obama’s reelection bid.  Come Christmas holidays the Democratic base will calm down and realize that for them Obama is the only man in town to lead them to an electoral outcome in 2012 that would be better than the one they had last month.

The president has an approval rating in the upper 40% range at this point in time. Given the economic situation this is quite a good base to work from for the next two years. If the proposed package becomes law, the fiscal side of spending will harmonize with the Fed’s expansionary $600b quantitative easing strategy. Higher GDP growth and slowly falling unemployment will give breathing space for Obama to concentrate on a more long term strategy for the American economy.  Cutting the budget deficit will be one top priority. The other will be to formulate a long terms sustainable growth strategy that will keep the US economy in its preeminent position globally.  Both are achievable goals. Obama’s task in the next two years is to come up with the right formula and present it to the public and seek their support for a second term.  

The way that presidential politics are shaping up in this country for 2012 there is a significant chance that the two VP nominees could be two women, Hilary Clinton with Obama and Sarah Palin with somebody like Mitt Romney.

First let’s consider the more intriguing case of Palin. Polling shows that the majority of the American people do not consider her to be qualified for the presidency. The Republican establishment now increasingly says so in public. However, the Republicans will do almost anything, including having Palin on the ticket for VP a second time, to recapture the White House. If unemployment remains above 8% and Obama continues to project himself as a weak president without a firm set of principles that he believes in, enough independents will be available to a middle-of-the-road Republican candidate such as Romney to beat Obama. Palin’s job then will be to hold the Tea Party wing of the base together. Just as much as John McCain brought in Palin to boost his shaky candidacy, a nominee such as Romney may feel compelled to ask Palin to join the ticket for that reason. Indeed Romney’s recent favorable public comments on Palin also suggest that such a ticket is more than a possibility. Of course if a social conservative such as Mike Huckabee gets the nomination the case for Palin on the ticket will vanish.

A similar logic may compel Obama to persuade Hilary Clinton to join the Democratic ticket. It will be hard for Obama to reignite the enthusiasm that he generated in the Democratic base in 2008. He owns the weak economy and the two wars and neither endears Obama to the base. Independents usually are less attentive to politics and under-informed as well. They need that extra something to persuade them to vote one way or the other. For Obama and the Democrats that extra something can be Mrs. Clinton. White women in particular will see Mrs. Clinton as the best bet to have America’s first female president in 2016 when she will be 69, a few month younger than Ronald Reagan when he was first elected to office in 1980. She and her husband will be able to campaign for white working class votes that otherwise may move to the Republican side. Obama will retain the African American vote and the pair together will be appealing to the Hispanic voters.

An Obama-Clinton and, say Romney-Palin fight will be a close one with a slight edge to the former pair for one solid reason. There will be enough voters –independents, women, moderate Republicans et al - who won’t like the idea of Palin being one heartbeat away from the presidency.

Al Qaeda terrorists in Yemen managed to capture and dominate the US news cycle for over twenty four hours on the eve of the mid-term elections by sending two packages with explosives to be delivered to US a Synagogue in Chicago. They have smartly indentified a weak link in the US anti-terrorist security cordon to accomplish their task.

At the time of this writing President Obama and his administration have handled the situation is a sensible manner. The Republicans roundly criticized presidential candidate Obama two years ago for his alleged lack of experience in national security and weakness towards the enemies of USA. The Tea Partiers still consider Obama to be soft on America’s enemies, whoever they may be. The more extreme Tea Party criticism is that Obama is actually a friend of the latter. However, the Republican establishment has been virtually silent on national security in this election cycle. They obviously do not want to change the current political conversation centered on the economy that is so favorable to them and should result in big gains in next Tuesday’s election.

Republicans who claim to be the better protectors of US national security have been silent on the two wars in the current election cycle because they know that Obama is almost totally in sync with the war policy that they advocate. This totally serves Republican electoral goals this year. There are few of any “national security” voters that will vote for the Democrats but there may be a quite a few in the Democratic base who may refrain from voting for their party because they are disappointed that Obama’s war policy is hardly indistinguishable from that of the Republicans.

Even more interesting is the strategy of Al Qaeda. From the facts available to the public so far it is not clear whether the packages were designed to explode and cause physical harm. However, there is no doubt that the act was designed to cause political convulsion in US. They were addressed to a synagogue in Chicago. The symbolism is powerful. Chicago is the home town of the president where the Democrats are desperately trying to hold on to the senate seat that Obama vacated. By addressing the packages to a Jewish place of worship the perpetrators of this act want to further divide the chasm that exists between the Arab/Islamic world and the west, especially US. Al Qaeda knows such acts of terrorism further complicate the job of the Democrats. First, it makes it harder for the Democrats to communicate a coherent message to the electorate. Second, Al Qaeda probably prefers hard line Republicans to be in charge of the House and the Senate because it makes Al Qaeda’s task of selling their message to the Arab street that much easier.

Stanley W. Samarasinghe

Bipartisan governance is routinely dished out during US presidential elections to attract the crucial independent vote and the so called moderates who may not mind crossing the party line. Exit poll data show that Barack Obama was more successful that John McCain in convincing such voters. We won’t go into the reasons for Obama’s success and McCain’s failure. But it is useful to examine the practical implications of this proposition for the Obama administration.

First, there are basic philosophical differences between the two parties. In the Obama presidency this is sure to be on full display in respect of the role of the government in the current economic crisis and on other key issues such as healthcare. The Bush administration that believes in free markets very reluctantly initiated the $700 billion rescue package for financial institutions. It was done only because there was no option. Once out of office the Republicans will have no direct responsibility for the economy. Already the Bush White House and the Republicans in Congress have signaled that they would not support a second stimulus package that the Democrats are proposing. Republicans want to revert to their lower taxes and smaller government policy as soon as possible. This basic difference regarding the role of the government in the economy is not a basis for bipartisan policy making.

Second, the composition of the newly elected House and Senate have in some ways diminished the prospects for bipartisan governance, especially on the Republican side because several of the more moderate members of the party – Chris Shays in the House and Gordon Smith and John Sununu in the Senate are examples – lost their seats last Tuesday. On the House side the Democratic leadership has enough votes to carry legislation without having to rely too much on the so called blue dogs from the red states.

Third, if power is divided with one of the three, the White House, Senate or the House in the hands of one party and the other two in the hands of the other, bipartisan governance can win brownie points with voters for both parties. However, in the present case all three are in the hands of the Democrats. Then there is no serious political incentive for the Republicans to help the Democrats to pass legislation because kudos will anyway go mainly to the ruling party and president. But there is much to gain for the Republicans if something goes wrong because it would be easy to blame the Democrats who rule. Conversely, the Democrats also have no significant incentive to cooperate with the Republicans if the job could be done alone so that they could claim all credit. Moreover, Democrats in Congress (especially the House) may prefer to have legislation that accords with their own more left-of-center ideology that Republicans won’t support anyway.

All of the above does not mean that bipartisan governance in Washington is a totally lost cause. As long as the economy remains in crisis the Republicans will be forced to extend some cooperation to the Obama administration to avoid being accused of being unpatriotic.

Second, Obama’s presidential campaign appeared to be more centrist that what one would expect from a senator with a strong liberal record. It was a good strategy to win over the independents. He may continue along the same pat in the White House. For example, if Obama’s appointments of Republicans to senior positions in his administration go beyond tokenism it may help promote an atmosphere of bipartisanship.

Third, the economy and tax cuts for the middle class apart Obama has identified energy, healthcare and education as his top priorities. These will consume a great deal of his presidency. All of these have ideological underpinnings but they are not as divisive as the so called value issues. The latter is most likely to come up if and when a vacancy occurs in the Supreme Court.

Democrats will not get the filibuster-proof 60 seats majority on the Senate. The filibuster is a built-in structural incentive for the two parties to cooperate in the Senate and that probably will be the strongest reason to see some trace of bipartisan governance in the next two years. The situation can change in the 2010 mid-term elections.

By Stanley W. Samarasinghe

In American electoral politics there are two fixed traits that have got recycled in every recent election. One is to proclaim that Washington is broken and condemn those who run Washington. The other is the promise given to the electorate to reach out across the aisle and usher in bipartisan governance. In this essay I will argue that a “broken” Washington is what you get in the democracy that we have and that we need to learn to live with it. Then we can focus on the more real issues such as the economy. I will take up the bipartisan issue in a later essay.

Undoubtedly there is some scope to improve the quality and speed of governance in Washington. But that does not mean that it is easy to do as the critics generally imply. There are several reasons for it.

First, consider who is available to fix the broken system. It is more or less the very same people who have been running the system for many years and presumably should be held accountable for breaking it. Consider the election cycle just concluded. McCain and Biden are vintage Washington products. If Washington is so broken, they were very much a part of it. Obama has much less experience in Washington but much of his professional life has been in politics in Chicago. It is hard to argue that Chicago politics is any less broken than that of Washington. Ironically Sarah Palin is the only one among the four on the two tickets who has had relatively less experience in that kind of politics. However, from what we have learned in the last two months about her skills and knowledge she is the least qualified of the four to hold presidential office. In fact her very selection as the Republican VP nominee by a Washington veteran who rails against Washington is another indication of how broken Washington really is.

Then consider the Congress. The vast majority of the Senators and Congressmen who will come back next January are incumbents. They usually win comfortable majorities that suggest that the voters also do not really mean when they proclaim that Washington is broken and that they want to “throw the rascals out.” It is worse. The Senator from Alaska Ted Stevens who is a convicted felon is set to return to the Senate. A convicted felon cannot vote in Alaska or anywhere in else the US but can stand for election to the Senate and the very same voters who condemn the broken system happily vote for him.

This brings us to the so called “pork” issue that refers to earmarks that the legislators get for their own constituencies. This is cited ad nauseam as an example of how broken Washington is. The $700b rescue package for financial institutions also contained earmarks. Senator McCain who is the most outspoken warrior against earmarks supported the bill because this is what practical politics is all about. The public may condemn earmarks in general but not the specifics for their own states or congressional districts. That is why those who bring more pork to their respective states and districts continue to win easy reelection. Senator Stevens is a supreme example.

Actually the fuss about pork, rather than the pork itself, can be considered more of a sign of broken Washington. The total amount in earmarks in the 2008 budget was about $20b accounting for 0.7% of total federal spending. First, this amount is relatively very small. Second, while Alaska’s bridge to nowhere gives a bad rap for every earmark, there is no logical reason to assert that every dollar that is earmarked is wasted. The Senators and the House Members often respond to community needs and that is not a bad thing in a democracy. Arguably it is a better way to use tax dollars than have a faceless bureaucrat decide what to do with the money. Sometimes one feels that Parkinson’s Law is in play here where a big fuss is made about some small item of spending when real waste is allowed to go unchecked. It is well known that some departments, most notably Defense, waste enormous sums on failed projects, badly written contracts, and over-payments.

Finally consider the filibuster and the idea of divided government which is also cited as an example of broken Washington. When the Republicans realized that they were facing a massive electoral defeat they argued that divided government where one party does not control the Senate, House and the White House is good for governance. The Democrats took the opposite view and wanted a filibuster-proof majority in the Senate to fix what is broken in Washington. If the party electoral fortunes were the reverse the arguments also would have been the reverse. It is basically a lot of hypocrisy.

“Broken” Washington comes with the separation of powers that we have in our Constitution that we cherish. It may have a cost but we have to be prepared to pay it if we want to keep the system that we are so proud of.

By Stanley W. Samarasinghe

Senator John McCain’s presidential campaign, towards its tail end, relied heavily on calling Barack Obama a liberal, a socialist and a redistributionist. These are over-lapping concepts but were believed to be dirty words in US politics. Then there was also the criticism from the beginning of the campaign, sometimes implicit and sometimes more explicit, that Obama was an “intellectual.” Also implied in this criticism was that having had a sound education in some of America’s best schools was a disqualification for the presidency. As strange as it may sound, these were considered “elite” traits unworthy of a prospective president. Add to that the denigration of his apparent popularity abroad and his lack of “experience” and he was considered totally disqualified to be president. Of course the idea was to create a classic class division to win the election

Millions of Americans probably were convinced by these arguments. But many more millions rejected this line of thinking last Tuesday and elected Obama as the next president. In particular the younger voters and the more educated voters appeared to have seen Obama’s liberal leanings, redistributionist tax policy, his first class education, sharp intellect and popularity abroad as qualifications for the presidency. This verdict has significant long-term implications for US politics and governance.

First, all Americans can’t be millionaires, no matter how level the playing field of opportunity may be. Thus it is only fair that the richer in society bear a somewhat higher burden in paying for those services that are for the common good. In addition, and this is important, Americans always open their pocketbooks to help the less fortunate not only in their own communities and country but also abroad. McCain’s “Redistributionist-in-Chief” taunt of Obama challenged this most basic of American traits. Obama, instead of retreating in the face of this attack, counter-punched with conviction that there was nothing wrong in some redistribution through a progressive tax system. After all one of the basic tenets of Christianity as well as every other great religion in the world is that we should share what we have by helping the less fortunate among us.

This leads me to my second point. If “socialism” and “liberalism” in the American context mean a more humane society, many voters did not see any reason to reject these ideas. In the past when Republicans used these terms Democrats ran away in fear. This only reconfirmed the suspicion in the minds of many voters that being liberal must be something really bad for the country. The Obama victory has disabused many of this false notion. America is a liberal democracy that is based on the ideal of freedom. But we now recognize that it is a freedom for all and not for one privileged section of that society. Obama had the intellectual strength and the communication skill to convey this basic truth to a sufficiently large number of voters at this election.

Finally, the outcome of this election creates a great opportunity for America to redefine its liberal ideal. President-elect Obama’s policies from giving a tax break to the middle class, and universal healthcare to tuition assistance for every young person who wants to go to college would help create a new “Humane Liberalism” that all liberals could be proud of. But it also has a big electoral dividend. The numbers suggest that the combination of a higher the level of education with higher income is the best way to strengthen the Democratic brand. This is pure win-win.

By Stanley W. Samarasinghe

US is currently bereft of political leadership, especially on the economy when the country is facing its worst economic crisis since the Great Depression of the 1930s. President Bush is a lame duck president. His numerous statements on the economic crisis hardly get mentioned in the media. In any event nobody believes that he has a profound understanding of the economy. The Republican presidential candidate is a self-confessed innocent of economics. Barack Obama’s current lead in the polls is almost entirely attributable to the belief of the US voters that he has a better understanding of the economy. But he too has so far failed to make a major speech that is coherent and integrated that lays out what he would do if he becomes the president to address the immediate crisis as well as the long term health of the ailing economy. Obviously in a rapidly changing situation there are political risks in laying out ideas that a few days later might look to be lame. But now the fundamentals of the present crisis are clear. Smart and reliable leadership demands some degree of risk taking. Americans are hungry for a clear vision and strong leadership to assure them that somebody is capable of steering the economy that is adrift. Obama has the opportunity fill that leadership vacuum and seal the presidential election in his favor.

He should make a major economic speech that should lay out some sort of credible and integrated plan to salvage the economy from the present crisis and put it back on a firm and clear path to recovery. I identify six major components to a successful Plan/Strategy that has both short-term as well as long-term components. The latter is important to demonstrate that Obama is able think and plan beyond the immediate crisis and is animated by a vision of change for the economy.

1. Financial institutions – unclogging the credit arteries: The recapitalization of the financial institutions and some kind of loan guarantee by the government is a must. Obama’s idea of loans for small business that he spelt out yesterday can be a part of this strategy.

2. Jobs and incomes: Assistance to Small Businesses mentioned that Obama proposed a few days ago is one element. A second government stimulus package – this time on infrastructure development - is a second element of the jobs and income growing strategy. Third, immediate Federal assistance to state governments, counties and local government institutions that need help. Such help can include direct grants and loan guarantees as well as grants from a newly established Federal Infrastructure Development Fund based on the second stimulous package. Fourth, Obama has to flesh out what he means by saying that there would be tax breaks for corporations that invest in US rather than abroad. That will instill confidence in voters in some of the swing states such as Ohio and Pennsylvania. Fifth, Obama’s energy plan can be a major aomponent of a job abd economic growth strategy. Fifth, his healthcare plan fits in nicely with the jobs and income theme.

3. Mortgages: Obama needs to make it very clear how he proposes to assist those who are now facing foreclosure. Obviously if the credit conditions ease and the job slide is reversed and the recession is minimized that will help. But voters need something more specific from Obama. McCain’s idea of wholesale purchase of bad mortgages is a bad idea and Obama has rightly criticized it. But voters want to hear what Obama would actually do that is superior to what McCain has proposed.

4. Reducing the public debt: No nation can live beyond its means. In the Bush/McCain 8 years the national debt has almost doubled to ten trillion dollars. We are now beholden to the Chinese for loans and the OPEC for our oil. Both have to be changed. The latter will be addressed by the Obama Energy Plan. The former has to be addressed by cutting down Iraq war spending, faster economic growth to bring more tax revenue and eliminating waste in government. It won’t be easy to reverse the Bush/McCain profligacy and cut down the national debt but we have to do that. Democrats did it once under Clinton and they can do it again under Obama.

5. Long-term reform of the financial system: We cannot afford to allow Wall Street to run riot again, certainly not after the taxpayer had to sacrifice to rescue the system. Obama has to appoint a bipartisan Presidential Commission to study and report within the first six months of the Obama presidency how we should reform the regulatory system so as to avoid the calamity that befell us this time while strengthening the creative energies of the American financial institutions.

6. International cooperation - Short Term: US must give the lead to reverse the present slide. While it is hoped that in the next three weeks everything possible would be done to fix the system it would be a priority of the Obama transition team to address the issue in cooperation with the outgoing administration and the Group of 7 and others concerned in the international community. Long Term: The international financial system that we currently have emerged in the aftermath of the World War II. It did well for the second half of the 20th century. But we have to think of reforms to meet the needs of the 21st century. The Obama administration will have to address this first at the official level. The process can end with a summit of global leaders to approve a redesigned international financial architecture.

If Obama is able to make a major speech roughly along the above lines preferebaly before the third presidential debateit it will give the public some time to grasp the main ideas. Then he can use the Wednesday October 15th debate to elaborate on a few points that particularly capture the imagination of the public and/or need further clarification. Most important, he must make it very clear that he has a well integrated and carefully laid out PLAN unlike McCain who has started to come up with semi-digested ad hoc proposals. It is important that Obama use the term PLAN when he descirbes his strategy because people realize that the present crisis is systemic and would affect every aspect of the economy from banks, credit and the stock market to housing, jobs, income, and the local school system and the shelter for the homeless. People desperately need reassurance in these uncertain times and Obama has to clearly covey the message that he is fully confident of what he plans for the country from day one. He will do a service to the people and to his campaign for the presidency.

The leaders who gathered in Washington DC this weekend failed to produce a coordinated plan of action to address the financial crisis. This is more than a hint from the other members of the G7 countries that they do not have full confidence in the current leadership of the US. Obama has to demonstrate to the world that America is capable of providing that leadership.