NDN Blog

Economic Connectivity to the Arab World as a National Security Imperative

One of the most important causes of the Arab Spring was a lack of economic opportunity. In his speech yesterday, the President articulated his administration's policy for helping foster prosperity in the region:

Now, even as we promote political reform, even as we promote human rights in the region, our efforts can’t stop there.  So the second way that we must support positive change in the region is through our efforts to advance economic development for nations that are transitioning to democracy. 

After all, politics alone has not put protesters into the streets.  The tipping point for so many people is the more constant concern of putting food on the table and providing for a family.  Too many people in the region wake up with few expectations other than making it through the day, perhaps hoping that their luck will change.  Throughout the region, many young people have a solid education, but closed economies leave them unable to find a job.  Entrepreneurs are brimming with ideas, but corruption leaves them unable to profit from those ideas. 

The greatest untapped resource in the Middle East and North Africa is the talent of its people.  In the recent protests, we see that talent on display, as people harness technology to move the world.  It’s no coincidence that one of the leaders of Tahrir Square was an executive for Google.  That energy now needs to be channeled, in country after country, so that economic growth can solidify the accomplishments of the street.  For just as democratic revolutions can be triggered by a lack of individual opportunity, successful democratic transitions depend upon an expansion of growth and broad-based prosperity.

So, drawing from what we’ve learned around the world, we think it’s important to focus on trade, not just aid; on investment, not just assistance.  The goal must be a model in which protectionism gives way to openness, the reigns of commerce pass from the few to the many, and the economy generates jobs for the young.  America’s support for democracy will therefore be based on ensuring financial stability, promoting reform, and integrating competitive markets with each other and the global economy.  And we’re going to start with Tunisia and Egypt.

First, we’ve asked the World Bank and the International Monetary Fund to present a plan at next week’s G8 summit for what needs to be done to stabilize and modernize the economies of Tunisia and Egypt.  Together, we must help them recover from the disruptions of their democratic upheaval, and support the governments that will be elected later this year.  And we are urging other countries to help Egypt and Tunisia meet its near-term financial needs.

Second, we do not want a democratic Egypt to be saddled by the debts of its past.  So we will relieve a democratic Egypt of up to $1 billion in debt, and work with our Egyptian partners to invest these resources to foster growth and entrepreneurship.  We will help Egypt regain access to markets by guaranteeing $1 billion in borrowing that is needed to finance infrastructure and job creation.  And we will help newly democratic governments recover assets that were stolen.

Third, we’re working with Congress to create Enterprise Funds to invest in Tunisia and Egypt.  And these will be modeled on funds that supported the transitions in Eastern Europe after the fall of the Berlin Wall.  OPIC will soon launch a $2 billion facility to support private investment across the region.  And we will work with the allies to refocus the European Bank for Reconstruction and Development so that it provides the same support for democratic transitions and economic modernization in the Middle East and North Africa as it has in Europe.

Fourth, the United States will launch a comprehensive Trade and Investment Partnership Initiative in the Middle East and North Africa.  If you take out oil exports, this entire region of over 400 million people exports roughly the same amount as Switzerland.  So we will work with the EU to facilitate more trade within the region, build on existing agreements to promote integration with U.S. and European markets, and open the door for those countries who adopt high standards of reform and trade liberalization to construct a regional trade arrangement.  And just as EU membership served as an incentive for reform in Europe, so should the vision of a modern and prosperous economy create a powerful force for reform in the Middle East and North Africa.  

Prosperity also requires tearing down walls that stand in the way of progress -– the corruption of elites who steal from their people; the red tape that stops an idea from becoming a business; the patronage that distributes wealth based on tribe or sect.  We will help governments meet international obligations, and invest efforts at anti-corruption -- by working with parliamentarians who are developing reforms, and activists who use technology to increase transparency and hold government accountable.  Politics and human rights; economic reform.

Something of a mini-Marshall plan for the region, these commerce and investment focused ideas are incredibly important in a region long isolated from the global economy and, with it, the marketplace of ideas. If we look at the greatest success stories of the early 21st century, predominantly Asian and Latin American countries, we see a pattern of connectivity to the global economy. Ending the Arab world's economic isolation should be a cornerstone of America's national security strategy.

Boehner's Debt-Limit Demands and No-Facts Zone

As I wrote Monday, House Speaker John Boehner gave a speech in New York on the state of the economy and our fiscal challenges. Today, the press reacted:

If you read one thing today, be sure to read the Bloomberg piece by James Rowley and Mike Dorning entitled "Boehner Builds Economic Case on Assertions at Odds with Markets, Studies."

In The Washington Post, Ruth Marcus takes a look at Boehner's lack of reality, and says he has an "incoherent, impervious-to-facts economic philosophy." Indeed.

And The New York Times Editorial Page similarly rips Boehner's speech, saying "There is no way to solve the country's fiscal ills without an accurate diagnosis and rigorous prescriptions for a cure. Mr. Boehner's speech was devoid of both."

The massive gulf in understanding between the two parties, either because of ignorance or ideology, about how the economy actually works and what drives the federal deficit, is a big reason why there's a gap between what Democrats and Republicans are willing to do. And it's why there are stories like this about the Biden-led deficit negotiations, because Republicans won't event come to the table in a serious manner. It's good that much of the media has stopped pretending that there is merely a difference of opinion; John Boehner has his own facts.

Silly Things Said Today: Boehner on the Debt Limit

Speaker John Boehner will lay out his path on the debt ceiling tonight in New York and will say the following:

"It’s true that allowing America to default would be irresponsible," he said in the excerpts. "But it would be more irresponsible to raise the debt ceiling without simultaneously taking dramatic steps to reduce spending and reform the budget process."

It's amazing how untrue this is. Debt is a problem because it can ultimately cause problems for the economy. It would be crazy to cause those problems and worse immediately by letting the United States default. I'd imagine that some of the bankers at tonight's speech will impress upon Boehner the perils his way of thinking presents to the financial markets.

After Bin Laden: Mission Not Accomplished on the Economy

A few important stories from the past days on the economy:

Remember, Bin Laden's strategy was to provoke us into beating ourselves, mainly by going bankrupt. We're not broke, but the strategy worked against the Soviets.

Speaking of beating ourselves by racking up debt, Lori Montgomery points out that it all began with a "choice, not a crisis" -

The biggest culprit, by far, has been an erosion of tax revenue triggered largely by two recessions and multiple rounds of tax cuts. Together, the economy and the tax bills enacted under former president George W. Bush, and to a lesser extent by President Obama, wiped out $6.3 trillion in anticipated revenue. That's nearly half of the $12.7 trillion swing from projected surpluses to real debt. Federal tax collections now stand at their lowest level as a percentage of the economy in 60 years.

David Leonhardt writes that the mission is nowhere near accomplished on the economy. He lays out a sensible and obvious path, but one that has eluded Congress so far:

The sensible step for Congress would be to pair long-term deficit reduction with a mix of short-term tax cuts and aid to states, whose budget cuts are leading to layoffs. But Congress hasn't shown itself capable of separating the short term and long term. So the odds of new legislation to help the economy anytime soon are roughly nil.

The Gang of Six's efforts to curb medium and long term deficits have "stalled."

Vice President Biden is meeting with Congressional negotiators to discuss the debt, but Republicans want numbers first.

And the United States is has an inequality problem, but inequality has been on the rise throughout the developed world:

Video: Under Secretary of Commerce for International Trade Francisco Sanchez at NDN

On Tuesday, April 26, NDN hosted Under Secretary of Commerce for Economic Affairs Francisco J Sanchez. Sanchez was joined by NDN Globalization Initiative Chair and former Under Secretary of Commerce for Economic Affairs Dr. Robert Shapiro.

Sanchez discussed the administration-wide effort to promote exports and conduct commercial diplomacy at every level of the American government. With only one percent of American companies engaged in exporting, Sanchez argued that American business can no longer afford to focus on just the domestic market. Instead, Sanchez said business must think globally and look to export to some of the fastest growing markets in the world, as nearly 87 percent of the growth in the world over the next five years will happen outside the US.

In particular, Sanchez focused on how the administration is working to expand market access by reducing barriers for American companies. To that end, he cited recent progress on the Korea, Colombia, and Panama FTAs. He also engaged in dialogue with Dr. Shapiro on matters ranging from collecting data on best practices in exporting to the Doha Round.

GOP Budget Plan Causes Anger at Town Hall Meetings

The GOP/Ryan budget plan is not being so well-received at GOP town hall meetings over Congressional recess. From The New York Times:

In central Florida, a Congressional town meeting erupted into near chaos on Tuesday as attendees accused a Republican lawmaker of trying to dismantle Medicare while providing tax cuts to corporations and affluent Americans.

At roughly the same time in Wisconsin, Representative Paul D. Ryan, the architect of the Republican budget proposal, faced a packed town meeting, occasional boos and a skeptical audience as he tried to lay out his party's rationale for overhauling the health insurance program for retirees.

In a church theater here on Tuesday evening, a meeting between Representative Allen B. West and some of his constituents began on a chaotic note, with audience members quickly on their feet, some heckling him and others loudly defending him. "You're not going to intimidate me," Mr. West said. 

After 10 days of trying to sell constituents on their plan to overhaul Medicare, House Republicans in multiple districts appear to be increasingly on the defensive, facing worried and angry questions from voters and a barrage of new attacks from Democrats and their allies.

The proposed new approach to Medicare - a centerpiece of a budget that Republican leaders have hailed as a courageous effort to address the nation's long-term fiscal problems - has been a constant topic at town-hall-style sessions and other public gatherings during a two-week Congressional recess that provided the first chance for lawmakers to gauge reaction to the plan.

An example of the response came Tuesday as Representative Daniel Webster, a freshman Republican from Florida, faced an unruly crowd at a packed town meeting in Orlando, where some people, apparently organized or encouraged by liberal groups, brandished signs saying "Hands Off Medicare" and demanded that he instead "tax the rich."

On the GOP's biggest issue, it seems to be in the process of blowing the politics. And it's not surprising that a harsh austerity plan is unpopular. At a time of high unemployment, surging gas prices, and stagnant household incomes, offering a plan that offers Americans less from their government seems pretty tone-deaf.

Under Secretary of Commerce for International Trade Francisco Sanchez to Speak at NDN

On Tuesday, April 26, NDN will host Under Secretary of Commerce for International Trade Francisco Sanchez for an address on the challenges and opportunities presented to America by an increasingly competitive global economy. In the days following his speech, Under Secretary Sanchez will attend the World Economic Forum on Latin America in Rio de Janeiro, Brazil, where he will meet with leaders from some of the world's most vibrant economies.

As new economic powers rise around the world, the prosperity of Americans increasingly depends on our ability to export to and do business in these fast growing markets. Under Secretary Sanchez, the International Trade Administration, and the Department of Commerce are central to these efforts to advance American economic interests abroad. Under Secretary Sanchez will be joined by Dr. Robert Shapiro, Chair of NDN's Globalization Initiative and former Under Secretary of Commerce for Economic Affairs.

Under Secretary of Commerce for International Trade Francisco Sanchez at NDN/NPI
April 26, 12:30pm
NDN: 729 15th Street, NW First Floor DC

For more on this event, including Under Secretary Sanchez's biography, please click here.

NDN Statement on President Obama's Fiscal Speech: The Kind of Future We Want

Today, NDN President Simon Rosenberg and NDN Globalization Initiative Chair Dr. Robert J. Shapiro issued the following statement on President Obama's fiscal speech at the George Washington University:

"In his speech today at George Washington University, President Obama offered the nation a thoughtful, balanced, and credible fiscal path forward. His plan should be the starting point for all future negotiations on spending and taxes between the two parties. His proposal achieves the $4 trillion in deficit reduction that the GOP plan purports to produce, and it does so while protecting the basic pledges of Medicare, Medicaid, Social Security.  It also makes room for the critical investments in education, innovation, and infrastructure so necessary for Americans to succeed in the fiercely competitive global economy of the 21st century.  

The contrast between the President's thoughtful fiscal approach and the reckless one offered by the Republican leadership last week could not be more clear. As the President said 'The debate over budgets and deficits is about more than just cutting and spending. It's about the kind of future we want.'"

Said Dr. Robert J. Shapiro, former Under Secretary of Commerce for Economic Affairs, chief architect of Bill Clinton's economic program in 1992, and now Chair of NDN's Globalization Initiative, "In the 1990s, we saw how a smart approach to restraining the fastest-growing areas of spending and raising additional revenues from those who can most afford it could balance the budget  -- and create room for investments that drive economic growth. President Obama's vision is very similar, and it makes me optimistic again about America's future prosperity."

Rounding Up the Ryan Budget: Bad Numbers and Cost-Shifting

I wrote a lot about the magic behind Ryan's budget and GOP economic strategy yesterday, so I'd like to round up some of the smart commentary and analysis about it.

After half the national media descended on their obviously ridiculous employment projections, Heritage scrubbed the numbers from their report - seriously shameful stuff. Here are the links (via Krugman):

As of yesterday.

As of today.

Paul Krugman did a lot of work over the past two days breaking apart the economics and showing the of Ryan budget. As he writes, the part that hasn't gotten enough coverage is the fact that

the biggest source of supposed savings in the plan isn't actually health care, it's an assumption that federal spending on everything except health and Social Security can somehow be squeezed, as a percent of GDP, to a small fraction of current levels. 

Ezra Klein explains why Ryan's projections of health care costs over time are completely unrealistic, and makes this very important point:

This is an important point: there's difference between cutting costs and shifting them. As the Congressional Budget Office noted, a lot of what Ryan's budget does is shift costs from the federal budget to someone else's budget: Medicaid's costs moves to the states, and then when the states cut it, to the people who need it, or to their families. Medicare's costs move to seniors, or to the families of seniors. The budget doesn't have a clear theory for how to spend less on health care. It has a clear theory for how the federal budget can spend less, and other people can spend more. But that's not good enough.

If you like the gory details, the Congressional Budget Office has analyzed Ryan's budget. It's not pretty.

Center on Budget and Policy Priorities President Robert Greenstein describes how two-thirds of Ryan's cuts come from low income programs.

While Paul Ryan and Alice Rivlin worked together on some Medicare reforms, she does not support the version he ultimately included in his budget, despite his implications to the contrary.

There's been a lot said and written in the last day describing Ryan's budget as an honest effort to address a major problem. Half the Members of Congress standing with Ryan yesterday called it "fact based." David Brooks wrote, "His proposal will set the standard of seriousness for anybody who wants to play in this discussion."

Here's the problem with all of that: the Ryan budget is simply not honest. The numbers in it and the economic analysis it relies on are wrong. You don't just get to put a bunch questionable numbers together, say it handles our deficit and debt issues, and declare victory. The tough part is that the plan has to actually handle the issues, and probably shouldn't do so on the backs of the most vulnerable. (One of the core principles of the Bowles-Simpson effort was to protect the truly disadvantaged.) So if Ryan sets the standard for seriousness, that standard is incredibly low.

The Magical Economy, Brought to You by Paul Ryan and the Heritage Foundation

This piece also appeared on The Huffington Post.

When Paul Ryan unveiled his budget today, he touted it as a "Path to Prosperity" and he and his colleagues kept saying it was "based in fact." In reality, Ryan's claims of prosperity are based on an analysis - written at his request by the conservative Heritage Foundation - that has more basis in magic than economics.

For starters, the Heritage analysis's unemployment projections alone are utter nonsense. It claims that - under the Ryan budget - unemployment will plummet from the current 8.8% to 6.4% next year, 4% in 2015, and 2.8% in 2021. Each number is totally impossible - we'll never see 2.8%, and 4% would require run-away economic growth. As Matt Yglesias points out, the Federal Reserve would respond to that type of growth by raising interest rates to avoid inflation, so the levels forecast could never be reached.  (As a reference point, full employment is around 5%, so 2.8% is a total fabrication.)

Furthermore, the Heritage report uses an almost comical conceptual explanation (under the heading "Economic and Fiscal Results" on page 3) of how the tax cuts in the Ryan plan pay for themselves and reduce the deficit. This would be great, if it were actually true. The Bush tax cuts did not come anywhere close to paying for themselves, nor have other large cuts to upper income tax rates. From the Chair of Bush's Council of Economic Advisors, Greg Mankiw:

I used the phrase "charlatans and cranks" in the first edition of my principles textbook to describe some of the economic advisers to Ronald Reagan, who told him that broad-based income tax cuts would have such large supply-side effects that the tax cuts would raise tax revenue. I did not find such a claim credible, based on the available evidence. I never have, and I still don't.

The unfortunately truth is that this Heritage "analysis" represents the lack of reality in which conservative economic policymaking functions. Paul Ryan is getting a lot of credit today for pointing out a large challenge facing America. Sure, we do have a debt problem, but we need to view it in its proper economic context.

America has two large economic problems. The first is an economy that's just not working in the face of rising global competition: a lost decade of median household income decline and wage stagnation followed by a recession and financial crisis from which we have yet to fully emerge. The second is a long-term structural debt problem: the federal government's expenditures far exceed its revenue, and that trend will be exacerbated by rising healthcare costs. And debt is a problem because it can impact the economy itself; it's not right now.

The President's budget is a credible response to the economic challenge: investments in education, infrastructure, innovation, and industries of the future represent a viable economic plan. It also makes down-payments - if incomplete - on long-term debt issues. Let's not forget though, that he already passed the most significant piece of deficit reduction legislation in recent memory - the Affordable Care Act, which the GOP wants to repeal. As former Obama OMB Director Peter Orszag often said, health care reform is entitlement reform. And the Simpson-Bowles fiscal commission report, which Ryan voted against, recommends building on the ACA's cost-controls as a major form of deficit reduction.

Let's contrast the President's approach with the House Republican approach of massive cuts in the near-term and Ryan's budget, which focuses on dramatically reducing the size of government. In the near-term, the House GOP agenda of $61 billion in cuts would, according to McCain campaign economic adviser Mark Zandi, cause 700,000 jobs to be lost by the end of 2012, and, according to Federal Reserve Chairman Ben Bernanke, cause the loss of 200,000 jobs. Goldman Sachs estimates a 1.5 to 2% reduction in GDP.

In the long term, Ryan offers no strategy to make America more competitive, increase employment, or make people's lives better. Rather, he offers reduced benefits, namely to the elderly, the poor, and the handicapped, and cuts taxes for the wealthy. (His one sop to competitiveness is corporate tax reform, which President Obama also favors.) Forget about the immorality of his budget for a moment, (well, don't, it's pretty appalling) the fact is that Ryan's budget offers no real path to economic growth, other than fudged numbers from the Heritage Foundation, and a questionable, slash and burn approach to deficit reduction.

Taken together, it's clear that the GOP isn't focused on the real problems facing the country. At a time when Americans want more jobs and more growth, the GOP strategy - if you believe the analyses of George W. Bush's Federal Reserve Chair, a McCain economic adviser, and Goldman Sachs - is to create less. And, if you believe the analysis of Bush's Council of Economic Advisor Chair, their deficit reduction strategy is deeply flawed too. Unless, of course, you believe the Heritage Foundation's analysis that Paul Ryan's budget is made of magic.

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