Friday, May 4, 2012

Book Report: “White House Burning”

Book Report: “White House Burning”  By Simon Johnson and James Kwak

I guess you could say that I have had a rather singular focus in regards to my reading selection in recent months… It’s been all about America’s economy.  I started with Bill Clinton’s “Back to Work” and quickly moved on to Bruce Bartlett’s “The Benefit and the Burden”, and I still have a desire to learn more so now that I have finished “White House Burning” I will be reading at least one more.  Tom Coburn’s new book “The Debt Bomb: A bold plan to stop Washington from bankrupting America”.  But, before I move on to “The Debt Bomb” I want to give you a brief review of “White House Burning.” 

“White House Burning” provides a surprisingly applicable perspective on America’s economic and fiscal history.  Starting as far back as our founding fathers in the 1700’s and leading into the present, authors Simon Johnson and James Kwak provide clear analysis of how sound economic policy helped shape America into the most powerful nation in the world.  From America’s days under the boom and bust “gold standard”, to the move to paper currency, and eventually how the American dollar become the worlds #1 currency. 
Since “White House Burning” takes a more historical approach to our economic and fiscal situation the book can easily be broken down into three sections: The Past, The Present, and The Future.  

The Past:
Mr. Johnson and Mr. Kwak do a great job of highlighting specific moments in our nations history that directly reflect the problems we currently struggle with today.  Whether citing political conflicts of how to fund the War of 1812 or how best to stop an economic “death spiral” after the stock market crash of 1929, “White House Burning”  parallels today’s economic and fiscals problems with stunning success.  This idea that we have been through these struggles before was both ENCOURAGING and DISCOURAGING, allow me to explain.  On one hand, it was absolutely encouraging to read about strikingly similar problems from American history where we were able to work together, find solutions, and overcome overwhelming odds.  On the other hand it was discouraging because when I look at the political landscape today I don’t know if I see an Alexander Hamilton, or a Franklin D. Roosevelt, or a Dwight Eisenhower, who was willing to go against his own party and make the UNPOPULAR decision to raise taxes because it was the right thing to do for the country’s economic future.  I am discouraged because I do not see the same political courage in our current leaders that America has been blessed with in years passed.  There are a few out there but their voices need to be louder in our economic and fiscal debates. 
Before I wrap up “The Past”, there was one more thing that truly stood out to me while reading through the history presented in “White House Burning”…Republicans were not always anti-tax/anti-government zealots, it’s just so happens that the anti-tax/anti-government movement has taken hold in the Republican Party during my lifetime.  Before Reagan, Republicans were much more balanced in their political objectives and the way they governed.  Please do not misunderstand, I am not blaming Reagan for Republicans going insane, I mean if Ronald Reagan were to run for office today he couldn’t win a primary or hold any office under the Republican banner considering how much the anti-tax/anti-government movement has permeated the party.  So going forward I will direct my scorn at the appropriate culprit, those in the anti-tax/anti-government wing of the Republican Party. 
The Present:
I do not want to just repeat similar themes that appeared in this book.  If you have read my other book reviews, or are paying attention to current events, you are already aware of the economic and fiscal problems our nations faces:  A slow economic recovery, income inequality, rising entitlement costs, a very poor tax code, and hyper partisanship to just name a few. However to cut through some of the political rhetoric, here is where we stand today in a very small nut shell…Government spending is up and federal revenues are down.  Simple enough?  As a percentage of GDP, government spending is around 23/24% of GDP however federal revenues have fallen around 15% of GDP.   This gap between government spending and government revenue has increased because of the 2008 economic collapse.  Higher unemployment, more people receiving government assistance, fewer people paying taxes, lower wages, this is why our annual deficits are so large.  However one point that “White House Burning” highlights effectively is “demographics”, especially the “baby boom” generation in America’s population.   This demographic is important to take note of because they are such a vast group.    “White House Burning” correctly points out that regardless of policy, regardless of whether the economic collapse happened or not because of America’s demographics, entitlement and healthcare costs were going to rise.  The “baby boom” generation is at retirement age and while they did help create the surpluses seen during the Clinton years, they are now going to help create some deficits.  The baby boomers are leaving the work force which means fewer taxpayers and lower federal revenues.  It also means more people on Medicare, Medicaid, and Social Security, which creates higher government spending.  This situation could not be avoided unless we were willing to pull the social safety net out from under our seniors.  Now could the budget deficits be smaller?  Sure poor fiscal choices were made in recent years which compounded an already difficult time for America’s economy, but its important to separate the problems which are due to poor choices and those which are just a product of “demographics.”

The Future:
Honestly I wasn’t sure about the author’s political leanings until I got the “solutions” part of “White House Burning.”  However the authors do put forward a rather “democratic” solution package for getting American back on track economically.   From allowing ALL the “Bush tax cuts” to expire, raising the social security payroll tax cap (a great idea), support for The Affordable Care Act (Obama-care) insurance mandate, repeal of employer health plan exclusion over time, more open biding process for DoD contracts, eliminating redundant operations and agencies in the Defense Budget, establish a “carbon tax”, remove all but a hand full of tax expenditures, and finally establish a small “consumption tax” (also called a VAT –value added tax).   Now I am sure many of you read all that and see a lot of increased or new taxes…well yes… “White House Burning” does propose increasing revenues in a variety of ways.  However Mr. Johnson and Mr. Kwak recommend that up to 50% of the NEW revenues created be redistributed to poor and low-income families in the form of tax rebates or modified tax rates.  These modified income tax rates or tax rebates will ensure that increased federal revenues will not be financed on the backs of the least advantaged in our society.  Are these proposals likely to be adopted as law? Um…no, but increased revenues are necessary to any serious plan which hopes to balance the budget.   Perhaps a bit more balance with spending cuts to these proposed revenue increases would get us on the right path. 

What do you think about spending cuts vs. increased revenues?  Should the ratio be 1:1, 2:1, 10:1?