Winning The Obama Republicans

Presidential Races can be close. They can also be blowouts. Ronald Reagan's 1984 defeat of Walter Mondale was a blowout: every state except Minnesota went to Reagan. In contrast, the 2000 race between Al Gore and George W. Bush was so close that a single state going the other way could have changed the outcome of the election. In 2012, the Presidential race may be very close. It is likely that independent and moderate voters, which actually make up a majority of the American people, will be the group that decides the race. The far-left won't vote Republican and the far-right won't vote Democrat. The center, however, could go either way.

In 2008, nearly 1 in 10 Republicans voted for President Barack Obama over their party's nominee, John McCain. These so-called "Obama Republicans" or "Obamacans" helped the President secure the win. Likewise, in 1984 Ronald Reagan was able to win 49 of 50 states because of the support of "Reagan Democrats" and other moderate voters. President Reagan, after all, helped curb inflation, reduced taxes, grew the GDP, and helped create jobs in America. Moderate Americans support those principles, and if President Obama can do the same, moderate Americans -- including, yes, some Republicans -- will vote for him again in 2012.

It is clear that the number one priority of the American people is the economy. Financial issues, not social issues, are what Americans care about. For many Americans, it doesn't matter if something is a Republican solution or a Democrat solution, but rather if something is a working solution. If the far-left ideas of greater regulation and higher taxes created more jobs in America, raised the average families income, and improved the GDP, most Americans would be happy. Unfortunately, it has been shown in the past that the best way to bring prosperity to America is by embracing supply-side economics. As Arthur B. Laffer mentions in the Wall Street Journal, supply-side economics created 21 million jobs between 1982 and 1990.

Unfortunately, for President Obama, should he fail to America on the path to economic prosperity, the people will start to demand change. Not the "change" he campaigned on, but change to a different leader, likely a more conservative, Republican leader. The best way for President Obama to win an election in 2012 is not through charismatic campaigning and the support of large unions, but rather by bringing economic prosperity to the American people.

Breaking Our Addiction

The United States could potentially face a major energy crisis this year. Gas prices could hit $5/gallon by 2012, or more conservatively approach the $4/gallon mark. Additionally, the cost of electricity and heating would rise. The price of goods would rise as well, due to a need by suppliers to recoup increased costs of production and transportation or shipping. The economy would be severely hit, as was the case after the energy price spikes caused by the Iranian Revolution and Iraq's invasion of Kuwait.

A situation could arise next winter where millions are unable to afford home heating bills. The colder the winter, the worse this situation will be. People unable to afford heating oil might resort to trying to use other means of heating their home, which can often lead to dangerous or deadly consequences. Families planning to take vacations would have to cancel due to higher costs to drive, higher costs to fly, and less money available due to having to pay more for gas, energy, and other normal day-to-day goods. As a result, industries that rely on tourism would see earnings fall. They might be forced to reduce the size of their workforce, resulting in greater levels of unemployment, and even more American families who can't spend as much. The vicious cycle could truly bring the current recession from bad to worse.

The reason the American people risk facing $5/gallon gas is because of the lack of a sound energy policy. Indeed, as President George W. Bush said, "Keeping America competitive requires affordable energy... We have a serious problem -- America is addicted to oil." Like a junkie addicted to crack cocaine, the United States continues to simply pay the market price for the substance it is addicted to, rather than seeking means of eliminating the addiction. Under the administrations of President Barack H. Obama, President George W. Bush, President William J. Clinton, President George H. W. Bush, President Ronald W. Reagan, President James E. Carter, and even before, no sound energy policy has not been developed. The United States needs an energy policy that is sound and realistic. While any energy policy will have a very limited immediate effect on the economy, the long-run effect of a sound energy policy will be greater prosperity for the country.

A major effort of an energy policy must be for the United States to reduce its dependency on foreign oil and energy. The United States should not be subject to the OPEC cartel's manipulation of the market, because the country should be engaging in more drilling, both on land and off-shore. A large resource of oil exists in the Gulf of Mexico. If the United States declines to tap into that resource, then it will miss out while Cuba and Russia tap it. Additionally, the use of ethanol and development of bio-fuels can take place in order to produce more fuel domestically.

Coal, while still a "dirty" way to produce energy, has become much cleaner with modern technology than past coal use. For energy production today, coal remains a good option. Additionally, nuclear power is a great option for energy production. It is extremely clean compared to oil, gas, or coal. The United States hasn't built a new nuclear power plant since 1996. More nuclear plants should be built. Realistically, however, the supply of coal will eventually run out, as will the supply of oil, gas, and possibly uranium. More nuclear plants only provides a short-term solution. Thus, for long-term energy production, the United States must focus on sources of energy that are renewable, such as solar, wind, geothermal, and hydrogen. Before these sources of energy run out, the Earth as a planet that can sustain life will no longer exist.

To move the country forward towards eliminating its reliance on foreign oil and eventually eliminating reliance on sources of energy that will run out, the government's energy policy must incentivize advancement and research. The message must be sent to oil companies that oil is on the way out, and that in order to remain competitive in the long-run, they must diversify their business into other areas. Companies like Exxon Mobil would be wise to continue producing oil, while also investing heavily into renewable sources of energy. In the long-run, their businesses remain profitable by transforming from primarily selling oil to primarily selling energy from renewable sources. The way to send this message is not to hike taxes on oil producers, but to provide tax credits for investing in renewable energy, and allowing tax deductions for profits from renewable energy production.  Further, individuals and businesses large and small investing in renewable energy should be provided with incentives. Whether it is as small as a homeowner adding solar panels to their roof, or a company investing in a major research effort to developing a car that can be fueled up with water, there should be a tax credit for the money spent on it. Additionally, the government should have a policy that landowners may use the land they have purchased for any production of renewable energy without having to go through long approval processes. Often, people fight against the production of windmills in their areas. If someone owns a plot of land and wants to fill it with windmills, there should be no restriction on allowing them to do this. Likewise, if an existing business wants to place windmills or solar panels on its roof, there should not be a barrier of a long, costly process of approvals.

The United States' transformation away from it's addiction to oil and use of non-renewable sources of energy will not happen overnight, nor will it happen in a year or even in one President's administration. However, for long-run success and prosperity, the country needs sound, realistic energy policy that is adhered to.

Obama and Supply-Side Economics

It is speculated by many that when President Barack Hussein Obama returns to the White House from his Hawaii vacation that he might make a push for an overhaul of the tax code that would utilize supply-side economics in order to increase government revenue and address the national debt. The following was reported by the New York Times last month:

President Obama is considering whether to push early next year for an overhaul of the income tax code to lower rates and raise revenues in what would be his first major effort to begin addressing the long-term growth of the national debt.

What President Obama is considering is very much like the supply-side economics (given the nickname "Reaganomics") that former President Ronald Wilson Reagan utilized in  the 1980s in order to give the United States one of its greatest non-war time periods of economic growth and prosperity. Supply-side economics is based on the concept that by making it easier for producers to supply goods and services, more goods and services will be supplied at more competitive prices. To make it easier for goods and services to be supplied, tax rates are lowered and the government eliminates unnecessary regulation. Government revenue from taxes will increase in the long-run, as a stronger economy will result in there being more money to tax. Essentially, volume makes up for lower tax rates. Would you rather have 30% of $2,000 or 25% of $2,600? The smart answer is 25% of $2,600, which is $650. Taking the other option, while a higher percentage, gives you less money (only $600.)

The concept of supply-side economics increasing government revenue is mathematically sound through the use of the Extreme Value Theorm and the Laffer Curve (shown at left). The Extreme Value Theorm states that for any closed function on an interval from point A to point B, there must exist a minimum and maximum value. The Laffer Curve uses the basic mathematical principle that any real number multiplied by zero will equal zero and the idea that if the government took 100% of income there would be no incentive for anyone to earn money since the government would simply take it all. The Laffer Curve shows government revenue from a 0% tax rate (point A) to a 100% tax rate (point B). Applying the Extreme Value Theorm to the Laffer Curve, it can be concluded the minimum value is zero, and that there must exist a maximum value. t* is the tax rate at which government revenue is maximized. In order to reach maximum government revenue, tax rates must be decreased if they are to the right side of t*, which is where today's tax rates are.

Under President Reagan, the median family income in the United States rose by $4,000 from 1980 to 1988, government tax revenues increased more than 50 percent, and the number of jobs in the country rose, as did the GDP. The economic policies that some, including former President George H.W. Bush, labeled as "voodoo economics" actually worked. "Reaganomics" was a success, and if President Obama moves forward in 2011 with an embrace of supply-side economics, it will only strengthen our economy and bring greater prosperity to the American people. In fact, if President Obama embraces supply-side economics, in 30 years people may look back and credit "Obamanomics" for getting the United States out of one of it's worst recessions.

Tax Hikes Deferred!

Minutes ago, the House of Representatives passed a tax relief bill that would keep current tax rates in effect for two more years. While this simply will give the country a problem to deal with in 2012, it provides two years of tax relief that can help the economy recover.

As readers of this blog know, The Report is not the biggest fan of President Obama. However, the President deserves recognition for listening to the will of the American people, and working with the Republicans against the wishes of far-left liberal Democrats who wanted the "Bush tax cuts" to expire, resulting in the poorest Americans experiencing a 50 percent tax hike during a recession with high unemployment. The Republicans also deserve credit for forcing Congress to prioritize tax relief by refusing to allow any other legislation to pass until a tax relief bill came through. Finally, those moderate Democrats who put the will and interest of the American people before political ideology deserve credit for casting votes in favor of the tax relief bill.

The implications of the tax relief bill passing will be noticed tomorrow morning. When the New York Stock Exchange opens, expect to see stocks move upwards. Had tax relief failed, the bears would have taken over the market. There would have been major selling, as people fear the economic damage that a lack of tax relief would cause and also would look to take profits before capital gains tax increases. However, because of persistence and compromise, the American people have been spared tax hikes for at least two years.

TARP Wasn't Obama's Doing

47 percent of Americans believe that TARP, the Troubled Assets Relief Program, that helped prevent the collapse of several financial institutions during the worst of the recession was the doing of President Barack H. Obama. Some who opposed TARP and other "bailouts," see them as a socialist concept that a liberal President decided was a good idea.

The truth, however, is that 47% of Americans are wrong. TARP was actually signed into law by President George W. Bush on October 3, 2008, several months before President Obama took office. In his book Decision Points, Bush discusses the creation and thought process behind TARP in Chapter 14, titled "Financial Crisis." There is no doubt, the financial crisis started during the Bush administration, and some of the blame should fall on the Bush administration. However, the Obama administration policy of pushing all of the blame on the Bush administration is improper. Under President Obama, the economy has become worse. When President Bush left office, unemployment was high. However, under President Obama, unemployment went even higher, from 7.6% to last month's 9.8%.

There is no doubt about it, TARP did help the economy in the short-run and in fact helped the country's deficit as TARP funds were paid back at a profit of over $25B. The difference between TARP and the Federal Reserve's "quantitative easing," is that TARP wasn't an expansion of the money supply, but rather a series of loans that would be repaid earning the lender (the government) interest and profit. TARP was, by no means, a socialist program that involved the redistribution of income from the American taxpayers to banks and other companies that made poor decisions.

While TARP wasn't something President Obama has done, the President deserves credit for having pushed forward items that are beneficial to the economy. The President's current push for unemployment benefits to be extended is a push in the right direction. Ideally, job creation would take place at a rate that makes an extension of unemployment benefits unnecessary. However, the ideal situation is unrealistic right now. If Americans find their unemployment benefits coming to an end with no job in sight, it will lead to more economic troubles as people are forced to default on obligations such as credit cards, utility bills, and mortgages. This will lead to even more foreclosures and more bankruptcies, which will have a negative effect on the economy. Congress would be wise to listen to President Obama when it comes to extending unemployment benefits, and Congress would be wise to also ensure that no American faces an increase in taxes on New Year's Day.