The Tale of Two Campaign Strategies

It is now clear what the campaign styles are going to be with Governor Romney and President Obama.  I decided I would write about this because a lot of impatient Republicans are getting anxious and demanding that Romney goes on the attack in a way that John McCain never did.  However, if you understand the strategy as I think I do (though I could be completely wrong), you’ll have a great appreciation for what the Romney camp is doing.

First, I wanted to discuss the Obama campaign strategy, which is very much like Obama’s presidency: spend, spend, spend and talk, talk, talk.  The Obama campaign knew all along that their only way of winning was to flood media with negative ads on whomever the competition would be.  It is not a coincidence that Obama spent the last 3.5 years raising money for his re-election.  Already, the Obama campaign is spending millions of dollars trying to define Romney early, much like Bush did against Kerry.  There are three main problems with this portion of their strategy:

• Money is not coming in as fast as Obama would like; Romney actually raised more money than Obama the past two months and Romney has a lot of Super PAC money backing him too.
• The number of battleground states are growing, increasing the need for money.  At this point in the election, the Obama campaign would hope that the race would be narrowing, now opening up.
• The Obama campaign has outspent the Romney campaign by leaps and bounds and yet, the polls reflect a tie right now.  If you’re going to try to start the race fast and hold on to the lead, you need to have a lead to hold onto.

The second piece of the Obama campaign strategy is to get Obama out talking to as many folks as possible.  The one thing Obama has going for him is that his likeability numbers are pretty good, so they want to get him out there to shake hands and kiss babies.  You’ll see a lot of talks so that he can get 30 second clips in the media with him rallying crowds.  The main problem with this is that people have seen Obama talk a million times and each time, it loses its luster and coverage.

Now, onto the Romney strategy.  Imagine if you will a slingshot; at first it would appear that the projectile is going backwards as it slowly gets pulled back, but then in an instance, it is catapulted forward.  Romney runs his campaign very similar.  Do you remember the primaries?  Romney wasn’t aggressive, played it pretty safe, and did not make any big mistakes.  After Newt Gingrich got in the lead and threatened Romney, the Romney campaign (and its supporting Super PACs) overwhelmed the Gingrich campaign with a shock and awe styled campaign and took Gingrich out of the race quickly.  I would look for Romney to hold onto their money until it really matters and then go wild.  In the primaries, he showed he can go after people in the debates, can be just as dirty as the Obama campaign is right now, and he knows when to turn it on.

There are three good reasons why I believe Mitt Romney should not get overly aggressive (as many Republicans are suggesting) at this point in the election:

• In the summer, most people (besides me) are not hanging on every word that is said in the Presidential election and are probably sick of all the Obama ads already.  They are waiting for the initial noise to stop and the presidential candidates to offer real solutions and policy.
• The items that the Obama campaign is going after are small potatoes.  They talk about how he carried his dog on vacation, how he may have picked on a kid over 30 years ago, how his company may have outsourced some jobs overseas over ten years ago, and the list goes on.  These are not the issues that are make or break issues for president.  Although it can help paint a narrative, a well timed response in a debate or speech can offset millions of advertisements in an instance.
• The traditional role of the vice presidential candidate is that of the attack dog.  Usually, the vice presidential candidate is the one that goes after the other presidential candidate and Romney has not picked his VP yet, although it is coming soon.  Allow Romney the time to pick his VP and then let his VP go to town on Obama, without hurting Romney’s likeability ratings.

Romney has a lot of money in his campaign war chest and is using it conservatively.  I would imagine they have plenty of ads ready to go to convince independents to go Republican.  Statistics show that the majority of undecideds at this point will go for the challenger because they know enough about the incumbent, that if they aren’t behind Obama now, there is not much he could possibly do to swing their vote. So relax, the statistics thus give the edge to Romney when the polls are tied and Republicans are in a good position to win!

Capital Gains Tax Rate – Just Leave It Alone

There has been a lot of talk about the tax rates of Warren Buffet, Mitt Romney, and President Obama.  Most people don’t remember this, but when then Senator Obama ran for office, he said was going to pay for all his campaign promises by ending both wars (Iraq & Afghanistan), increasing taxes on the rich (by letting the Bush tax cuts expire), and increasing the capital gains tax rate.

Income made on investments get taxed at a 15% rate vs. income from a job, which reach as high as 35%.  However, when Obama got into office, there was a recession going on, which crushed our stock market.  Essentially, there were little capital gains to tax, they wanted to encourage people to invest in companies, and a tax hike on capital gains in his first year during a recession would have been toxic politically.

Now that the dust has settled and we are seeing a small recovery, President Obama wants to increase taxes on capital gains and on the rich as he goes back into campaign mode.  Adversely, some Republicans and conservative blogs say that we should get rid of capital gains to increase the incentive to invest in the marketplace.  I believe the government does play a role in producing an environment that promotes economic growth, but they also need to be careful about putting too big of incentives on either side so as not to disrupt the balance of reasonableness and the power of the free market.

I do not believe we should increase the capital gains tax rate because for the majority of Americans, it is double taxation.  We get taxed when we earn income from our jobs, and then that money gets taxed again if we make any money with it on an investment (note: that same money gets taxed a third time when you die).  Further,  I think it is good to have an incentive (lower taxes) for people to invest in companies.  Financial investments in corporations lead to hiring, innovation, and profits.

It is not good policy in my mind, to promote too much risk by having a 0% tax rate on capital gains.  Too many people would try to make all of their money on investments so they do not have to pay taxes, which could be dangerous at the macro level.  Investing in the stock market is no guarantee and can be extremely risky.  If you don’t believe me, ask the thousands that had to come out of retirement because their portfolio shrunk to nearly nothing when the recession hit.

The current 15% capital gains tax is fine in my mind — not too high, not too low.  I definitely think we can talk about capital gains tax rates if we are talking about restructuring the entire tax code, but it is a low priority topic right now in my mind.

The Election Begins: Obama vs. Romney

After months of being dormant on the blogosphere, I am back.  Bored and confused by the primaries, the Republicans finally have a candidate to go against President Obama.  Although there are a plethora of topics I’d love to dive into, I thought I’d start with framing up the 2012 Presidential Election.  So far, I’ve heard this election is about the women vote, the independent vote, the hispanic vote, the swing states vote, the religious conservative vote, and just about every other option.  So which group is it?  The truth is that it cannot be about one group of people, it is about what candidate do you trust to improve our country.

A few comments on the aforementioned groups:

• Women vote – I believe both candidates underestimate the diversity of thought among women.  To put all women in a group and say they have a collective set of key issues is vastly misplaced and demeaning in my view.  Like men, women have a variety of views and issues.
• Independent vote – most believe independents are people right in the middle.  The truth is, most have strong views on the left and strong views on the right that leave them conflicted – for example, they may be socially liberal but pro-life.  The candidates who spend time arguing their points versus bad mouthing their opponent will convince independents to vote for the strong view on that candidate’s side.
• Hispanic vote – a large majority of Hispanics are Catholic and have a lot of conservative principles.  However, Republican have not typically come alongside Hispanic voters.  Bush carried 45% of Hispanic votes vs. McCain only getting 31%.  Romney is in the drivers seat on this one.
• Swing State votes – these 12 states will ultimately decide the election, but their key issues are quite diverse.  Because of their diversity, there ends up being little difference between a general election campaign and a 12 state campaign.  The only real difference is that they will have more visits in these states.  With today’s 24-7 media coverage, it doesn’t really matter where presidential candidates stop because even if they were in your home town, you probably wouldn’t see the events live anyway.  The only interaction you’d have is waiting in traffic longer.  On a side note, I do think this could affect Romney’s VP choice.
• Religious conservative vote – Even though Romney has flip flopped on some religious conservative stances, he has aligned with their views and will still be much closer to their views than President Obama.  Like other sects of the population, although they have viewpoints they are passionate about, they will look to the candidate that they feels gives the United States the best chance at success.

In 2004, Democrats hated Bush with a passion.  I believe Republicans disapprove of Obama’s leadership in a similar fashion in 2012.  Many Republicans are counting on that passion to win the election.  However, like in 2004, you cannot win an election based on hatred of the other candidate.  People do not vote against a candidate in the booth, they vote for a candidate in the booth.  If they are not mildly excited about the direction that candidate is going to attempt to steer the country towards, they will not show up to vote for their candidate–this is especially true with independents.

If you ask people today what John Kerry’s top issues were, they’ll rarely be able to tell you because his campaign focused on Bush bashing rather than casting a vision.  You can see the power of casting a vision by looking at the 2008 Obama campaign, which casted a vision of Republicans and Democrats holding hands, Washington working together to cut deficit spending, and more.

President Obama’s strategy this time around appears to be one of divide and conquer.  He is trying to divide the country and get enough sects of the population to support him in order to get a majority.  He does this by alienating groups and demonizing Romney.  For example, he’s willing to lose the “rich” group if he gets the middle and poor class by calling Romney a rich person not in touch with the American people.

For Romney to win, he needs to focus on casting a clear vision of where he wants to bring America.  It will take a lot of discipline to stay on message and use every opportunity he has to share his vision, especially with the onslaught of distractions and attacks from the Obama campaign.  I personally believe Obama has been worse than Jimmy Carter because Carter’s failures didn’t cost $5 trillion in four years.  Although Ronald Reagan pointed out factual information that showed Carter’s shortcomings, the main reason Reagan beat Carter was because of the positive vision he cast for the United States that rallied people on both sides of the aisle.

It is going to be a very close election…should be fun!

Are We Really Free?

I will be getting into a series on basic economic principles soon.  I have done all my research working within the confines of a democratic, free society.  The more I thought about it, I started questioning our true freedom.  I want to share a few concerns:

Freedom of Property:

Democracy started with the idea that people were willing to pay a body for protection of their property.  Although people were willing to give up money for protection, they were not willing to give up their property rights; people maintained that you have the right to do what you want on your land, true freedom.

The world is a different place now.  Eminent domain is when the government obtains private property without the consent of the citizen (for a fair market value).  The only threshold is that it needs to be used for “public good.”  In Lakewood, Ohio, the government forced a family out of their home to build more expensive condominiums.  In the City of Meza, AZ, the government forced a man who inherited a brake repair shop from his father out of his shop to sell the land to make way for an Ace Hardware.  In New York City, the government forced a man out of his property that his family had owned for over 100 years to make a new headquarters for the New York Times.

There are thousands of gross examples of eminent domain and the threshold seems to be dwindling, along with our property rights.

On a more simple level, my friend tried to build a deck on the back of his house in the suburbs of Minneapolis and the city did not approve the plans.  Another friend wanted to take down his one car garage and put in a two car garage and had to go get approval from his city.  It was approved, but the fact that they have that power to determine what I do to my house is scary to me.

Freedom of Convene:

A couple was fined $300 in San Juan Capistrano, CA, for having a Bible study.  The city said they were fined because they did not have a special permit to transform a residential area into a place where people regularly assemble.  In a democracy, people must have the right and freedom to convene.

Freedom to Contract:

Two people should have the right to contract with each other.  Even if there are risks involved, parties can negotiate around those risks.

The FDA has shut down local grown farms that sell to neighbors for various reasons.  In one instance, the FDA seized a family farm that made cheese because they thought the cheese might have Listeria, despite no proof.  The FDA has even shut down lemonade stands.  The FDA is one example of a governmental body that is taking away our ability to contract freely with other people.  The government does not think we can make our decisions or negotiate, but that we need the government to tell us with whom we can do business.

Freedom to Work:

Did you know that one of three Americans need a license to do their job?  In other words, 33% of Americans need permission from the government to do their jobs!

I could go on and on…

The more you think about it, little by little, we are losing bits and pieces of freedom, especially by city ordinances.  Every time the government increases, our freedoms decrease.  Freedom is an extremely important economic subject because in a “free” economy, resources flow to the most efficient medium.  When the government spends money, it is not typically an efficient use of resources.  For example, in Los Angeles, $111 million in stimulus dollars translated into just 55 jobs (roughly $2 million per job).

Debt Ceiling Debate – Finally There is an Acceptable Plan!

In my last posting, I said there were three keys to a ‘successful’ debt debate: deal by August 2nd, major, but gradual cuts, and address entitlement programs.  Boehner and Reid’s plans being proposed probably won’t be agreed upon by August 2nd, they’re not major, and neither address entitlement programs.

Here’s what you need to know:

• What they do not tell you is that every year, there is an assumed 7.5% increase in spending on autopilot.  So, when they say they are going to save $2 trillion in 10 years, they may be adding around $9 trillion, and then cutting $2 trillion, equaling a net gain of $7 trillion in additional debt. They’d save more if they just froze spending.
• Despite the Tea Party being mocked, if it wasn’t for them, America would not care about this debt ceiling debate.  The debt ceiling has been raised over 70 times and this is pretty much the first time America cares.
• There is only one plan being proposed that is worth looking at right now, the Connie Mack “Penny Plan.”  The plan isn’t perfect, but it makes sense.

Before I explain the plan, I should admit that I have not yet seen the actual verbiage of the bill, I have just heard the writers talk about it’s features:

• The “Penny Plan” is the only plan that has real cuts.  Essentially, the plan freezes spending this year and then cuts federal spending by 1% (vs. raising it 7.5%) every year for the next six years.  By doing this, we would have a balanced budget in 5-8 years.
• The plan would then cap federal spending at 18% of GDP going forward (which is where federal spending has traditionally been).  A balanced budget amendment would be much more feasible at that point.
• The plan allows Congress to decide how to make the cuts, but if they cannot decide, it mandates a 1%  across the board cuts.

Although the plan does not address entitlements immediately, the plan is simple and makes real cuts.  The plan has a path to a balanced budget, which could keep our triple A credit rating and put markets at ease about the future of the United States.  Last, at 1% annual spending reductions, the cuts are gradual and humane.  If Congress cannot find 1% in cuts in fraud and waste alone, then they aren’t qualified to be leading our country!

Debt Debate – Who Will Win?

Amidst all of the debate about the debt ceiling, my big question is, who will win?  I think this question is particularly interesting because most Americans do not know what side they are on.

First of all, Americans are desperately looking for a solution in Washington and are not finding it from either party.  In 2008, the electorate ran from President Bush and the Republican party to heavily endorse the Democrats.  Two years later, Republicans recorded the biggest turnaround in our history.  Yet, despite the pendulum swinging back and forth, the Congressional approval rating is currently sitting at 18%, according to Gallup polls.

If you look at the debt crisis, 69% of Americans say Congress should not raise the debt ceiling, according to a recent CBS poll.  The debt ceiling has been raised 74 times, but this time it would seem to be different.  Further, 73% say spending too much is to blame for the debt crisis (vs. not taxing enough), according to a Gallup poll.

It would seem that Americans support reducing the deficit by reducing spending.  However, when people are polled about whether they still support cutting spending when the spending cuts affect them personally, the tide changes quickly.  More specifically, people get really nervous when cuts to entitlements (Social Security, Medicaid, Medicare), which make up over 50% of the budget, are discussed.  According to Gallup, 66% are worried about cuts to Medicare, and 65% are worried about cuts to Social Security.

Gallup polls also show that Americans are looking for their leaders to make compromises and work together.  I have to give credit to President Obama for announcing today that he is open to increasing the age for Medicare eligibility from 65 to 67, which goes against his party lines.  John Boehner also seems to be willing to negotiate on a lot of issues as well.

Even if Boehner and Obama develop a compromised plan, it is not a guarantee that Congress will vote for it.  When it comes to voting, the politicians that toe the party lines are often the ones that get re-elected.  Michelle Bachmann has become quite popular for voting against compromises, despite her one vote never being a deciding vote.

So who wins in this battle?  I think the only potential victor is the American people if three things happen:

• An agreement is reached by August 2nd so we do not default on our debts and hurt our credit rating.
• We need major, but gradual cuts to the long-term budget.  Our annual deficit is conservatively $1.5 trillion, which is $15 trillion of additional debt over the next 10 years or roughly $29 trillion in total debt.  Congress and President Obama have discussed reducing the deficit (not the debt) by $4 trillion over 10 years, which would still make our debt be around $25 trillion in 10 years.  We need major cuts.
• Entitlement programs have to be changed in a humane, but impactful way.  The entitlement programs are the ticking time bomb, growing at uncontrollable, exponential rates.  If these programs are not changed, then we do not have much hope for a legit solution to our budget issues.

It is going to be difficult to find a solution for this one.  Ultimately, all of the solutions above involve self-sacrifice and personal responsibility by all Americans.  We can either be a nation that fights through a tough problem or we can be a nation that pushes the problem down the road.  Either way, we’re going to have to face these issues eventually.

Oil Prices…Ugh!

About a week ago, I discussed how Obama’s release of our strategic petroleum reserves was idiotic and would have no long term benefit.  Well, in just a week, the price of oil is already going up again (is now a good time to say, “I told you so?”).  Consider this another Obama “stimulus” that did not stimulate anything but more debt.

The price of gas is up $0.80 per gallon from the same week last year.  When Obama took office in 2009, the price per gallon was at $1.84.  The average price per gallon is now at $3.55, a 92.9% increase in gas prices.

The White House has given two responses to the high gas prices:

1. Excuses – President Obama blamed the wars in the Middle East and Japan earthquake.
2. Aspirations – President Obama said green energy is the solution, but that infrastructure will not be set up in a long time.

The only thing the White House has not offered…a solution.

President Obama uses Strategic Petroleum Reserve (Doh!)

President Obama recently announced that they will be using 30 million barrels from our Strategic Petroleum Reserve (SPR) to try to lower gas prices.  The Strategic Petroleum Reserve is meant for our military in case of a sudden war or for some tragic event happens, that is why it is called ‘strategic,’ and ‘reserve.’

Secretary of Energy Steven Chu said the release was “intended to complement the production increases recently announced by a number of major oil producing countries.”  In short, they wanted to show OPEC and other oil producing countries that we don’t need their oil because we have our own.  This is hopes to spur production, increasing supply, and lowering the cost.

I don’t think this threat scared OPEC.  First, they know that we are not giving out permits quickly to drill for our own oil because the President believes drilling is bad for the environment.  Instead, we are paying billions to Brazil to drill their oil and I believe the President’s energy policy is to rely on Brazilian oil.  I am still not sure why it is okay for them to drill but not us.

Second, with the amount of petroleum that we use in the United States, 30 million barrels will only last our country 1.5 days.  So, while you may get excited to see prices going down a little bit, this release is definitely a short term solution.  President Obama wants to show the American people that he is doing something about the oil prices.

Like jobs, he doesn’t have a plan for long-term success.  In jobs, he just threw a bunch of money at it to stimulate the economy.  The economy never really got stimulated.  For oil, it looks like he is doing the same thing – throwing money at it to stimulate other countries to produce oil.  Look for oil prices to stay around where they are at right now.  Do not be fooled by short term gains at the expense of our strategic reserve!

The Real Bad Guys – Colleges & Universities

Whenever things go bad, people start pointing fingers.  You have seen fingers pointed at Wall Street, big oil companies, and Washington.  The truth is that we have all played a small part in this recession.  However, I want to talk about the detriment that our universities are having on our economy and society.

At a macro level, economics is the study of production, distribution, and consumption of goods and services.  To have a strong economy, you need people capable of producing and purchasing goods.  Are our universities creating producers and purchasers of goods?

The first item I want to talk about is the increased cost of tuition over time:

College tuition is increasing at an exponential rate.  This is causing an increase in college debt.  The average student debt went from $12,750 in 1996 to $23,200 in 2008, nearly doubling.  In just four years (2004 to 2008), there was a 24% increase in debt.  In 2008, 67% of students graduating from four year colleges and universities had student loans.

It used to be that if you got a college degree, you were guaranteed a job.  The cost was little for school and the benefit great.  The cost is no longer little and the guarantee for a job is gone.  Unemployment is high right now, despite numerous job openings.  The big problem is that we have few people with the skill set needed for the jobs that are available (mainly technical skills).

There is a new lower class and middle class developing.  The new lower class contains people who spent a lot of money on a degree they cannot do anything with or that is for a low paying job.  Many social workers now have masters degrees and while that helps them make a difference, financially, it puts them in a tough spot.  Even if they file for bankruptcy, that does not relieve them of their college debt typically.

The new middle class are being called by some as HENRY’s (High Earning Not Rich Yet).  HENRY’s are people with nice paying jobs, but loads of student debt; student debt has even surpassed credit card debt.  Because they are high earners, they are paying high taxes.  With the combination of high taxes and high school loan payments, the new middle class has decreased purchasing power.  Many can take up to 20 years to pay off all of their school debt.

I do believe there is a need for a great education at a low cost that has to be filled.  Public universities, like the federal government, have a spending problem.  Their simple solution to making their budget is to pass their cost onto their students, who really have no power.  Before, I mentioned that there was a 24% increase in tuition costs in a four year span.  Do you think a freshmen student in 2004 saw a 24% increase in value in his degree by the time he was a senior?  Public universities need to stop spending money on items that do not add value and provide a basic education that prepares students for the real world.

I do not see long-term growth in our country without tackling the costs of universities.  Our young adults are starting life behind financially with degrees that are offering declining value.

How’d We Get into this Budget Mess?

Making a budget is kind of like trying to lose weight.  If you have ever tried to lose weight, you will find there are a million ways to do so.  You can try this work out or that, this diet or that, or this tool (such as a lap band) or that.  Because all these different options make different people money, the options become more complex.  However, the equation is pretty easy: if you burn more calories than you eat, you’ll lose weight.

Just as money confuses losing weight, politics/power ruin efficient and effective government in Washington.  Government budgets are easy – spend less than you receive.  There are a lot of ways to do that, but we’re still not there.  Instead, games have been played by the Democrats to force Republicans to make the cuts so the Democrats can brand them as the bad guys and try to keep the power through irresponsible governing, inaction, and deceit.

Luckily, there are conservative blogs like this one that tell you the real story about the budget!

Let me walk you through how we got into this budget mess:

• Federal Gov’t’s fiscal year is October-September.  Last year, the Democrats (who owned the House, Senate, and Presidency) did not pass a budget before the year started.
• After Democrats lost the election, they passed a budget during the lame duck session (time between election and when election winners take office in January), but the budget was only to last until March 8.
• When Republicans took over the House, they passed their own budget for the rest of the year that had $61 billion in cuts to discretionary spending (which had seen an 83% increase under Obama).
• The Senate is supposed to either pass it or pass their version of it and send it back to the House (to begin the negotiating process).  After about 1.5 months, the Senate didn’t pass anything.
• Approaching a deadline, Republicans in the House extended the budget for another two weeks to give Democrats time to either pass their budget or create their own budget.
• The Republicans made an offer, but Democrats didn’t like it.
• President Obama sends VP Biden to met with the House leadership – Biden has one meeting and then leaves the country for two weeks.
• Approaching another deadline, the Republicans extend the budget another 3 weeks.
• This Friday, we are now facing yet another deadline and the Democrats still haven’t proposed anything.  There is even Democrat leaders on record saying they are hoping for a shut down to make Republicans look bad.
• On Tuesday, President Obama had one meeting to discuss the budget and then he left town.
• Today (Wednesday), most likely bothered by the bad press, President Obama decided to come back and now had another meeting tonight.  Earliest reports indicate they didn’t reach a decision and are talking about another extension to give them more time to figure out the budget.

A few facts to think about:

• Republicans’ $61 billion in cuts proposal in a $3.5 trillion budget is about 1.7% of the budget.
• The $3.5 trillion budget has a $1.65 trillion deficit – $61 billion is about 3.7% of just the annual deficit.
• It took 3 deadlines before President Obama decided to step in.

Democrats have had every opportunity to make a budget and they have not.  If there is a shut down, it is the Democrats fault.  It is amazing that the Democrats still own the Senate and the White House and we don’t know their plan.  Even more amazing is that instead of the Senate passing their own version and starting the debate publicly, 3 people (Obama, Boehner, and Reid) have to sit in private to negotiate a $3.5 trillion budget.  Where are the elected officials from other states?

On the bright side, although the Democrats did not pass a budget on time last year, Republican Paul Ryan has already proposed a budget for next year that actually tries to curb spending.  I am still waiting to hear a real Democrat plan…if they have one.