The Highlander

    Last week, British Prime Minister Tony Blair's Labor Party held their annual conference. One aspect of his conference speech stood out. He reminded his colleagues of what "New Labor" had achieved in saying, "We are a party of Government." A political party reaches this point when they consistently succeed in elections and subsequently control government. Mr. Blair is the first Labor leader to win three full consecutive terms. Labor entered the election this May with a well over one hundred seat majority in the House of Commons.

Following the November 2004 election it would not be uncommon to hear President Bush speak about the "mandate" he and the Republicans had been granted. As was the case in Britain in the 1980s, this success was propelled by the weakness of the opposition. The central GOP ideas of strong national defense, tax cuts, and values won the day. The Republicans majorities increased in the House and Senate. President Bush was re-elected in a clearer fashion than the election in 2000.

Now three quarters into 2005, we see a crisis of confidence in GOP Leadership. I think it can accurately be argued that the GOP was able to campaign while keeping a bandage on some of their weaknesses. In the wake of Katrina and Rita some of these appear front and center. Not all of what has happened in recent weeks can automatically fall on the Bush Administration. As a defense hawk, I support allocation of resources for national security purposes. However, we have domestic areas that demand resources. The American Society of Civil Engineers issued its annual report card giving our national infrastructure a grade of D. Remember the blackouts of 2003 that hit the Northeast, Midwest, and Canada? Remedying these issues will be costly and it will challenge lawmakers to appropriate necessary funds.

Managing resources is a critical responsibility of the Administration. It is hard to view an Administration that runs up this level of debt and deficit as good stewards of those limited resources. When the Federal Government commits to a policy such as our current one in Iraq there is surface cost, the actual price tag of the operations. The opportunity cost is the chance to use those resources in other areas. Concerns have been raised that these funds could have gone to areas such as Homeland Security. As a maritime nation, we rely on secure ports to keep our economy running.

I get frustrated when I hear Republicans speak about fiscal conservatism today. It is a value that the GOP has lost. By this I do not mean an anti-tax, anti-spending libertarian policy, but a commitment to balanced budgets. Outgoing Federal Reserve Chairman Alan Greenspan was a deficit hawk in the 1990s. We balanced the budget and paid down the debt to create a surplus. You cannot prosecute a two-front war, while dramatically cutting taxes, and increasing domestic spending. Unfortunately, I think they are correct in their political calculation that allows them to govern in a manner that creates such a poor fiscal condition. Former Clinton Administration Treasury Secretary, Robert Rubin, writes, "Almost all economists agree that sustained deficits will crowd out private investment, increase interest rates, reduce productivity and reduce growth."

Rebuilding the Gulf Coast will require a resource and manpower-intensive, long-term effort. In a recent study, Standard and Poor's, one of the world's preeminent providers of credit ratings, estimated that the damage caused by Hurricanes Katrina and Rita in New Orleans and the US Gulf Coast may result in a loss of 0.75 percent of the country's GDP in the second half of the year. In this study, the ratings agency listed three major concerns it has about the storms' economic effects in the longer term: the impact on energy prices, the speed with which shipping can again use the Port of New Orleans, and the overall costs of rebuilding the damaged region.

In a world where change occurs so quickly, we must have the ability to rapidly respond in order to manage crises. One of the difficulties of running the level of debt and deficit we have is that it constrains our flexibility. The Administration has made it clear that raising taxes is not an option. According to Standard and Poor's, the overall costs of rebuilding the damaged region will likely serve to boost the federal budget deficit next year with an estimated $150 billion used in federal outlays.

When former White House economic adviser Larry Lindsey stated prior to Operation Iraqi Freedom that the war would cost between $100 and $200 billion he was dismissed. According to Keith Hartley, a professor at the University of York's Center for Defense Economics, a recent study concludes that, the total cost of the Iraq War for the UK, the USA, Iraq and other nations is likely to top US$1.25 trillion dollars. With the US providing the vast majority of the diplomatic, military and reconstruction resources in Iraq, we will bear the lion's share of this burden. The outcome in Iraq hangs in a fragile balance. Can Republicans keep control of the Congress in 2006 if the situation remains troublesome?

When he was President, George H.W. Bush, the President's father, made the decision in 1990 to side with Congressional Democrats to raise taxes. Coming off the recession that began with Black Monday in October 1987 when the Dow lost 25 percent he made the decision that he felt was best for the country. It hurt him with the conservative base. In the words of Edmund Burke in his speech to the Electors of Bristol in 1774, "Your Representative owes you, not his industry only, but his judgment; and he betrays, instead of serving you, if he sacrifices it to your opinion."

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