American Zugzwang.

August 27, 2014

Recall the last time you were in a precarious position? A pinch. A bind. Where no decision comes easy. And each exacts a price.
Chess players -- linguists they are -- can claim the most stylish idiomatic expression befitting this state of mental constipation. When a player is limited to moves that result in lost pieces or damaging positional outcomes, he faces a zugzwang. A choice from which every decision brings a degree of pain.
President Obama currently finds himself in such a state. A zugzwang. Geopolitically. Domestically. Economically. Every decision he faces involves painful blowback.

Overseas? Total zugzwang.
Putin has invaded Ukraine's Crimea. Armed separatist rebels with advanced weaponry. Placed Russian soldiers alongside them. The U.S. imposed economic sanctions against Russian oligarchs. Made threats of more to come. Putin sneered. Underscoring the west's weakened posture.
So emboldening other adversaries.
With the Middle East in conflagration, ISIS is rolling up territory, like Clayton Kershaw does hitters. Confiscating resources, capital and munitions throughout Northern Iraq and Syria. Not to mention publicity. Which enables more effective recruiting of future jihadists. Young, disenfranchised Arabs who want to side with a winning horse.
The U.S. has no strategy for the defeat or containment of ISIS. This, after the bungling of Syria. Libya. Egypt. The failure to support Israel against the existential threat presented by Hamas.
Domestically, another zugzwang.
Two years into the Affordable Care Act, the economy continues to digest an overhaul of its largest sector. Which appears to have been pulled from the oven half baked. The result of which has been a stunted U.S. economic recovery. Created by the uncertainty wrought across a challenging business landscape made opaque by the regulatory morass.
Don't believe it? Consider the piddling labor market recovery. Negatively affected by an indecipherable law that imposed taxes and penalties on organizations unwilling to provide health coverage. Even as they already struggled to recover from the credit crisis. Most recent jobs have occurred in the staffing and service industries. Not exactly career paths. Accordingly, one of every eight working-aged men is not part of the workforce -- well above the historic average. Largely because the number of 25 to 64 year old men and women receiving disability payments has soared the last decade.
In D.C.? Zugzwang as art form.
The president and the 113th Congress avoided another impending budget crisis. Yet, last week the Congressional Budget Office (CBO) updated its fiscal and economic outlook for the next decade. The CBO concluded that the nation will be paying for President Obama's first-term excesses for years.
Economic growth projections for 2014 were lowered from 3.1 percent to 1.5 percent. Though they continue to anticipate higher growth rates in 2015 and 2016. Six years into the recovery, and the CBO continues to forecast better times just around the corner.
No worries. Tax receipts skyrocketed. Climbed 8 percent to $3.01 trillion on the back of a 15 percent bump in the corporate tax rate and a six percent hike in the individual rate. Per the president's campaign promise, he's managed to soak the rich. Though I don't think the middle class had planned to take a bath. Individual tax revenues will rise to 9.4 percent of GDP by 2024. That's more than any year of the last half-century but for two.
Total taxes will consume 17.5 percent of the economy this year. Rising to 18.3 percent over the next decade. Well above the 40-year average. Yet, we repetitively hear that America is undertaxed. Of course, those same people are screaming about Burger King's move to Canada.
The startling fact? These tax revenue windfalls will do little to the CBO's budget deficit forecasts. Because government spending has increased so rapidly.
Entitlements, a total zugzwang, will skyrocket.
As of Q4 2012, 109,631,000 Americans lived in homes that receive welfare benefits. That's over 35 percent of the population. That does not include households receiving non-means tested programs like Social Security, Medicare, unemployment and veterans benefits. Include those and the number jumps to 153,323,000. 49 percent of the nation. It gets worse.
Obamacare will cause Medicaid to expand by 15 percent. And the only reason it's not worse is because 23 states opted out in order to protect their own budgets.
85 cents of every increased dollar of spending this next decade will go to entitlements. Largely to healthcare.
Obamacare, Medicare and Medicaid will rise to six percent of GDP. Even as spending on all other programs drops to their lowest share of GDP since 1940. In other words, all of the things for which the Federal government is responsible, like defense, infrastructure and basic research, are being squeezed by these income transfer payments.
The government budget rises in perpetuity. But none of the nation's problems are closer to being resolved. That has to be a zugzwang!
The spending binge and simultaneous slow growth have seen the public debt rise to 74.4 percent of the nation's economy. Up from 72 percent last year. 35 percent in 2007. Assuming the U.S. does not enter a recession, the debt-to-GDP ratio will rise to more than 77 percent a decade from today.
All of which leaves the Federal government, our president and the Congress with little room for error. At a time when errors seem to be the only thing they do well.
A zugzwang if ever there was, eh?

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