I continue to be struck by the constancy of Barack Obama. His tactics shift and weave, but his overall principles and project are firmly rooted. In the State of the Union address, he revealed his core convictions, explained his policies and their consequences, and linked his accomplishments with his promises.

Obama is a centrist, working to define common sense, working to move the center left, as I have earlier argued. In his speech last night, he focused on fairness and the viability of the American dream. He argued for the way the government can support economic development and the interests of the vast majority of the American public. Though he did not use the language of Occupy Wall Street, his focus on fairness was clearly supported by the fruits of the social movement’s labors. And the principled debate before the American people in the coming election was illuminated, as Obama argued for his side: a “smarter more effective government” versus limited government, the Republican ideal.

The speech was elegantly crafted and delivered, something that is now expected from Obama and therefore doesn’t impress and is not really news. But the fine form delivered a well rounded argument.

He opened and closed with a call for common purpose, exemplified by the military and its virtues, as he highlighted major milestones in foreign affairs: the end of the war in Iraq and the killing of Osama Bin Laden. A move that makes me uncomfortable, though I understand that it works well.

The opening:

“Last month, I went to Andrews Air Force Base and welcomed home some of our last troops to serve in Iraq.  Together, we offered a final, proud salute to the colors under which more than a million of our fellow citizens fought — and several thousand gave their lives.

We gather tonight knowing that this generation of heroes has made the United States safer and more respected around the world.  (Applause.)  For the first time in nine years, there are no Americans fighting in Iraq.  (Applause.)  For the first time in two decades, Osama bin Laden is not a threat to this country.  (Applause.)  Most of al Qaeda’s top lieutenants have been defeated.  The Taliban’s momentum has been broken, and some troops in Afghanistan have begun to come home.

These achievements are a testament to the courage, selflessness and teamwork of America’s Armed Forces.  At a time when too many of our institutions have let us down, they exceed all expectations.  They’re not consumed with personal ambition.  They don’t obsess over their differences.  They focus on the mission at hand.  They work together.

Imagine what we could accomplish if we followed their example.  (Applause.)  Think about the America within our reach:  A country that leads the world in educating its people.  An America that attracts a new generation of high-tech manufacturing and high-paying jobs.  A future where we’re in control of our own energy, and our security and prosperity aren’t so tied to unstable parts of the world.  An economy built to last, where hard work pays off, and responsibility is rewarded.”

The closing:

“One of my proudest possessions is the flag that the SEAL Team took with them on the mission to get bin Laden.  On it are each of their names.  Some may be Democrats.  Some may be Republicans.  But that doesn’t matter.  Just like it didn’t matter that day in the Situation Room, when I sat next to Bob Gates — a man who was George Bush’s defense secretary — and Hillary Clinton — a woman who ran against me for president.

All that mattered that day was the mission.  No one thought about politics.  No one thought about themselves.  One of the young men involved in the raid later told me that he didn’t deserve credit for the mission.  It only succeeded, he said, because every single member of that unit did their job — the pilot who landed the helicopter that spun out of control; the translator who kept others from entering the compound; the troops who separated the women and children from the fight; the SEALs who charged up the stairs.  More than that, the mission only succeeded because every member of that unit trusted each other — because you can’t charge up those stairs, into darkness and danger, unless you know that there’s somebody behind you, watching your back.

So it is with America.  Each time I look at that flag, I’m reminded that our destiny is stitched together like those 50 stars and those 13 stripes.  No one built this country on their own.  This nation is great because we built it together.  This nation is great because we worked as a team.  This nation is great because we get each other’s backs.  And if we hold fast to that truth, in this moment of trial, there is no challenge too great; no mission too hard.”

And in between, he identified the common good as he and his party define it:

“…the basic American promise that if you worked hard, you could do well enough to raise a family, own a home, send your kids to college, and put a little away for retirement.

The defining issue of our time is how to keep that promise alive.  No challenge is more urgent.  No debate is more important.  We can either settle for a country where a shrinking number of people do really well while a growing number of Americans barely get by, or we can restore an economy where everyone gets a fair shot, and everyone does their fair share, and everyone plays by the same set of rules.  (Applause.)  What’s at stake aren’t Democratic values or Republican values, but American values.  And we have to reclaim them.”

He spoke about many of specific accomplishments, a highpoint: saving the auto industry. He also spoke about specific proposals: the payroll tax extension, tax code reform, the promotion of American exports, a trade enforcement unit, along with a financial crimes unit. Education also was a major theme: job training, turning community colleges into “community career centers,” school reform, increase student aid for college, controlling the cost of higher education. Along the way he included passing references to advancements provided by healthcare reform, the importance of immigration reform, public funding of research, and the reform of Senate rules.

His resoluteness was on full and, in my judgment, convincing display.

“Let’s never forget:  Millions of Americans who work hard and play by the rules every day deserve a government and a financial system that do the same.  It’s time to apply the same rules from top to bottom.  No bailouts, no handouts, and no copouts…

Now, you can call this class warfare all you want.  But asking a billionaire to pay at least as much as his secretary in taxes?  Most Americans would call that common sense…

[A]nyone who tells you that America is in decline or that our influence has waned, doesn’t know what they’re talking about.  (Applause.)”

Clearly it was a partisan speech, meeting the Republicans head on, and implicitly specifically Mitt Romney on tax rates. But it is also a challenge to his critics on the left and his less than enthusiastic supporters. He still wants to go beyond partisanship. He supports not only control of the market but also the market itself. He is trying to constitute a new centrist position. One can question whether his more sharply drawn commitments are just an election year tactic. He did name fairness as the central problem of our time, his version of fighting for the 99%. This will satisfy some in OWS, but not others.

As I asserted in the opening of this post, and as I tried to reveal in my earlier posts on Obama working with Democrats, with Republicans and against Republicans, I think that we observe only changed tactics and not commitments. I also would suggest that his earlier accomplishments, specifically doing the possible if not the ideal in supporting a devastated economy and significantly reforming the American healthcare system, lend authority to his present promise. He clearly presented his side of the great debate that will be the election of 2012.

The public debate about “tax loopholes” is muddled at least in part because “loopholes” and “tax expenditures” have become intertwined. Both are peculiar terms.

“Loopholes” have a history. Some accounts report the term as originally referring to the narrow slits (larger on the inside and smaller on the outside) cut into castles. They made it possible for defenders to peer out and watch with relative safety, and when necessary, fire arrows or other projectiles to protect the castle. Some loopholes in castles were slightly larger and could be used as an escape when necessary. Other explanations of the origin of the term point to alternative Dutch words meaning “to run” and “to watch”.  Others refer to an English term, suggesting “to leap.” A number of references cite poet Andrew Marvell (1621-1678) using loopholes to communicate the ability to evade or squeeze through.  Today, loophole is a symbolically rich term that is intended to mean that something unseemly is taking place through such evasion and squeezing.

Are tax expenditures an entirely different matter? The Congressional Budget Act of 1974 (Public Law 93-344) defines tax expenditures as, “…revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of liability.” That is, in plain English: tax expenditures are lost tax revenues caused by special exceptions to tax laws. By law, a list of “tax expenditures” must be included in the President’s budget in a section titled “Analytical Perspectives,” prepared by the Office of Management and Budget. The list for 2012 includes 173 “tax expenditures (p241 – 251),” which total over one trillion dollars for the fiscal year beginning October 1, 2011.  As objective as this may sound, the list and estimates of “cost” is actually quite subjective, because analysts posit the starting point of the tax baseline.

The categories for the 173 “tax expenditures” in the 2012 budget proposal are: national defense, international affairs, general science, space and technology, energy, natural resources and environment, agriculture, commerce and housing, transportation, community and regional development, education, training, employment and social services, health, income security, social security, veterans benefits and services, general purpose fiscal assistance and interest. In an addition, an addendum is included, aid to state and local governments. At some point, a group of legislators considered each one of these ideas useful to achieve a specific policy objective.

Some of these are obvious. The deferral of interest on U. S. savings bonds promotes savings and helps fund the government. The deductibility of mortgage interest on owner-occupied homes facilitates home ownership and encourages home construction, a large segment of the U. S. economy. The deductibility of student-loan interest helps make higher education more accessible.

Other “tax expenditures” are more controversial, such as the deferral of income from controlled foreign corporations under the normal tax method. Law makers gave multinational corporations tax advantages in an attempt to prevent them from relocating outside of the United States.

Reforming such tax laws is difficult, because it would have economic consequences. Each expenditure and loophole must be addressed carefully so as not to produce unwanted economic consequences. Eliminating “tax expenditures” is policy making. Eliminating “loopholes” is a means of administratively cleaning up tax law. Each “tax expenditure” and “loophole” needs to be considered closely. Tax reform, like the devil is, in the details.

Last month, I speculated that the supercommittee had the potential to help drag our legislature into a more authentic form of bipartisanship, a bipartisanship based on principled mutual compromise in the tradition of Henry Clay. I expressed my belief that the makeup of the committee would determine its ability to affect change. In that respect, the prospect of the committee changing the status quo now seems bleak. There is great opportunity but the membership of the committee suggested that the opportunity will be missed.

The Committee on Deficit Reduction is nominally a “joint select committee.” Emphasis should be given to the “joint” nature. Select committees generally suggest, but don’t legislate.  In the present supercommittee, I see the spirit of the conference committees that resolve contentions between Senate and House bills. “Going to conference” offers possibilities of compromise that would not have previously existed for the conferees in their respective chambers or standing committees. Conference rules state that “the conferees are given free reign to resolve their differences without formal instructions from their bodies.” Senate scholar Walter Oleszek quoted an anonymous Senate leader opining, “Conferences are marvelous. They’re mystical. They’re alchemy. It’s absolutely dazzling what you can do.”

In the Obama budget talks, posturing was encouraged by heightened visibility. Separate branches of government competed for authority. With the supercommittee, we move to what Erving Goffman called the “backstage.” The individual actors have more agency to shape the outcome than the participants of last year’s deal. That is why I believe an overview of the members involved will not only be informative, but help us understand the debate’s nature. I have my partisan interests. Nonetheless, while I think the Democrats have some problems, I think the real problem lies with the Republicans.

The Democrats: The House delegation is perhaps too easy to dismiss as Pelosi loyalists – Van Hollen and Clyburn have been her top lieutenants. On the Senate side, Patty Murray is a progressive who could create real dialogue. However, my intuition tells me she is acting primarily as a representative of party leadership. There is nothing wrong with this (and I afford Senator Kyl the same leniency) but I am concerned it may constrain her in a way that, say, Senator Leahy would not have been. Senator Baucus suffers from allegations by Alan Simpson that he was all but absent in the Simpson-Bowles commission work. John Kerry, in contrast, was praised for his commitment to that report, and the “Senate Man” image that hurt his presidential bid may help him maneuver the wheeling-and-dealing of a private conference.

The Republicans: The choice of their delegates reflects a complete disinterest in any compromise. The committee is stacked with the “true believers” Jeffrey Goldfarb describes as a threat to the delicate relationship between truth and politics. Equally disturbing is how the choices seem to reflect ignorance of Americans’ struggles. “Out of touch” is a campaign cliché, but POLITICO’s David Rogers provided an interesting piece of journalism highlighting that the committee Republicans are all white men with “considerable wealth.” McConnell and Boehner are savvy politicians — they know that their selections convey a message beyond the fitness of the members to solve the problems in front of the committee. I’m incredulous that a single, competent woman or minority was not available to serve (Olympia Snowe? Susan Collins? Marco Rubio, even?).

So who are the GOP’s voices at the table?

Senator John Kyl of Arizona. Mr. Kyl was part of the Biden working group, but I would caution seeing this as a sign of bipartisan commitment. Mr. Kyl has followed up last fall’s inflexible opposition to the START treaty (despite full-throated support from the national security community and respected Republican experts including Dick Lugar)with the statement “I’m off the committee,” if defense cuts are considered. This after only one meeting.

Senator Pat Toomey of Pennsylvania is the only member on the committee who voted against the debt ceiling compromise, and I suspect that is the primary reason he was selected. Someone like Jim DeMint has more experience and more cache with the Tea Party.

Senator Rob Portman of Ohio was elected in the Tea Party tidal-wave, but he is a pragmatic, career politician at heart. He served as budget director for George W. Bush. Portman describes himself as a “hawk on tax reform.” I believe that this is the proper lens through which to view Boehner’s unusual choice of appointing two Michigan representatives: Reps. Camp and Upton. Upton chairs the powerful Committee on Ways and Means through which any tax legislation would pass. Camp chairs the Committee on Energy and Commerce, which, by virtue of its broad jurisdiction, would be affected by practically any tax code changes.

Tax reform is popular with both parties. If the supercommittee were to hone in on  tax code reform, it may appear that acrimony could be avoided while addressing the deficit. I am not convinced Boehner’s motives are so pure. Boehner’s view of tax reform is essentialy of the revenue-neutral school of thought. A focus on revenue-neutral reform would allow a “front stage” appearance of mutual concession, while the “back stage” would hardly be worthy of the name in Goffman’s sense, opening the door to of a series of Democratic concessions to further tax cuts. From a practical standpoint it would also help the committee to avoid making the hard decisions it was convened to make.

Co-chair Jeb Hensarling is the House’s most fervent crusader against spending, and further complicates the tax reform issue. He could be a powerful advocate to push the tax reform angle. It was Hensarling who rallied his caucus to vote down the September 2008 financial bill, an action that sent the market into such a panic that the Bush bailout was passed on the second go with the Senate at the wheel. But Hensarling could also put the brakes on tax reform. Deficit hawks are not monolithic in their support of revenue-neutral reform and if Hensarling senses corporate taxes could be increased as a result, any movement on that issue would likely be stalled.

Considering the restrictions of the Democratic conferees and the aversion to concession of the Republican conferees, it seems to me that  any deal will necessarily have Senators Kerry and Portman as the designated deal-brokers. Their experience and relative pragmatism, respectively, will allow the committee to come to an agreement. But I fear it will be a modest agreement – a deal, not a compromise .

A great opportunity likely will be lost. Congress was given an opportunity to work outside of the normal constraints of legislation. There was a possibility for “alchemy.” Instead, I fear, there will be a deal almost indistinguishable from those the Senate has historically passed with regularity. We may save ourselves from an immediate crisis, but at the cost of continuing on our current path of disruptive partisanship avoiding the serious problems we face.

The failure of economics in the runup to and aftermath of the Great Recession has generated a lively debate about how to reform economics and more specifically about the renewed relevance of Keynesian economics, which had fallen out of favor since the 1970s. The Keynesian message, so important in this latest round of political wrangling over the increase in the US debt ceiling, is that cutting government spending in a slump will only worsen the unemployment problem. The role of expansionary fiscal policy, according to Keynesianism 101, is to provide demand for goods (and thus for employees to produce those goods) when the main sources of demand in a capitalist economy — households and businesses – are not providing a level of demand necessary to generate a socially acceptable level of unemployment.

Keynesianism 102 is about the multiplier effect of changes in spending. This is the notion that an increase in demand (from any source, not just government but certainly including government) will impact employment and incomes with a ripple effect. This includes a direct impact and then a secondary impact when the direct incomes are then spent (in some fraction) and an additional fraction of that is spent, etc.

There are two corollaries to the lesson of Keynesianism 102 that are worth mentioning because they have been raised in the current policy debate. The first is about the differential multiplier effect of a spending increase compared to a tax cut. Empirical studies show that the multiplier effect of the former is greater than the multiplier effect of the latter. The second is about the differential multiplier effect depending on the income of the recipients. Since the poor are more likely to spend a higher percentage of additional disposable income than the rich, a tax cut that benefits low-income people will have a bigger multiplier effect than a tax cut that benefits the rich.

These lessons have not been integrated into current economic policy in the US, where deficit spending and progressive tax reform and expanded benefits for the poor and unemployed have been successfully resisted by the Republican congress. Nonetheless, they are well-established lessons of Keynesianism that most professional economists would accept.

The argument against Keynesianism 101 revolves around the psychology of investor confidence in the face of a rising fiscal deficit. The argument is that business people will reduce their investment spending when they see the government deficit becoming very large because it signals the likelihood of some detrimental future adjustment – either in interest rates, tax rates or government outlays – that will be detrimental for future profits. There is simply no empirical evidence to support this theory compared to Keynesianism 101.

But all this is sideshow in comparison to the lesson of Keynesianism 103.  The fundamental economic point of Keynes’s 1936 General Theory of Employment, Interest and Money was not about fiscal policy or the multiplier or income distribution.  It was about the fact that economic equilibrium (a stable condition from which no economic change would occur without external impetus of some sort) will not necessarily be characterized by full employment. Economists prior to (and some subsequent to) Keynes thought that free market economies would naturally adjust to full employment, as an excess supply of labor would lead to a lowering of wages and a corresponding increase in the amount of employment. Keynes explained that the natural state of a capitalist economy is “unemployment equilibrium,” and without a shock to aggregate demand conditions, there was no reason why the economy would not stay at this unemployment equilibrium. Keynes’s insight implied that the wage reduction strategy was not just theoretically wrong but, if implemented, would likely make the situation worse, since it involved a reduction in household buying power and thus would reduce business confidence.

A prospect as disastrous as the second “dip” that the American economy is about to experience is that of a long period of high unemployment that has no natural tendency to reverse itself. We should not stop our analysis at Keynesianism 101 and 102, since the great social problems facing America are understood best by Keynesianism 103.

So what is to be done? Paul Krugman has been a superb critic of the politicians’ focus on the deficit and the debt rather than on job creation. But he has been relatively quiet about what could be done if in fact the political winds were to shift. Robert Reich has been more explicit. His proposals for job creation include:

1. An additional cut in the payroll tax on employees and employers
2. An increase in infrastructure investment

My guess is that President Obama’s speech this evening will address these issues. If it does, it should be understood as not just a political maneuver, but as a serious attempt to tackle our economic problems.