Debrief

CRNC Research Compendium August 2010
Editor: Brandon Greife, Political Director

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Table of Contents
Obama Using Remaining Stimulus Money to Fund Pet Projects Obama’s Short Term Policies Leaving Us With Long Term Debt Democrat Pundits Fail to See The Deep Divisions in Their Own Party Boehner and Biden Battle Over Stimulus Claims Obama’s Recovery Summer Has Been Anything But Democrats Trying to Have it Both Ways In Tax Cut Debate Reckless Spending Shows Liberals Don’t Have a Monopoly on Compassion Democrats Retreat on Obamacare’s Claims of Lower Costs U.S. Headed for Double Dip as U.K. Swings Toward Recovery President Obama’s Pontificating Clouds the Bigger Issues Healthcare and Social Security Parallels Bode Well for GOP in Midterms Union Approval Falls to New Low in Face of Huge Wage Disparity Public Sector Employees Refusing to Share in Private Sector Sacrifice The Social Security Ponzi Scheme is Collapsing Krugman’s Baseless Attack On Paul Ryan Highlights What’s Wrong With Politics Dems’ State Aid Bill Not the Key to Improving Education Romer’s Departure Signals Rift in White House Economic Strategy Obama is No Kennedy When It Comes to Stimulating the Economy Obama Misrepresents Health Care Reforms Impact on Medicare Democrats Nix Tax Credit to Funnel Money Toward Pet Constituencies Public Sector Unions A Main Cause of State Debt Woes Dems Tax Plans Could Cut the Legs Out From Beneath Limping Recovery 3 4 5 6 8 9 10 11 12 14 15 16 18 19 20 21 23 24 25 26 27 29

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Democrats Tax Hikes Will Not Lead To Increased Tax Revenue Obama Should Learn Some Economic Lessons From Chile The Liberal Mandate on America Democrat’s Corruption Charges Could Pave the Way for Republican Majority John Kerry’s Tax Lesson for Democrats Pelosi’s Summer PR Campaign Long on Rhetoric, Short on Reality Obama and Krugman Undone by Keynes’ Animal Spirits

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Obama Using Remaining Stimulus Money to Fund Pet Projects
House Speaker Nancy Pelosi laid out the three guiding principles of the economic stimulus package: that it be “timely, temporary and targeted.” More than a year later, it is clear that none of these principles has been fulfilled. Timely? As CBS News reported as recently as August 16, almost all of the stimulus money has been awarded, but that is very different from it all being spent. For instance, the U.S. Department of Energy has doled out $30.2 billion worth of stimulus grants, but only paid out $6.2 billion. Or Detroit, which has spent less than 1 percent of the $8.8 million in stimulus funds it was given. All told, after nearly 18 months after passage, more than half of the stimulus funds devoted to investment projects has not been spent. Temporary? The New York Post reported today that “some of the more popular stimulus programs look likely to be made permanent – in which case, the “temporary” fix could end up costing more than $3.2 trillion. What should we have expected? The government loves to create programs, the appearance of doing something often leads to votes, but they are loath to take anything back. Government programs are like toothpaste, once it is out of the tube, it is darn near impossible to get it back in. Beyond the continued spending, one thing that is certainly not temporary is the debt burden that it has caused. A recent CBO estimate found that the cost of the economic stimulus package was $814 billion – a significant reason why our government has run record deficits for the past two years. Those compounding deficits could have serious long-term consequences for our economy. The CBO admits as much, saying in a report that the long run costs of each additional dollar of debt crowds out about 33 cents worth of private investment. In other words, higher spending now leads to lower GDP later. Targeted? This, more than any other “guiding principle” is where the stimulus has missed the mark. Things like $554,763 to replace the windows in a visitor’s center that has been closed since 2007, or $1.9 million spent to study photograph ants, or $89,298 spent to replace a new sidewalk with a newer sidewalk that leads to nowhere but a ditch. The waste is obvious. But even more nefarious is the idea that President Obama made a conscious decision to “target” his own pet projects rather than surefire job creators. As TIME reported last week, But in the words of Vice President Joe Biden, Obama’s effusive Recovery Act point man, “Now the fun stuff starts!” The “fun stuff,” about one-sixth of the total cost, is an all-out effort to exploit the crisis to make green energy, green building and green transportation real… Whereas Obama’s Council of Economic Advisers wanted a “textbook Keynesian response” and “argued for tax cuts and income transfers to get cash circulating quickly,” Obama wanted something else. As TIME reported, “Obama and Biden also saw a golden opportunity to address priorities; they emphasized shovelworthy as well as shovel-ready.” I’m sorry, but in the worst economic downturn since the Great Depression the only priority the Obama administration should have been addressing was the lack of jobs. Worse, Obama’s pet projects may actually hurt us fiscally in the long-term. Moreover, other nation’s experience with implementing a green economy suggests that their may be a net job loss. For instance, Spain has lost two jobs for every one jobs created with windmills and solar farms. In Denmark, a study finds that the cost of each green job to the government costs $90,000 to $140,000 annually and once the government handouts end, so do the jobs. Germany’s green bubble also burst after a prominent think tank found that,

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“Germany’s PV [solar energy] promotion has become a subsidization regime that, on a per-worker basis, has reached a level that far exceeds average wages, with per-worker subsidies as high as 175,000 ! (US $ 240,000).” Obama’s high-speed rail plans will likely cause similar problems. As Steve Forbes explains, “Bottom line: All of these rail projects couldn’t pass even a laugh test in the private sector, yet they will soak up capital that otherwise could be used for productive purposes. Almost all highspeed rail schemes around the world operate at a loss. Even those touted as turning a profit are usually helped with off-balance-sheet government subsidies.” For a list of other reasons why Americans should be skeptical when Vice President Joe Biden says, “Now the fun stuff starts,” check out this AP Fact Check on Obama’s latest stimulus assertions. Contrary to Pelosi’s assertions the stimulus has proven to be neither timely, temporary, nor targeted. But those are not the rubrics by which the success of the stimulus will be ultimately judged. The bottom line for most Americans is whether it created jobs. The answer to that, more than any other factor, is the reason for its failure.

Obama’s Short Term Policies Leaving Us With Long Term Debt
President Obama is enjoying his vacation in Martha’s Vineyard. I’m not here to begrudge the man some time off. But while he’s been swimming in the Atlantic the political sandcastle’s his administration has built are being washed away.

The administration’s economic policy successes were all built for short-term success without consideration of the long-term harm. As Josh Brown described on the blog The Reformed Broker, We were promised stimulus, programs and policies that would have lasting effects. What we got instead was a trillion dollar sand castle. Now that the inexorable tides have eroded away our leadership’s best-laid (and funded) plans, someone needs to be held accountable. . . In hindsight, virtually all of the fiscal stimulus and extraordinary programs adopted by this administration now look like they merely forestalled the inevitable. Hiring has not happened and in the meantime, housing is headed down another leg and the almost-resillient consumer is back to playing hard-to-get.

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Cash for Clunkers created an artificial bubble that led to a boom for car sales and car manufacturers. As soon as the government removed the incentive the bubble popped and the car market collapsed. It turns out that the only thing the program really did was convince a bunch of people who may have bought a car in the next year to buy a car during this particular month. Ditto for programs like the First-Time Home Buyers’ Tax Credit. But the mother of all sandcastles – the stimulus – is now eroding back into the earth, leaving a gaping hole of government debt in its place. The overwhelming majority of the stimulus has already been spent. What do we have to show for it? The number of jobless claims has risen in each of the past four weeks and last week it hit its highest point in nine months. A report issued today by the U.S. Commerce Department found that the economy only grew by 1.6 percent in the second quarter. For some perspective, the economy needs to grow at about 2.5 percent just to keep unemployment from going any higher. Even larger growth would be needed to begin to combat the pervasive joblessness that now plagues our nation. Even if you’re willing to argue that the stimulus was a success in terms of keeping unemployment down it appears that it merely delayed our problems. Unwilling to admit this fact, many liberal thinkers have taken to thinking that we should have simply built a bigger sandcastle. Given the economy is still sputtering, it’s obvious that $800 billion just didn’t do the trick, so we should have gone bigger! Nevermind the fact that the U.S. stimulus was the largest governmental infusion of funds amongst any nation and the biggest in U.S. history, including the Great Depression. Regardless of what we should have done, the stimulus is what we did. Now we find ourselves unsure about whether the stimulus created any jobs but absolutely sure are nation’s finances are in dire straights. Rather than attempt to understand the forces of the tide, the Obama administration hastily built economic sandcastles. Should be be that surprised that they have now washed away?

Democrat Pundits Fail to See The Deep Divisions in Their Own Party
We’re a bunch of extremists. Or at least that’s what E.J. Dionne says. Personally, I’m surprised. I simply, and at least in my own mind rationally, thought I was just concerned about the impact of today’s spending on my future. I also happen to disagree with the liberal point of view on a number of issues, namely the size and role of government. Is that really what qualifies for an extremist these days? Then again, E.J. Dionne seems to have developed a recent fascination with his “GOP has gone nuts” thesis. Here’s a sample of his recent article titles:

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• • • •

Primaries Show GOP Extremism The Politics of “No” The Politics of GOP Stupidity Time to Stand Up to the Right Wing

I think he’s got something against the Right. But here’s the key question: is that “something” real, or simply the rantings of someone whose party’s November hopes are dimming faster than Jennifer Aniston’s career. His latest article sheds some light on the answer. Moreover, you really don’t have to read past the first line to see it. In it Dionne argues that, “Republicans are in the midst of an insurrection. Democrats are not.” Hmm. As an example, or to be more specific, his only examples, Dionne points to the primaries in Florida and Alaska. In the spirit of writing a blog post rather than a tome, I’ll dismiss the Florida example. Party-favorite Rick Scott, didn’t lose to billionaire businessman Jeff Greene because of any sort of “insurrection.” Scott wasn’t some super right wing fanatic who beat out McCollum because of his Tea Party-esque chops. No, he won, because he spent a bazillion dollars on the race. $50 million to be precise – an unprecedented amount of money for a Florida gubernatorial race. So Dionne’s got one shining example of this so-called Republican “insurrection.” But has he cared to look in the mirror at his own party? Democratic candidates nationwide are hoping to win by doing their best to look least like the Democratic candidate. Examples are popping up everywhere. Indiana Rep. Joe Donnelly, seeking a third term, aired a new TV ad highlighting how independent he is. The ad says, points out that he voted against “Nancy Pelosi’s energy tax on Hoosier families.” Rep. Bobby Bright (D-AL) put up an ad touting how he “voted against the bailouts, against stimulus spending, against the massive government health care” and the “trillion dollar federal budget.” Rep. Jason Altmire’s (D-PA) ad features a man saying “I like that Jason Altmire is not afraid to stand up to the president” while a woman chimes in “…And Nancy Pelosi.” Lest you believe that this is just a few isolated incidents I’ve chosen to make a point, check out some more examples compiled by ABC, here. The various ads highlight the growing fracture, or “insurrection” to steal a term from Dionne, that is growing within the Democratic Party. If you can name an issue I can guarantee they are fighting over it. Stimulus? Edolphus Towns (D-NY), chair of the House Committee on Oversight and Government Reform, said “it is unclear as to whether recovery act funds are going where they are needed most.” The need for more stimulus? Rep Gerry Connolly (DVA) says “I think we have just got to get serious about the deficit.” Immigration reform? Rep. Luis Gutierrez uses words like “disillusionment” and “betrayal” to describe President Obama’s lackadaisical stance towards reform. He adds, “we’re going to make it uncomfortable for the Democratic Party.” Or how about the Ground Zero mosque? Politico reports that “several House Democratic sources said they are furious with the White House for keeping the debate over a New York mosque in play for two weeks. Dionne has gone to great lengths to highlight the divisions within the Republican Party. He argues that Republicans are being dragged to the far-right which ultimately will cost them in November. What he fails to realize is that Democrats are doing their best to drag their party back to the middle, but is running into the wall of their party’s leadership. Their inability to tack right will ultimately be what costs them in November.

Boehner and Biden Battle Over Stimulus Claims
Two days ago House Minority Leader, and Speaker of the House hopeful, John Boehner made public his criticisms of the Obama administration’s failure to stimulate the economy. In what has been viewed a first test of his Speaker chops, Boehner ripped into Democrats’ economic plans (or lack thereof). He criticized the job-killing tax hikes Democrats hope to pass in a down economy. He demanded the President denounce the job-killing bills like a national energy tax and card check. He called for bipartisan efforts to repeal the job-killing paperwork mandates of the healthcare bill. Bottom line: he’s really against job-killing.
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Although he may have over-used the phrase, his point remains true: over the past two years Democrats have done a lot more to discourage, rather than encourage, job creation. He argued that Washington must be aware of not only the intended results of their legislation, but also the unintended consequences. Take something big like the stimulus. Pumping money into a down economy sounds great both in theory and practice. But, Democrats failed to think of the long term negative pressure that enormous government debt has on private investment. Or take something small like cash-for-clunkers. Getting old cars off the road while creating a boom period for struggling car makers seemed like a great idea. But, Democrats failed to consider what would happen to the market when their artificial stimulus was removed. The point is that Democratic policies, however well intentioned, have side-effects. Sadly, the most prevalent side effect thus far has been uncertainty. Big businesses are afraid of pending regulatory burdens and are now sitting on their cash reserves rather than gamble on hiring. Small businesses are wary of looming tax hikes and red tape and are going into survival mode rather than hire mode. Then came Vice President Joe Biden’s response. First, let me compliment Mr. Boehner on the strategical brilliance of giving an economic speech when the President was on vacation. Joe Biden, in all his folksy charm (read: tendency to put foot in mouth), is no President Obama when it comes to undressing Republican attacks on the economy. Fortunately for Democrats Joe Biden flashed his rhetorical brilliance, thoroughly dismantling Boehner’s claims, and reminding America why President Obama chose Viden as his right hand man. Ha. Who are we kidding. All Biden did was pull his best imitation of a scared child, point his finger, and yell “Nu uh! It’s YOU GUYS fault!” Even “you guys” is a little generous. The finger of blame was pointed specifically at one person. Bush. The Democratic totem of all things evil. Don’t have an answer? Blame Bush. Something goes wrong? It’s Bush’s fault. Bill didn’t live up to expectations? Bush doomed it to fail. In other words the specter of a guy who has been out of office for two years has somehow infiltrated the collective psyche of a party who has done its best to distance itself from his policies. I guess it beats coming up with real answers. In Biden’s words, “Mr. Boehner is nostalgic for those good old days, but the American people are not. They don’t want to go back, they want to move forward.” But in the same breath that he declared people are tired of looking backwards he brings up the Bush administration. Which is it? Are we going to point fingers at who is to blame for the problem are we going to work towards the future. Of course the Vice President did make some salient points. He disputed Republican’s notion that the tax cuts would have a dire impact on a significant number of small businesses. Then again he ignored the statements from his own party showing that the top 2% of earners purchase 33% of the goods being bought. How taxing them will help us claw out of this recession is beyond me. Biden also discusses the new CBO report showing which outlines the good that the stimulus package has done for the economy. Of course he omits that the CBO was also the one who initially predicted that because of the stimulus unemployment would average about 9% in 2010. Thus far we haven’t crossed below 9.5% (masked even further by the fact that a significant number of the population has dropped out of the workforce). So if their models failed to predict unemployment in the past how can we trust the model they use to assess the effects of the stimulus bill? Finally, Biden discussed all the super-awesome projects the administration is about to kick off. He seemed especially keen on the job creating effects of high-speed rail. I’ll leave it to Steve Forbes to explain why that is one of the most bone-headed ideas ever. Our future is looking more bleak by the day. Our economy remains stagnant and now we have trillions of dollars in debt to show for it. This country needs a change, and no-Joe, I’m not talking about a return to the Bush-era, but I’m also not talking about the Obama brand of change. Because frankly, that change has taken us from bad to worse.

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Obama’s Recovery Summer Has Been Anything But
This has been the summer of poorly named projects. First we’ve got the follow-up season of Jersey Shore that was actually shot in…Miami? Then we got the President’s “Recovery Summer” in which the economy…continued to lose jobs? How are those two things in any way related? They’re not. Nevertheless, who did they think they were fooling? At MTV, the home of My Super Sweet 16, Disaster Date, and Teen Mom, we don’t expect much better. But really, this kind of branding flies in Washington? Then again, misnomers reign in DC. Democrats have tried a trillion different names for the trillion dollar spending package they promised would create jobs. Last year Barney Frank said, “I’m not supposed to call it stimulus. The message experts in Washington have told us that we’re supposed to call it the recovery plan. I was puzzled by that…Most people would rather be stimulated than recover.” Regardless of what you call it, it didn’t work. If it was a stimulus it wasn’t exactly stimulating and if it was a recovery plan it hasn’t led us to much of a recovery. Now the messaging geniuses at the White House decided to frame the last three months as the “Recovery Summer.” Bad move. In their seemingly infinite naïveté, Obama and his crack team of advisers saw that thousands of projects funded by the stimulus bill were going to be coming into effect over the summer. Surely, this would spur the much-ballyhooed job creation the administration has been crowing about right! Right? Wrong. Despite Vice President Joe Biden’s declaration that the economy would soon be pumping out 250,000 to 500,000 new jobs a month, our economy has hit a wall. In August state initial claims for unemployment benefits increased 12,000 to 500,000, the highest since midNovember. Moreover, the 9.5 percent unemployment rate has remained at about the same level as it was in May. Finally, home sales plunged in July, falling 27 percent, the steeping one-month drop since we began keeping the statistic in 1968. We’ve got more signs pointing towards a double dip than any sort of private sector recovery and the President’s “Recovery Summer” tour is taking a break on the beaches of Martha’s Vineyard. But things are bound to get better right? Sure, we may have been burned by the Recovery Summer, but there’s always Fall. We’ll have the Autumn Comeback, or the Fall Resurrection, or the Harvest Rebound (thanks thesaurus.com). Sadly, my Magic Eight Ball, which happens to be filled with economists, says “outlook not so good.” As Economic Policy Institute economist Josh Bivens told ABC: Two thirds of all stimulus dollars will have been spent by the end of the summer, Bivens said. The economy grew 3.7 percent in the first quarter of 2010 but slowed to 2.4 percent in the second quarter. Economic growth is “going to drop rapidly for the rest of this year and the Recovery Act is going to add zero. It will have run out,” Bivens said. As the economy remains on life support, the prognosis for Democrats’ November chances grows more bleak. A new Washington Post poll finds that a mere 27 percent of Americans see the economy as improving. It’s unsurprising then that the same poll finds that a new low of 43 percent approve of Obama’s handling of the economy. As it turns out, people are smart enough to flip past the title page. Even Snookie knows that Recovery Summer simply doesn’t mean anything without any actual recovery.

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Democrats Trying to Have it Both Ways In Tax Cut Debate
The golden rule of politics: Never let your opponent frame the debate. Not quite, do unto others as you would have them do unto you, but work with me here, this is Washington. The biggest battle for position is currently over the Bush tax cuts. Democrats are attempting to frame the debate so that Republicans are up to their old tricks, helping the rich at the expense of the poor. Paul Krugman’s latest column pretty much sums up the liberal storyline. We need to pinch pennies these days. Don’t you know we have a budget deficit? For months that has been the word from Republicans and conservative Democrats, who have rejected every suggestion that we do more to avoid deep cuts in public services and help the ailing economy. But these same politicians are eager to cut checks averaging $3 million each to the richest 120,000 people in the country. There are two enormous rhetorical flaws with this approach that I’d like to address. First, Democrats attempt to single out the rich is purely a partisan word game. Contrary to the favoring the rich philosophy Democrats keep pushing, Republicans want to extend the Bush tax cuts for everyone. Second, for Republicans, reducing government spending is the end, reducing the deficit happens to be a beneficial byproduct of achieving that end. Republicans aren’t the party of the rich. We’re not looking out for their interests at the expense of everyone else’s. No, we’re simply maintaining ideological consistency. We want everyone to be able to keep as much of their money in their pocket as they can. Democrats myopia neglects the fact that they agree with Republicans on almost all of the tax cuts. But rather than admit to the consistency they employ a clever rhetorical trick that makes them look really good and Republicans really bad. Keith Hennessy explained the language trick today in his blog, Most DC Democrats try to have it both ways – they talk about “preventing tax increases on the middle class” but oppose “extending tax cuts for the rich.” This rhetorical inconsistency masks a parallel situation in law and policy. Either they’re both extending tax cuts, or they’re both preventing tax increases. Same action, different verb. Regardless of which tack you choose, let’s at least be intellectually honest. Of course, such parallels don’t help Democrats with their message. “Promoting tax cuts for everyone “is not nearly as provocative as “extending tax cuts for the rich.” The fact is Republicans aren’t out to rob from the poor to give to the rich. We’re out to stop the government from robbing from anyone at all. And sadly that is exactly what the debate has devolved into. When it comes to deficits, private citizen’s money is only viewed through the lens of government need. As Hennessey explains, In this view of the world, revenues belong to the government and are allocated by policymakers as gifts to those who need or deserve them. When you hear that “we cannot afford to cut taxes” and “we should not give tax cuts to ______,” you are hearing this philosophy. The problem with this philosophy is that ultimately, whatever the government spends, is not in and of itself government money. Citizens are relatively happy to donate a portion of their income to the government to ensure that certain infrastructure gets built, and certain services get done. However, citizen’s money should not be used as merely a subsidy for the largesse of our government. The debate must never be framed in such a way that the moral imperative lies with taxpayers to pay for the expenditures of its government. The imperative always lies with government to justify its expenditures in the context of how much it is taking from taxpayers. Can the government justify its current spending levels? If not, can they justify asking more from any taxpayer before first looking for places to cut?

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That concept it tied closely with the second fallacy of Democrats’ attempt to frame the debate over extending the tax cuts. Republicans are deeply concerned about the deficit. However, we recognize that the deficit problem is part and parcel of the greater government spending problem. As Congressman Mike Pence said recently on Meet the Press, “I think it’s apples and oranges. Here in Washington, DC they talk about tax cuts the same way they talk about spending increases as if the government owned all the money…I think deciding on a government spending increase is very different on whether or not we allow American people to keep more of their hard-earned tax dollars.” That is the fundamental difference that Democrats fail to grasp. Republicans are all for lowering the deficit, but they aren’t for raising taxes to do it, especially not when government spending is at its highest point in history. Moreover, let’s dispel the notion that Democrats are truly concerned about the tax cuts impact on the deficit. They are always the first to cite the Tax Policy Center’s figure that extending the tax cuts for the “rich” would take away $680 billion in potential revenue over the next 10 years. What you never hear them say is that the cost in lost revenue of extending the total package of tax cuts is $3.1 trillion. Then again Democrats justify the cuts for the rest of society by saying that they will stimulate consumer demand so that we can escape the recession. Fortunately Gerry Connolly (D-VA) has the perfect response: “it’s important for members to remember the top 5 percent of earners generates 30 percent of consumer spending.” In other words, if Democrats really believe their own logic, then we get the biggest bang for our buck would come from extending tax relief to everyone. Then again, as we discussed earlier, internal consistency is not exactly Democrats’ strong suit.

Reckless Spending Shows Liberals Don’t Have a Monopoly on Compassion
In my heart I’m a liberal. How could I not be? I see poverty that should be alleviated, hunger that should be fed, homeless that should be given shelter and sick that should be given care. What a world it would be if everyone had no economic worries. They were born into comfort and died without an economic care in the world. That is the way I want it to be, but I realize it cannot be so. Nevertheless, each of the two political parties does their best to maximize this vision of utopia. Don’t be fooled. Liberals like to think that they have a monopoly on compassion, but that is not the case. There happen to be two brands of empathy. Regardless of intent, the liberal brand focuses on improving conditions in the here and now. They want to expand entitlements, inch towards a cradle-to-the-grave welfare state, and spend as much money as society will let them to dig people out of economic trouble. Any differing ideals are simply heartless. Reforming Social Security becomes an attempt to destroy granny’s retirement. Asking that unemployment benefits be paid for by finding cuts elsewhere in the federal budget is interpreted as lacking compassion for those struggling in a down economy. Wondering why healthcare reform was not focused on lowering costs became synonymous with denying care to the poor. As my colleague Zach Howell has previously explained, “no lambast, hyperbole or imagination is spared in the Left’s attempt to convince Americans that any action to control the growth of entitlement spending is a heartless sop to rich voters.” The conservative brand of compassion uses a more long-term frame of reference. It understands that our obligation to society expands beyond this generation. We understand that there is nothing inherently compassionate about a social welfare program that benefits today at the expense of tomorrow. For instance, is anyone willing to argue that California’s pension system is based in empathy? Today’s recipients will surely retire in incredible comfort. They can retire generally around age 55 and receive monthly payments up to 90% of their income. This has led to the state’s pension plan being more than $500 billion underfunded. Moreover this deficit will have real world consequences. The Los Angeles Times reported that:

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For a glimpse of California’s budgetary future, look no further than the $5.5 billion diverted this year from higher education, transit, parks and other programs in order to pay just a tiny bit toward current unfunded pension and healthcare promises. That figure is set to triple within 10 years and — absent reform — to continue to grow, crowding out funding for many programs vital to the overwhelming majority of Californians. Today’s “empathy” bankrupted tomorrow. The same overemphasis on the present is played out elsewhere. Social Security is expected to run permanent deficits starting in 2015 and yet nothing has been done to ensure the program’s survival in the long term. By raiding Medicare to cover up the costs of the Democrats’ healthcare reform plan, the long-term stability of the program is in jeopardy. As the Center for Medicare and Medicaid reported, “providers…could find it difficult to remain profitable and, absent legislative intervention, might end their participation in the program.” But more broadly the incessant spending on government programs is placing enormous strain on our future finances. According to CBO figures, our national debt will soar to 180 percent of GDP by 2035 – a level well above that of Greece. There is simply nothing compassionate about being forced to spend $5.7 trillion on interest on our debt every decade. There is nothing compassionate about spending holes into our social safety nets. Conservatives understand the desire to help, but we also understand that we cannot handcuff our ability to help people in the future. True compassion does not exist purely as an ephemeral idea, to work, it must translate into improving the plight of real people. All of us, Republican or Democrat, share in our hearts a vision for this world. But throwing good money after bad helps today by hurting tomorrow. In our quest for social justice we must expand our worldview and understand the long-term impacts of today’s spending. With so much at stake, trillions of dollars in debt, is anything but compassionate. To have the resources to help both today and tomorrow, we must put America back on the path towards responsible and sustainable spending. As I said earlier, I’m a bleeding heart liberal, but it is tempered by the rational mind of a conservative.

Democrats Retreat on Obamacare’s Claims of Lower Costs
Democrats have waved the white flag. They are in full retreat from a healthcare battle that has been fought for 18 months. They’ve come to the realization that they had better cut their losses, head for higher ground, and regroup. It can’t be seen as anything but a tremendous victory for Republicans. For over a year Republicans have been waging a messaging war on the Democrats claim that their healthcare reform bill would lower costs and reduce the deficit. President Obama campaigned (and possibly won) on the notion that his healthcare reform bill would stem the persistent increase in healthcare costs. In 2008 he said, “[I]t’s time we did something about the [cost crisis families are facing.] That starts with relieving the biggest burden to families, state budgets, and business – the crushing cost of health care. My plan… would bring down premiums by $2,500 for the typical family, and bring down costs for the entire country…” In December 2009 President Obama became even more adamant on the necessity of passing healthcare to alleviate the federal government’s budgetary concerns. In an interview with Charlie Gibson Obama said point blank, “[I]f we don’t do this, nobody argues with the fact that health care costs are going to consume the entire federal budget.” Um, Republicans have been arguing that point since the beginning. We were always highly dubious of the notion that you could add millions of people to Medicaid, exponentially expand the government’s role in delivering care, and still lower costs. Over the course of time that suspicion turned into fact. At the beginning of the debate we were attempting to stop the Democrats momentum with no weapons other than our fundamental belief that big government is bad business. Then came the reinforcements.

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In June 2009 the CBO said that “enacting the proposal would result in a net increase in federal budget deficit of about $1.0 trillion over the 2010-2019 period. In April 2010 the Center for Medicare and Medicaid Services found that “we estimate the for calendar years 2010 through 2019, [national health expenditures] would increase by $311 billion, or 0.9 percent, over the updated baseline projection.” And on June 2010 CBO Director Douglas Elmendorf found that, “In CBO’s judgment, the health legislation enacted earlier this year does not substantially diminish [the] pressure of [rising health costs].” So much for President Obama’s sales pitch. The latest sign that the battle has tilted in favor of Republicans is a recent Rasmussen poll which find that support for repeal of the health care bill has reached 60 percent. With factual bullets flying at them from every direction and voters abandoning their cause Democrats have begun to sense that the health care battle is lost. Politico’s Ben Smith explains the retreat, found in a leaked Democrat PowerPoint presentation. As Smith writes, “Key White House allies are dramatically shifted their attempts to defend health care legislation, abandoning claims that it will reduce costs and deficit and instead stressing a promise to “improve it.” The goal of the confidential presentation was to provide a focus-group tested way of discussing the healthcare law as members returned to their districts. It veers from the factually inaccurate, “it is critical to reassure seniors that Medicare will not be cut,” to the sad, “let public know that the rich will see a tax increase to pay for it,” to the fullblown retreat, “don’t say the law will reduce costs and deficit.” It appears that Republicans have captured the healthcare frontline. The Democrats initial offensive has been held back. BUT that doesn’t mean they aren’t regrouping behind a new strategy to woo voters with their failed law. Rather than explain all the good things that it will do (because there aren’t many) Democrats new plan is to explain how they are going to fix the bill. It’s the “we just need another chance” approach. Just reelect us and we’ll totally go back and fix what we now admit is broken! Don’t buy it. This bill doesn’t need tinkering around the edges, it needs a full scale makeover. The entire point of healthcare reform was to stop the rise of healthcare costs – Obamacare doesn’t do that, in fact, I would argue, it can’t do that. So don’t give Democrats a chance to fix a bill they fought (and lied) for, give Republicans a chance to replace it with something that works.

U.S. Headed for Double Dip as U.K. Swings Toward Recovery
Is the dreaded double dip here? For the third straight week first-time jobless claims rose, suggesting that employers are once again laying off workers in the face of a slumping economy. Given the current administration’s policies it was hard to expect much better. Looming tax increases on business income and capital investment don’t give employers much reason to hire or invest. And if none of that makes you feel too cheery you’ll love the Administration’s response today, “right now, nothing is possible.” Great! While the U.S. economy crashes under the weight of its deficits, the U.K. took a decidedly different approach and is getting decidedly better results. The United Kingdom was in a similar situation as the United States. Their unemployment reached a high of about 8 percent, their total economy contracted by about 5.9 percent, and their national debt was 62.2 percent of GDP. Nothing exactly rosy about any of those figures. How did they respond? They began pinching pennies. New Prime Minister David Cameron and a new coalition government enacted the deepest budget cuts in generations, they slashed the size of government (600,000 public sector workers will be cut by 2015), and have begun devolving power from the central government to local communities.

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In doing so they have begun to wean themselves off of their reliance (read: addiction) to big government solutions. Some have embraced it. David Graham, chairman of a community trust in the U.K. told the Washington Post that “[t]imes are hard, and they are going to get harder. Now is the time to help yourselves.” Some have continued to fight for big government. The Labor Party’s Jim Knight says that, “in the end, for Big Society, just read Small Government and fewer services.” In spite of its critics, the program is building confidence among the nation’s businesses, and that confidence is translating into economic growth. The Financial Times reported that, “In the UK, shoppers had a surprisingly spry July. Though some economists had been predicting a drop in sales, the strongest jump since February 2008 in sales of discretionary items led the headline higher…The jump in UK sales came at the same time the UK’s public borrowing slowed to £3.2bn, including financial bail-out money. That eases worries that austerity will begin to knock Europe’s relatively strong economy.” Among other positive indicators of growth, the U.K economy added workers at the fastest pace in 21 years and unemployment enjoyed the biggest drop since 2007. Moreover, the economy grew by 1.1 percent in the second quarter – doubling the predicted rate of growth. In this tale of two economies it is pretty clear who is on the right track. One nation actually chose to admit their unsustainable addiction to government spending and take steps to address it. The other chose to focus on healthcare and Wall Street reform in the hopes that jobs would return on their own. While one nation is on the road to recovery, seeing simultaneous decreases in their budget deficit and increases in unemployment, the other continues to shed jobs. Hopefully we will learn from our friends across the Atlantic and stop putting our faith in government to solve our problems. We’ve seen the path we’re on and its leading us straight to a double dip. So come November just remember…

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President Obama’s Pontificating Clouds the Bigger Issues
President Obama is clearly a law school grad. As a fellow law school alum myself, I absolutely mean that in the worst way possible. Law school is all about the Socratic method. First, you read a case where you usually come away with a clear opinion of whether it was rightly or wrongly decided. Next, you attend class where the professor, through a series of obtuse questions, attempts to completely demolish your understanding of what you thought you knew. What was once concrete turns to nothing but jell-o. This is why lawyers are eternally frustrating to the rest of society. It is why we are the butt of endless jokes like, “What happens when you give Viagra to lawyers? They grow taller.” Zing. The fact is, lawyers, using impressive words and varied tones are adept at talking a lot without saying anything. When we are forced to give something that actually resembles an opinion, we couch it with so many disclaimers, qualifiers, money back guarantees and preconditions that it really doesn’t mean a darn thing. This is the problem with our President. He’s like a law student trying to hide his face in the classroom so the teacher doesn’t call on him. Inevitably he gets called on, and with a quivering voice, tries his best to answer the question by not answering the question. The mosque masquerade is merely the latest example of this artful dodger attempting to skirt the issue. At the iftar dinner at the White House, celebrating the beginning of the Muslim holy month of Ramadan, Obama declared that [A]s a citizen, and as President, I believe that Muslims have the same right to practice their religion as anyone else in this country. That includes the right to build a place of worship and a community center on private property in lower Manhattan, in accordance with local laws and ordinances. This is America, and our commitment to religious freedom must be unshakeable. The principle that people of all faiths are welcome in this country, and will not be treated differently by their government, is essential to who we are. The writ of our Founders must endure. A statement that in words clearly showed Muslims had the right to build the mosque, and in spirit clearly showed he believed the mosque should proceed. Then, in the true Socratic style, he was peppered with some questions. He wilted like a first year law student in torts class. He retreated, on his previous comments, saying that he was “not commenting on the wisdom” of putting a mosque at Ground Zero but instead was “commenting very specifically on the right people have.” This may be logically consistent, but gimme a break, those distinctions don’t fly anywhere outside a Constitutional Law classroom (which, interestingly enough is the exact class he taught at the University of Chicago). People don’t parse the clauses of a statement. They cut through the crap to find the underlying message. And the message we got from Obama’s initial talk about the mosque was that based on our nation’s history of freedom, he encouraged people to be supportive. Even if it’s not what he meant, it’s what people took away from it. For instance, liberal commentator Greg Sargent said the “forceful speech” “will go down as one of the finest moments of his presidency” because he “didn’t just stand up for the legal right of the group” but also “voiced powerful support for their moral right to do so.” Obama’s penchant for pontification existed well before the mosque statement. It happened during the Gulf Oil crisis. Oil was gushing out of a well a mile under the surface of the ocean with no end in sight – which is also where our President was – out of sight. Obama gave plenty of speeches and talks on the issue but they were all devoid of two things the public craved – emotions and solutions. As Keith Olbermann said after Obama’s Oval Office talk, “[i]t was a great speech if you were on another plant for the last 57 days.” The entire response came off as more of a sales pitch for a comprehensive energy bill than it did an empathetic response to the suffering of an entire region. We’ve seen the same thing with other seemingly big-ticket issues. Democrats lamented the muddled message on health care reform. Obama has lost credibility over his consistent overselling of the stimulus bill that many people feel failed to budge the unemployment needle. Despite the persistent lack of jobs, Obama has failed to provide anything resembling a jobs bill. As New York Times columnist Maureen Dowd wrote.

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Obama got elected because of the clarity of his campaign and his speeches. But, surprisingly, he’s in some ways an incoherent president. He’s with the banks, he’s against the banks. He’s leaving Afghanistan, he’s staying in Afghanistan. He strains at being a populist, but his head is in the clouds. His messaging is simply all over the place because he won’t give it to us straight. He’s constantly fumbling around trying to triangulate his position based on a high minded opinion of how things should be, rather than a careful and reasoned assessment of how things are. We’re citizens, not law professors Mr. President. We’re not going to flunk you for making your position clear, we’re going to flunk you because you failed to give it to us straight. So step out of the classroom, tell it to us like it is, and let’s actually figure out a way to solve the problems we face.

Healthcare and Social Security Parallels Bode Well for GOP in Midterms
The upcoming debate over Social Security should make Democrats nervous. The quest for reform is beginning to look an awful like the healthcare debate that dominated the 2008 elections. And we know how that turned out… Remember back to 2008. Healthcare was one of the dominant policy issues among voters – trailing only the war in Iraq in importance. The reason was the perception among Americans that rapidly rising healthcare costs were threatening the financial security of families and the economic health of the nation. Increases in health care costs had outstripped inflation for many years, forcing Americans to devote an ever-higher portion of their salary to receive the same goods. The 2008 elections rolled around and Democrats (at least in perception) took the lead on the issue. Hillary Clinton and Barack Obama both had detailed plans – attempting to finish the job they started in Bill Clinton’s first term. You probably still remember their plans and talking points – universal coverage, minimum coverage standards, and a national insurance program. Does anyone remember what John McCain’s plan was? I’m sure it had something to do with free-market reforms, but other than that, I’ve got nothing. Regardless of whether he had a plan, the perception was that it was a dominant issue for Democrats and was on the backburner for Republicans. I’m not saying Social Security will represent the same driving force in 2010. Nevertheless, there are some interesting parallels. Consider, that 73 percent of people in 2008 said that the U.S. healthcare system was in a “state of crisis” or “has major problems.” Today, 77 percent of people say the same thing about the current state of the Social Security system. Sensing that the public is not liking what they see out of one of the federal government’s biggest programs, Barack Obama has gone on the offensive. He argued that Republicans are “pushing to make privatizing Social Security a key part of their legislative agenda if they win a majority in Congress this fall.” He went on, contending that Republican plans were an ill-conceived idea that would add trillions to the debt while destroying Social Security as we know it. Despite the fact that Obama’s claims were thoroughly dismissed by the non-partisan Factcheck.org, Republicans should be willing to embrace them. The fact is, Social Security, like the healthcare system is failing. Despite Harry Reid’s insistence that “the so-called Social Security crisis exists in only one place – the minds of Republicans,” the program is in fact, in dire financial straights. But don’t take it from me. The nonpartisan CBO recently said, [A] longer-term decline in the trust funds’ financial condition is inevitable under current law, because the retirement of the baby-boom generation will cause benefit payments to increase more than revenues. CBO anticipates that a primary deficit will return in 2016 and that deficit will reach $77 billion in 2020.

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Do the Democrats have a plan to fix this? Not that I can find. Turns out they are happy to pull a Kevin Bacon is Animal House and say “Remain calm. All is well…ALL IS WELL!” as they are run over by the problem. Fixing Social Security is a huge issue, one that many voters believe is facing a crisis, and the Democrats are content to leave it on the backburner. Kinda like Republicans and healthcare circa 2008. The inverse parallel continues when it comes to the party’s solutions. Democrats, to the extent that they have a solution, is to continue the program as it exists. What else can you do when you fail to admit there is a problem in the first place? They point to the annual surpluses that the Social Security program has been stashing away as a sign of its fiscal health. Sure, its ledger ain’t lookin so hot right now, but it’s a recession, nothing is exactly flush with cash. After all, aren’t these little financial blips the reason we have the Social Security Trust Fund. Well, I would say “touché,” concede, and run away with my tail between my legs if one, the Social Security Trust Fund existed or, two, this was nothing more than a blip. Though I won’t get into the nitty-gritty of why the Trust Fund is nothing but a sham, suffice it to say that the federal government isn’t particularly adept at letting money sit around without spending it. Turns out the government has been using Social Security’s annual surpluses to partially mask its horrendous bottom line. It then replaces the raided funds with a nice little IOU. Sadly the IOUs are worthless. Its just more debt on top of a government that is incredibly deep in debt. Second, this is a lot more than a blip. According to the 2009 Social Security Trustees Report, Social Security will begin running deficits this year. There will then be a few years of tiny surpluses before the program dips permanently into the red. As the Heritage Foundation explains, “In net present value terms, Social Security owes $7.7 trillion more in benefits than it will receive in taxes. This consists of $2.4 trillion to repay the special issue bonds in the trust fund and $5.3 trillion to pay benefits after the trust fund is exhausted in 2037.” Harry Reid’s “most successful social program in the history of the world” is facing a bleak future. The government failed. As we’ve learned through the healthcare debate, adding government is generally Democrats favored policyanswer to most problems. Unfortunately, for Democrats you can’t make Social Security any more government run. It tried, it’s failing, and millions of retirees are on the hook. (Authors aside: are we glimpsing the future of healthcare?) But Republicans have actual solutions. Namely, allow individuals the right to do the same thing with their retirement money as members of Congress and federal workers do. Rather than putting your money in a trust fund (which the government is frittering away) you’ll have the choice (keyword that Democrats often leave out) to place a portion of your payroll tax in a government-managed account. Let me be clear, we’re not talking about total privatization, we’re not talking about giving “your benefits to the whims of Wall Street traders,” and we’re not talking about a mandate. Despite all that the plan is not, it is a plan. A plan that the CBO says will make the program permanently solvent. In 2008 Democrats coasted to victory largely because of their promises to reform a broken healthcare system. Republicans should not shy away from using Social Security’s obvious problems to undo those gains.

Union Approval Falls to New Low in Face of Huge Wage Disparity
Labor unions are their own worst enemy. They were formed with laudable goals, finding power in numbers to fight against the poor working conditions, long hours, and low pay of many early manufacturing jobs. Recently, unions have fallen on hard times. Their percentage of the workforce has fallen to a historical low of 8%. Moreover, In 1957 sixty-one percent more people approved than disapproved of labor unions. Today that number has plummeted to just eleven percent.

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The one-time defender of worker rights has fallen on hard times. But why? How did an organization whose mission is to improve working standards for their members, a cause which stated-plainly should be wildly popular, end up being so disliked. Some would point to the 1920s as a period of similar decline, arguing that union membership, as with almost anything is cyclical. But that period of union weakness was marked by economic prosperity. People didn’t join unions because they didn’t have to, the market was doing more than enough to keep their pay high and conditions acceptable. Today is radically different. The economy (if you hadn’t noticed) is in the tank, companies are looking for cost-savings wherever they can, and lowered profits have translated into lower wages. Shouldn’t this be a boom period for unions? Regardless of what it should be, it isn’t. The reason for the continued fall in public approval, power, and membership is their own doing. They are a victim of their own success. They have fought, and too often won, concessions and wages that outstrip those of the rest of the private sector. They have used their increased wealth to rake in dues that are then put toward campaigns. Their bargaining success in the workplace translated to success in the halls of Congress. They became the much-loathed “insiders,” able to secure favorable legislation in exchange for financial support in reelection campaigns. It was a well-oiled machine that worked very well. In good times unions’ success was masked by the success of everyone. Now that the economy has taken a turn for the worse unions have become the villains. The public-sector has been the focal point for much of the public’s wrath. And for good reason. A new report by the USA Today finds that, “At a time when workers’ pay and benefits have stagnated, federal employees’ average compensation has grown to more than double what private sector workers earn.” Double. According to the analysis, the average federal civil servants earn $123,049 in combined pay and benefits. On the other side of the prosperity coin, the average private sector worker made $61,051 in total compensation. Although you can quibble with the variables, including education and skill-level, the bottom line remains just as shocking for the average worker attempting to eke by in this recession. A similar report from the Wall Street Journal only adds fuel to the fire. In August they reported that “Among the 52 metro areas with populations of more than one million, in only three did both net earnings and the broader measure of personal income both rise.” Can you guess the similarity between the three places? All three had strong ties to the federal government – Washington, DC, San Antonio and Virginia Beach.

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In this time of economic crisis the perception of shared sacrifice is important to Americans. Unions, and especially public sector unions, appear to be exempt from the financial plight of the rest of us. As their wage disparity continues to grow, they should expect their approval ratings to continue to fall.

Public Sector Employees Refusing to Share in Private Sector Sacrifice
We as a society love teachers. They are the nurturers of talent. The cultivators of intelligence. The rudder that steers this nation’s future generations. They represent some of our fondest memories. But that doesn’t mean they aren’t part of the sacrifice that we are making as a nation to get our finances back on track. Let me repeat: they must be part of the sacrifice. Unfortunately, the Obama administration doesn’t think so. Instead, they have chosen to use teacher’s as a national lightning rod. Teachers hold a revered place within our psyche. We assume that what is best for them is best for the nation. Because of that fundamental, and consistently unquestioned belief within each of us, Democrats have backed Republicans into a corner. They recently passed a $26 billion state aid bill, a significant chunk of which went towards teacher salaries. The Obama administration has been everywhere trying to sell this talking point. Look at all the teachers’ jobs we saved! Look how much we care about education and about creating a strong foundation for tomorrow! They’ve been like a Snuggie infomercial – everywhere. Consider these tidbits of propaganda from the Organizing for America’s website, “Teachers, firefighters, police officers and the communities they serve can breath a little easier today, thanks to President Obama signing into law emergency aid for states and preventing layoffs scheduled for this fall.” Or this line from President Obama, “We can’t stand by and do nothing wile pink slips are given to the men and women who educate our children.” The question is, how did we get to this point? How did we get to the point where we need to bail out teachers? Money is often said to be the root of all evil. In Washington the opposite is believed to be true – money is the root of all solutions. For instance, consider that spending per student has increased by 49 percent in inflation-adjusted dollars over the past 20 years. Despite the increases long-term measures of academic achievement have not improved at anything resembling a comparable level. And although we constantly hear that “teachers are chronically underpaid,” have we ever stopped to question whether they in fact are? According to the Bureau of Labor Statistics elementary school teacher salaries increased from $46,990 to $52,240 between 2005 and 2008. Or consider that in 2005 the average public school teacher was paid 36% more per hour than the average non-sales white-collar worker and 11% more than the average professional specialty and technical worker. Using that same 2005 data we find that the average net monthly income for a United States’ teacher was almost $1,000 more than a UK teacher and about $1,8000 more than a Canadian teacher. Given these statistics it is little wonder that New Jersey Governor Chris Christie had this to say recently: “This teacher complaining, they’re getting 4 and 5 percent salary increases a year. In a 0 percent inflation world. . . They get free health benefits from the day they’re hired for their entire family until the day they die. They believe they are entitled to this shelter from the recession when the people who are paying for that shelter are the people who have been laid off, who’ve lost their homes, had their hours cut back.”

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Now, let me clarify what I am, and am not, saying. I’m not saying that teacher’s aren’t incredibly important cogs in the social machine. I’m not saying that they aren’t worth every penny they’ve earned. And I’m certainly not saying they shouldn’t be a priority in the recovery. What I am saying is that our nation as a whole is going to have to make sacrifices and teachers, whose pay represents an enormous part of state budget expenditures, must be part of that sacrifice. Part of that sacrifice is accepting a wage freeze. That is all Chris Christie asked of them. That is all we would need to ask of teachers nationwide. Accept a wage freeze and I guarantee that we would not be forced into a position where we must lay off teachers to keep the budget in the black. That is the real problem. We’ve been presented with a false choice. Obama would have you believe that if we don’t give the states another $26 billion then teachers would be fired. In reality, if state employees were willing to make an initial sacrifice, a sacrifice many private sector workers have made without even being presented with a choice, we wouldn’t need to spend more federal money that we don’t have. I know criticizing teachers is taboo. I know President Obama will likely be praised to high heaven for his bold steps to protect the undervalued profession. But I also know we are in up to our necks in red ink and I just wish government employees would join us in making sacrifices.

The Social Security Ponzi Scheme is Collapsing
Doomsday has always seemed to be around the corner. If you recall, there was a level of hysteria in 1999 about computers and the turn of the millennium. People stocked up on water and cans, even if only to humor their dramatic side, and chuckled at themselves at 12:01 AM on January 1, 2000 when the world as we knew it continued to go on. 2012 is our next Doomsday test, and with a little under a year and a half left to go. We’ll see what happens. There’s also another doomsday we’ve been hearing from our ever reliable legislators. While it’s obvious to anyone who keeps track of just how bad our spending has gotten and how unbelievably ignorant our government takes its constituents for, we’ve been hearing for years that Social Security would be fine until 2029. So we’ve been thinking that we’ve got 19 years to get the story straight on one of FDR’s cornerstone achievements. Two problems. First of all, the American people should be smarter than to believe something our government is telling us—especially when it comes to anything financial. As a recent article on RealClearMarkets points out: “So after years of telling us this problem is decades away the fateful day has finally arrived when Congress has to make good on that giant pile of IOUs. The same Congress that just massively expanded “access” to healthcare for all Americans regardless of their ability to pay. The same Congress that bailed out Fannie Mae, Freddie Mac, General Motors, and AIG. The same Congress that can’t resist festooning every spending bill with earmarks for essential programs like butterfly gardens.” I don’t think the severity of the situation is settling in. Maybe that’s because we’re not able to grasp the scale of our money troubles—after all, who can really fathom what 1.4 trillion means? But when the reality of this situation sets in it will be stark and devastating. After all, as the article gloomily explains, “All of the money collected from every American’s paycheck throughout all of our careers is now gone.” And in its place? “IOUs from Harry Reid, Nancy Pelosi, Charlie Rangel, and Barney Frank. $2.5 Trillion dollars worth of IOUs.” This is a point that bears repeating. The Social Security Trust Fund should have $2.5 trillion in it. It has nothing. Instead in the Budget Enforcement Act of 1990, Congress took the Social Security Trust Fund off budget. This allowed them to do kill two birds with one stone. They could increase the national debt by borrowing from Trust Fund money that would have to be paid out later and yet mask annual deficit spending by borrowing yearly surpluses from Social Security. Sneaky. Very sneaky.

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Essentially, we’ve been robbed. Bernie Madoff style. What would be considered felony fraud in the private sector, frittering away other people’s money for a purpose not in line with why they gave it to you, is just business as usual for the U.S. government. This leads us to two possible scenarios, both of which are crap. First, the Social Security program will go defunct, unable to fulfill the promise it made to millions of retirees who have paid into the system since they begun working. We’ll call that situation unlikely. Second, the program will be forced to get its fiscal house in order. This is much worse than it sounds. The government’s past wastefulness means that beneficiaries will likely receive less payouts. Future enrollees will likely have to pay higher payroll taxes and have to wait longer before receiving benefits. Even then, significant sums of money will have to be brought in through additional revenue sources to fund the promises the program has already made. That or we’ll do what we apparently do best. We’ll borrow money. Certainly from China. Maybe a little from Japan. But eventually those sources will run dry. Never mind the severe economic and national security consequences that our continued reliance on China will have, our nation will be pushed to the brink of default. Social Security is a just a peak into our future when it comes to all of our entitlement promises. In 60 years, long after the Social Security experiment has been deemed a failure, we’ll be dealing with the explosion in costs of our other social safety nets. Medicare, Medicaid, and now, Obamacare are anchors pulling our fiscal ship down from every side. Then again it is hard to gain any ideological steam for reform when you have Democratic leaders such as Harry Reid saying the looming insolvency is nothing but a “myth.” Or that “Social Security crisis exists in only one place: the minds of Republicans.” Or when he announces that Social Security is hardly going broke, but is instead “the most successful social program in the history of the world.” Step one in the long road to fixing this mess is admitting we have a problem. Republicans are willing to do that. Democrats are not. Until we put aside egos and politics the program’s finances will continue to spiral downwards. Without fixing Social Security may exist in only one place – the minds of the public – because it will be gone.

Krugman’s Baseless Attack On Paul Ryan Highlights What’s Wrong With Politics
It is fair to say that Paul Krugman is my arch-enemy. He’s the Joker to my Batman. He’s the Moriarty to my Sherlock Holmes. He’s the Elmer Fudd to my Bugs Bunny. He’s the freakin’ Darth Vader of liberal pundits, except that there is very little chance that he’ll come to his senses and switch over to the good guys before the end of the movie. Why do I have such unabashed dislike for the man? Because he’s smart. His understanding and knowledge of economics could add an incredible perspective to the troubling financial system that our country currently finds itself in. But no. He’s chosen to use his powers for evil. Krugman is all to content with making up facts, creating false dichotomies, attacking caricatures at the expense of nuance, and resorting to childish name calling. I mean, I know the Nobel Peace Prize ain’t exactly what it used to be (here’s looking at you fellow winner Yasser Arafat) but name calling isn’t quite fitting behavior. I don’t even have to trek very far back in his column to find these gems of political analysis: • • • “[W]e’re facing a coalition of the heartless, the clueless and the confused. . . By the heartless, I mean Republicans” “Right-wing extremism may be the same as it ever was, but it clearly has more adherents now than it did a couple of years ago.” “It’s a party that sees modest efforts to improve Americans’ economic and health security not merely as unwise, but as monstrous”

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So count me as unsurprised, but still appreciably ticked off with Krugman’s latest column entitled “The Flimflam Man.” The flimflam man would be House Republican Paul Ryan who happens to be one of the more vocal critics of Democrats’ economic policies. He also calls Ryan a “charlatan” whose plan to reform our nation’s finances is nothing more than a “fraud” that is “drenched in flimflam sauce.” It’s the “audacity of dopes” he quips. Alright I admit, the phrase “flimflam sauce” made me chuckle. But really, how intellectually lazy can you be. In one paragraph he argues that “Mr. Ryan’s plan calls for steep cuts in both spending and taxes” then follows that up by saying that “the plan would raise taxes on 95 percent of the population. Even overlooking the fact that the Tax Policy Center, which Krugman relies heavily on throughout his article, disagrees with this assessment, it’s intellectually inconsistent. Suffice it to say that I could go point-by-point and dismiss Krugman’s claims as either misleading or totally wrong, but fortunately Paul Ryan has already done that for us. Instead I’d like to spend the rest of this post lamenting how childish the national political debate has become. Political commentators are now incapable of making it past the letter beside a politician’s name. As if they can automatically predict the personal policies of the person and write them off as bunk merely because they are from one party or another. Surely Paul Ryan couldn’t contribute anything to the debate! He’s a Republican. Ya know, one of them politicians that only wants tax cuts for the rich, wants to spend a brazilian dollars on national defense, hates immigrants, and wants to chop down every tree in sight. Such ridiculousness is not a one-way street. Republican commentators can be guilty of the same. (Here’s a secret I’ll only share with you: Barack Obama is probably not a Communist. Crazy right?) These caricatures are destroying our ability to get anything done. Paul Ryan’s plan, regardless of your ideological perspective, should be given the credit it deserves – it is the only plan out there, from either party, to attempt to comprehensively address the fiscal problems of the United States. Disagree with it on the merits. Fine. But flimflam it is not. Even Krugman’s fearless leader, President Barack Obama, has praised Ryan for “ma[king] a serious proposal” to rein in the deficit and addressing entitlement spending. But Paul Krugman is not a serious journalist. He’s uninterested in furthering the debate or using his admittedly deep knowledge of economics to argue while he’s right. Instead, he just wants to bash. Which makes it all the more ridiculous, no, hypocritical, when he ends his column by saying, “The Ryan plan is a fraud that makes no useful contribution to the debate over America’s fiscal future.” Replace “the Ryan plan” with “Paul Krugman” and I may actually agree with that sentence.

Dems’ State Aid Bill Not the Key to Improving Education
There’s an epidemic in Washington. It started slowly, workings its way into the brains of our elected officials. But now that it is good and engrained in the legislative process, it’ll take a massive shift in public thought to eradicate it. What is this plague that has been spreading through Washington? Spending. And it has grown out of control. Ronald Reagan, in one of his famous off-the-cuff jokes he made back when he was president, said “we could say [Democrats] spend like drunken sailors, but that would be unfair to drunken sailors. It would be unfair, because drunken sailors are spending their own money.” Drunken sailors or not, the Democrats continue to find new ways to mortgage our future. They rationalize their spending habits with names like “stimulus” of “state aid”, although reality shows that these are little more than just clever marketing tricks. Really they’re just throwing money at a problem, claiming legislative victory, and touting how much they’ve accomplished to voters. Their latest attempt is a $26 billion package of aid to the states. In essence, it is an extension of multiple stimulus programs (as if those proved popular the first time around). Democrats tout the bill as necessary to shore up struggling state finances and like to highlight how much money is being put into education. You see, education is one of the few things that is off limits to critique. After all, who doesn’t want to spend more money on children?

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Moreover, don’t we need more spending on education? The U.S., unfortunately, has not had one of the stronger public educational systems in the world, continually ranking low among industrialized nations. Even the states with the best system are sub-par in comparison to other countries like Finland and South Korea. For the United States to have such an unimpressive public education program, which educates around 56 million children from kindergarten to 12th grade, you’d think it would be somewhere where we could afford to spend a few stimulus dollars. The answer, however, is not to throw money at it. Democrats, take notice – we’ve seen time and time again that pumping more money into an inefficient program, whether it be healthcare or education, is not what changes the quality of its product. It’s counterintuitive I know. But it’s true. Take Pennsylvania for example. A northeast state governed by Democrat Ed Rendell (but kept in line by a Republican Senate), Pennsylvania has 1.8 million students enrolled in their public schools. Since 1970, the state’s education system has experienced a 956% increase in spending – going from just a $2.3 billion allocated that year to a blistering $24 billion today. Under Rendell, education spending has soared to a bloated 43% of their total state budget. This might be a little more tolerable and easy to swallow if performance measures proved that this money was worth it. But performance measurements have shown that there is hardly enough evidence to justify this kind of increase or even allow it to continue. 2 out of 10 schools in Pennsylvania did not meet the criteria to be considered as making “adequate yearly progress”, a measurement established by No Child Left Behind. On average, Pennsylvania students have the 5th lowest scores SAT scores in the country and one in four high school students fails to graduate. Maryland is another example. The mid-Atlantic state has consistently spent more per pupil than any other state in the nation–$9,000 per student. In 1970, Maryland’s average was $3,800 per student, and the country’s was around the same. But by recent figures, Maryland outspends the U.S. average by almost $1,000 per student. These numbers are alarmingly high, especially because they are usually the single largest budget item in county budgets– and one of the top spending items in the state’s budget. And what are the results of such spending? Results weren’t too different from Pennsylvania’s—underachievement and overspending hasn’t changed the fact that 70% of Maryland’s 8th graders fail to be proficient in either math or reading. The National Research Council, in a report commissioned by U.S. Department of Education, noted that, “Additional funding for education will not automatically and necessarily generate student achievement and in the past has not, in fact, generally led to higher achievement.” So in other words, education is no different: throwing money at it, like we did with the stimulus and health care, is not an effective method. On the national level, however, we’ve got an administration that’s still pushing it as a politically popular way to appear as if they are doing something to stem unemployment. Obama says that he sees it as “the key to our economic future.” But what kind of a future are you promoting when the money is being poorly directed, misspent, and wasted on frivolities. Is it any wonder then that are students are still struggling with basic concepts? Money can’t buy everything—and it can’t solve it, either. Pumping money into an institution as vital and formative as public school education is dangerous without addressing the real issues at stake. $26 billion is not an inconsequential sum of money. We must ensure the future success of our nation. However, that is achieved not only through a successful and efficient education program, but also through an acknowledgement of the future effect of our nation’s debt burden. If Democrats are going to continue to claim success for saving our schools, they should at least be asked how money is solving the problem.

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Romer’s Departure Signals Rift in White House Economic Strategy
There’s a level of irony and contradiction in this current administration. For the past 18 months, we’ve had a president that said one thing to get elected, but has done the complete opposite once in office. With everything from taxes, health care, and even bringing about a new age of bipartisanship, Obama has failed to follow through. This contradiction between rhetoric and reality has been recently highlighted in a dispute between the Obama administration and his chief economic adviser, Christina Romer. Unfortunately, within Obama’s inner circle there is not a lot of room for dissent. The Romer incident hasn’t been the only example. Remember when Rahm Emmanuel was going to retire after the midterms, apparently tired of the clash between his pragmatism and the administration’s idealism. Peter Orsczag, former CBO Director under President Bush and head of the OMB under Obama, also announced he was resigning in the midst of Congress’ failure to pass a budget resolution for 2011. Now we have Christina Romer, announcing her resignation following a clash with the administration over the benefits of tax cuts over government stimulus. With midterms looming ominously on the horizon and the economy still on the brink of collapse, Obama can ill afford to have his executive staff in disarray. Amongst all the speculation and rumors, Romer’s departure is perhaps the most troubling. Christina Romer was the Chair of the Council of Economic Advisors. Last week, she tendered her resignation, effective September 3 on the grounds of “exhaustion”. So she’ll go back to teaching at UC Berkeley, thousands of miles away from the political lion’s den of Washington. I understand that any job within the administration is emotionally and mentally exhausting. But let’s also look at the facts: Romer was a key architect in the stimulus package that Obama submitted to Congress back in February of 2009. She was one to predict that such a package would keep unemployment to 8%. 18 months later, however, we’re still trying to tame a stubborn unemployment rate hovering around 9.5%, and the verdict of the stimulus package? A big, fat failure. Romer’s leaving her mark on the administration—and it’s a mark that is likely to heavily define Obama’s first term. Not only was she lend some economic heft to Obama’s stimulus plans, she also majorly messed up the deficit projections. And it wasn’t by just a couple of billion dollars—it was by 2 trillion. Then again, she has a history of questionable accuracy whenever she assumes the mantle of prognosticator. After the stimulus was passed, Romer predicted it would lead to significant jobs gains. “We feel strongly that it’s going to be in the three to four million range,” she said. Whoops. Additionally, it’s been reported that Romer’s been battling with Larry Summers, the Director of the National Economic Council, to get a word in with President Obama. Romer and Summers have been battling for President Obama’s ear when it comes to economic policy advice. According to reports Summers looks to have won that battle. As Hotline reported, “’She has been frustrated,” a source with insight into the WH economics team said. “She doesn’t feel that she has a direct line to the president. She would be giving different advice than Larry Summers [director of the National Economic Council], who does have a direct line to the president. She is ostensibly the chief economic adviser, but she doesn’t seem to be playing that role.” While Democrats have painstakingly attempted to keep it out of the news, Obama’s tax hikes are set to crank up starting January 1. Considering we’re still trying to claw our way out of this recession, these taxes will be an unwelcome addition, since most Americans are still trying to find ways to make ends meet during these hard times. Romer seems to agree. She co-authored a report back in 2007 that discussed the “impact of changes in the level of taxation on economic activity”. In it, she explains that tax increases “have a large, rapid, and highly statistically significant negative effect on output.” Seems to contradict Obama’s planned tax increases. Would this report and its findings have anything to do with the supposed “exhaustion” she’s been experiencing?

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So we have Romer’s acknowledgement that tax hikes are going to be detrimental to economic growth, especially when it’s so shaky and frail. We have Orszag’s resignation, when he has his fingerprints all over reports of just how much health care reform is going to add to our deficit. And then Emmanuel was rumored to be leaving because he was fed up with being the only realist on a team of pie-in-the-sky people that are idealistic to a fault. The clashes are all over policy, and the outcomes are all similar. President Obama has fallen so short of everyone’s expectations, you almost are tempted to feel sorry for the guy. But then you remember how he’s pushed through highly controversial (and unpopular) bills and reforms at the wrong times, and they’re ones that increase the deficit by staggering numbers. His cabinet is filled with people that are put there to cover up his tracks and mistakes. No wonder people are starting to pack up and head home, and all the while using the most tired excuses out there. But it’s starting to become apparent to those outside the administration—and to all those that voted him in—that it’s time Obama owned up to his mistakes. It’s also time he welcomed differing opinion. Romer’s departure from a fractured presidency is just the first of many blows the president will be dealt over the next few months. But in order to stop the hemorrhaging, you first have to diagnose the problem. This seems lost on the administration—and will only get harder as people bow out.

Obama is No Kennedy When It Comes to Stimulating the Economy
The Kennedy’s hold a special place in the heart of today’s Democrats. The mystic legacy of Camelot has long been upheld as the paragon of a progressive society. The family, whose political career spans decades, presidencies, and tragedies, represents a hay-day for the Democratic Party. They were young, good-looking, popular, charismatic, and served as uniting forces when the country was divided. The Kennedys, an American political institution, are directly tied in to some of the most riveting moments in our countries history. And while the family has gone through more than its share of heartache, their fingerprint on U.S. policy, both foreign and domestic, will last well into the future. But what is that legacy? You may be surprised to learn that John F. Kennedy could teach Barack Obama a thing or two about the benefits of tax cuts. Liberals today often argue that Ronald Reagan could never be elected today. The classic conservative icon, he of “Government is not the solution. Government is the problem,” would be branded ideologically un-pure according to today’s guideposts. But JFK would also fail under that rubric. Kennedy was a supply-sider, a tax-cutter, and promoted a balanced budget. Ideas that are not exactly in line with the plan Democrats currently laud. Consider this speech Kennedy gave to the Economic Club of New York in 1962: “It could also be done by increasing federal expenditures more rapidly than necessary, but such a cost would soon demoralize both the government and the economy. If government is to retain the confidence of the people, it must not spend more than can be justified on ground of national need or spent with maximum efficiency. The final and best means of strengthening demand among consumers and business is to reduce the burden on private income and the deterrence to private initiative which are imposed by our present tax system.” My how times have changed. Despite our debt-to-GDP ratio being much higher today than it was in 1962, Obama eschewed Kennedy’s belief that government spending would demoralize the economy. It was a gamble that failed to pay off. Small businesses have refused to hire, fearful of looming tax increases as a result of a historic national debt. Loans have dried up. Investors are wary. Our economy is struggling to overcome the shackles of an overactive government. In choosing to go the route of government spending Obama ignored Kennedy’s successes. In 1963, under Kennedy’s watch, the economy was still equalizing after the enormous downs-and-ups of the Great Depression and World War II. Sensing that the country was teetering on the brink of a significant downturn, Kennedy sought out ways for America to return to its full productive capacity.

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Republicans, like today, vehemently opposed the idea of running a deficit with the economy so uncertain. To his credit, Kennedy and his team of economic advisers came up with a solution – cut taxes. As he said in his Tax Message to Congress in January 24, 1963, “In short, this tax program will increase our wealth far more than it increases our public debt.” That was the key. It is also what today’s Democrats fail to understand. Democrats have recently been hounding Repubilcans as deficit chicken-hawks. They wonder how we can be so worried about a budget deficit and yet continue to advocate for tax cuts. Isn’t it obvious they’re just playing politics in an election year, they ask. As Kennedy’s record clearly shows, the answer is no. The fact is, tax cuts and deficit reduction are not diametric opposites. Employed correctly they are two sides of the same coin. Take Kennedy’s 1963 tax cuts as the perfect example. That year top earners were paying a staggering 91% in taxes. Ninety cents of every dollar they earned was going to the government. Kennedy’s tax cuts (enacted after his death by Lyndon Johnson) slashed the top rate by 21% His assassination meant that he couldn’t see his cuts pay off. But the results are an eternal part of his legacy. After the cuts took effect federal government revenue increased by 6 percent annually. Such incredible growth set the mold followed by another Kennedy-esque figure. That man? Ronald Reagan. As Heritage explains, The Kennedy tax cut set the example that President Ronald Reagan would follow some 17 years later. By increasing incentives to work, produce, and invest, real GDP growth increased in the years following the tax cuts: More people worked, and the tax base expanded. Additionally, the expenditure side of the budget benefited as well because the unemployment rate was significantly reduced. Kennedy-onomics doesn’t quite have the same ring as Obamanomics but it is clear which was the more successful philosophy. In today’s partisan world we too often find ourselves arguing between the benefits of more stimulus or more tax cuts. Sadly we’re often find ourselves arguing simply because we’re Republicans and Democrats, doomed, apparently, to never again work together. It is that feeling that Kennedy would most lament. He was a President, a Democrat no less, who accepted some conservative ideals, and sought the best solution to a problem. If it wasn’t working, he changed. It wasn’t about a political agenda, it wasn’t about hewing to what the Leftist elements of his party thought, it was about ensuring that this country lived up to its potential. That crucial trait, the understanding that the desire for economic success is bipartisan, that sets Kennedy apart from Obama. They are a part of presidents that is often compared. I wish it was less because of their shared charisma, and more because of their shared economic successes.

Obama Misrepresents Health Care Reforms Impact on Medicare
President Obama has been playing defense over Medicare for a long time. Seniors have expressed their concern over Obama’s plan to fund a large chunk of his health care reform package through cuts to the Medicare cuts to the program. Their concerns appeared to be well founded. CBO Director Douglas Elmendorf has written that the cuts could “reduce access to care or diminish the quality of care.” Moreover, the Center for Medicare and Medicaid Services has written that under the program medical providers “could find it difficult to remain profitable and, absent legislative intervention, might end their participation in the program (possibly jeopardizing access to care for beneficiaries.” But Obama finally had a comeback. He finally had some ammo to fire back at his critics. He used his weekly address to discuss a new report by the Medicare trustees which painted a rosy picture of the programs finances. In the speech Obama said,

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“Forty five years ago we made a solemn compact as a nation that senior citizens would not go without the healthcare they need . . . That’s why a report issued this week by the Trustees who oversee Medicare was such good news. According to this report the steps we took this year to reform the health care system have put Medicare on a sounder financial footing. Reform has actually added at least a dozen years to the solvency of Medicare.” Um. Well. That may not have been so accurate. As the economics site E21 found, the Medicare trustees report has since been contradicted by (oddly enough) Medicare’s chief actuary. This is not normal. Typically the projections of the Trustees’ report are rubber-stamped without drastic change. This year was much different. In the “Statement of Actuarial Opinion” in the back of the report the actuary writes that, “The financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations. . . I encourage readers to review the “illustrative alternative” projections that are based on more sustainable assumptions for physicians and other Medicare price updates.” Awkward. Who wants to bet that the Medicare Trustees’ got an unhappy phone call this morning from someone in the White House? The problem isn’t that they were just wrong. They were waaaaayyy wrong. As economics think tank E21 found, The official 2010 Trustees’ Report tells us that total Medicare expenses will be total 6.37% of GDP by 2080. The CMS actuary’s alternative memorandum explains that 10.70% of GDP is a more reasonable estimate for that year – though one that is roughly 68% higher. The reason for the enormous disparity is a problem everyone (except for the Trustee’s apparently) has become intimately aware of over the past year: the doc fix. The Medicare doc fix is shorthand for the money needed to address the looming pay cut under the formula used to determine doctor reimbursement. Under the formula, put in place at a time when Medicare spending was growing slowly, the reimbursement rate fails to keep pace with increased medical costs. The problem is that the Trustees’ report uses the false assumption that a doc fix will not be passed and thus payments to Medicare physicians will fall by about 32% by 2012. Even President Obama himself has said that cuts to physician reimbursement will not come to pass. In early June Obama acknowledged that he is “absolutely willing to take the difficult steps necessary to lower the cost of Medicare and put our budget on a more fiscally sustainable path. But I’m not willing to do that by punishing hardworking physicians or the millions of Americans who count on Medicare.” Well, at least the first part is true. The fact is, contrary to his claims that Obamacare put Medicare of more firm financial footing; $500 billion in cuts put the program at serious risk. In his desperate attempt to find something that supported his pro-Medicare rhetoric he was willing to overlook the accuracy of the report. Misrepresenting facts, hiding key details, and touting others is the antithesis of the “open and transparent” administration we were promised. Instead, it’s the same old politics that have come to dominate Washington. Tell us the truth or tell us nothing at all. We’ve at least earned that.

Democrats Nix Tax Credit to Funnel Money Toward Pet Constituencies
The economy lost 131,000 jobs in July. The unemployment rate stayed a steady, if depressing, 9.5%. 6.6 million people have been jobless for more than 27 weeks. Despite it all Tim Geithner penned a column last week entitled “Welcome to the Recovery.” It’s a title in need of a caveat. It should have read, “Welcome to the Jobless Recovery.” Had that been the case it would have been fitting. Democrats seem to have embraced the idea that the economy will stink well into November. Rather than battle the economic headwind, they’ve hunkered down behind an election strategy of helping core constituencies while leaving the rest of us to weather the storm.

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The strategy has crystallized in the $26 billion state aid bill that passed through the Senate last Wednesday. The House of Representatives, which is currently enjoying an August recess, will be brought back into session to vote for the measure. Though many Democrats are at home fighting for their jobs, the Washington Post reports that, “[m]any lawmakers will welcome the interruption, viewing it as a chance to score a fresh legislative victory for teachers and public-service unions, an important Democratic constituency.” Not a fresh legislative victory for the masses of unemployed. A legislative victory for two important Democratic constituencies. Set against this backdrop it is unsurprising that the Association of Federal, State, County and Municipal Employees (AFSCME) and other unions are revving up its campaign engine to protect Democratic candidates in the fall. As the president of the AFSCME told Politico recently, “We intend to highlight the clear choice Americans will make in November between Democrats who are working to protect jobs and move the economy forward and Republicans who are willing to wreck the economy for political gain.” Oh so backwards. Democrats pass a $26 billion bill to help teachers unions and Republicans are the ones “wrecking the economy for political gain”? In reality it’s little more than you scratch my back by paying off teachers unions, and we’ll scratch yours by throwing some campaign resources your way. Dirty politics to be sure, but here is the real rub: where did Democrats scrounge up $26 billion? After all, they’ve demonstrated their unwavering commitment to following the Paygo rules (that’s a joke). Turns out Democrats found the cash by raiding a fund devoted for a research and development tax credit. Here’s the scheme. Democrats passed a foreign-tax-credit limit that ended some tax breaks on overseas profits. The provision was projected to raise $11.5 billion over 10 years. In essence the plan was a tax increase on U.S. based multinational companies that are already struggling under the second highest corporate tax structure in the world. Nevertheless, business leaders threw Democrats a bone. In a letter to Senate leaders, 22 large multinational businesses agreed to support the tax hikes with one caveat – funding the research and development tax credit. Democrats leveraged the support of businesses to tout the legislation, passed the tax increases, then immediately pulled the rug out from under the business leaders. Instead of funding R&D, which some people estimate would create up to 162,000 jobs and increase GDP by $90 billion, Democrats tossed the money to one of their pet constituencies. Democrats have weighed the options. On one side of the scale is modest job creation. On the other side of the scale is campaign cash. In this broken town winning elections is more important than creating jobs every time. Given that reality I welcome you to the jobless recovery.

Public Sector Unions A Main Cause of State Debt Woes
After living in D.C. for a few months, I’ve become convinced that the best employer in the country is the government. On both the federal and state levels, government employees are sheltered from the vicissitudes of the market, are extremely hard to fire, and have some of the best unions in the world. It’s that union thing I’d like to talk about for a bit. You see, they may be great for public sector employees, but as a new report by the Cato Institute shows, they aren’t so helpful to the rest of us. While unions in general do a great amount of good for the average union employee, their actions have a parasitic effect on the rest of the taxpaying base. The problem naturally spirals. Unions make up a great deal of public sector workers. As a strong lever for votes, unions can either elect pro-union candidates or use their political lever to promote favorable wage legislation. The cycle of contributions, candidates and higher wages can continue in perpetuity, until and unless, state deficits reach politically perilous levels. This is exactly what has happened in many states. Consider the data gathered by the Washington Examiner on the correlation between union presence and state debt (note that the debt number come from 2007, before the current recession): • Among states whose government workers are less than 40 percent unionized, median per capita state debt is $2,238.

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• • •

Among states with between 40 and 60 percent of their government workers in public sector unions, the average debt is $3,609. Among states with more than 60 percent of the government workforce unionized, the average (median) per capita debt is $6,380. They contribute significantly to exacerbating two of the greatest threats to our country’s well being: government debt and ever-growing government.

The correlation between the strength of government workers’ unions and government debt is undeniable. Moreover the prevalence of unions is exacerbating two of the greatest threats to our country’s well being: government debt and the ever-growing government. While these numbers certainly make for good taking points, they shouldn’t be surprising. Public sector unions are notorious lobbyists for more government spending and government growth. It is obviously in their best interest. The more tax revenues government takes in from you and me, the more government employees make; the more government agencies there are, and the more government jobs that are available.

These unions also make it far more difficult for the government to fire unproductive employees. As a recent Cato study notes, “Unions tend to protect poorly performing workers, [and] they often push for larger staffing levels than required.” Thus, they contribute to growing inefficiency and waste in government. And the strength of these unions is not going to abate any time soon. As the Cato study shows, while private-sector unions have declined in power and influence over the years, public sector unions have done just the opposite: [T]he number of states allowing collective bargaining for public-sector workers jumped from just one in 1955 to 10 by 1965…Today, about 26 states have collective bargaining for essentially all state and local workers. A further 12 states have collective bargaining for a portion of their state and local workers. This increase is the natural result of factors such as static and monopolistic nature of the public sector. The public sector is decidedly not dynamic, and demand for teachers and public transport is hardly elastic. What all this data adds up to is a situation where state governments, and the federal government, can often be held hostage to union lobbying. Efforts to rein in spending become increasingly difficult as the government workers’ unions flex their political muscle.

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Governor Chris Christie of New Jersey found that out when he tried to balance his state’s budget not by cutting teacher pay, but by pushing off an increase in teacher pay for a year, and asking teachers to contribute to some of their benefits packages. He was met with fierce opposition from the teachers’ union. The New Jersey Education Association (NJEA), which collects mandatory fees from non-member teachers to pay for an army of lobbyists, put Christie on the chopping block, attaching him viciously and relentlessly. But Christie didn’t buckle or cave like so many others in government have. He took on one of the most powerful unions in his state. When confronted by one teacher at a town hall meeting Christie cut no corners in responding to attacks against him. “Your union said that is the greatest assault on public education in the history of the state,” Christie said. “That’s why the union has no credibility.” If governors and legislators in California and New York had the courage and gall that Christie has shown in New Jersey, perhaps they would be able to take on their own public-sector unions and get control of their own budgets. The same courage is much needed at the federal level where federal employees get paid 22% more than privatesector workers per hour and earn 30-40% more than private-sector workers is full benefits are included. It is one thing to fight for workers rights against occasionally exploitive corporation. It is another thing entirely to fight for disproportionately high salaries and benefits, lifetime employment, and bigger government when the tab for all that will be picked up by the taxpayer. It’s the middle-class private sector worker who gets hit hardest by the taxes needed to pay the members of these exploitive unions. They are the workers who truly need protection.

Dems Tax Plans Could Cut the Legs Out From Beneath Limping Recovery
Contrary to what Democrats would have you believe, it is simply not true that raising taxes is the only way out of our current deficit problems. At best higher taxes could unnecessarily harm the recovery by choking off business growth when other, more economically sound alternatives to reducing our deficits exist. At worst, large tax hikes could doom us to a prolonged crisis and possibly even a double-dip recession. In order to illustrate this point, let’s look to the states. The policies that are pursued in these “laboratories of democracy” can frequently offer insight into what types of public policies could prove successful on the national level. Let’s start with Maryland. In order to raise government revenues, in 2008, the state of Maryland created four new income tax brackets. The highest marginal tax rate in the state was 6.25% on those making over $1 million. This is, of course, precisely the type of tax that Liberals love – the ones that “soak the rich.” What did this tax hike cause? Was it increased government revenues? I don’t think so. As The Wall Street Journal reports: [A]fter passing a millionaire surtax nearly one-third of Maryland’s millionaires had gone missing, thus contributing to a decline in state revenues. The politicians in Annapolis had said they’d collect $106 million by raising its income tax rate on millionaire households to 6.25% from 4.75% … Well, the state comptroller’s office now has the final tax return data for 2008, the first year that the higher tax rates applied. The number of millionaire tax returns fell sharply to 5,529 from 7,898 in 2007, a 30% tumble. The taxes paid by rich filers fell by 22%, and instead of their payments increasing by $106 million, they fell by some $257 million.

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How could this be? Where did all those millionaire’s tax returns go? A Bank of America Merrill Lynch analysis of federal tax return data on people who migrated from one state to another found that Maryland lost $1 billion of its net tax base in 2008 by residents moving to other states. That’s income that’s now being taxed and is financing services in Virginia, South Carolina and elsewhere. The wealthy, who have the financial wherewithal and motivation to change their place of residence, moved out of the high-tax state of Maryland. When faced with oppressive marginal tax rates, the millionaire’s of Maryland decided to relocate, costing Maryland hundreds of millions of dollars in tax revenue. What insights do the disastrous tax policies of Maryland give us into what federal tax policy ought to be? They illustrate the same principle that we saw in play in the John Kerry-yacht fiasco: that the wealthy find ways to avoid paying higher taxes, and that can greatly curb the revenue-generating effects of a tax increase. While it may be true that the wealthy can’t easily change resident to avoid a federal tax increase, their reactions could seriously undermine our recovery. To understand why take a look at the Laffer Curve.

The Laffer Curve argues that there is an optimum tax rate that increases the most government revenue. What is obvious is that if the tax rate is zero the government will receive no tax income. What is less clear is that when the individual tax rate reaches 100% there will also be no tax receipts. Why? Because if the government is going to take every penny you earn, there is absolutely no incentive to work. Existing on the right hand side (the overtaxed side) of the optimum tax rate is a bad place for government to be. If these governments simply lowered rates their gross tax receipts would actually rise, a product of increased incentive to work by individuals in the society. There are examples of this throughout our history. Take the 1970s when the top marginal income tax rate was 70% – so high that it discouraged people from engaging people in productive behavior. By lowering tax rates, as Reagan did, the federal government was actually able to increase tax revenues. In today’s slow economy the government must do everything it can to maximize productivity. This is because increased productivity by and large leads to more jobs being created which is what will be needed to escape the persistently high unemployment we find ourselves in. Unfortunately, Democrats in Congress are tossing around the idea of a tax hike as the only means of escaping our debt crisis. In reality, a tax increase only disincentivizes productivity from our business sector. Chopping the legs out from beneath an already limping economic recovery is the worst thing we could be doing. Then again, I haven’t come to expect much more from this President or this Congress.

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Democrats Tax Hikes Will Not Lead To Increased Tax Revenue
Democrats in Washington haven’t exactly been idea factories when it comes to creating solutions to our economic troubles. In fact, to date they’ve really only come up with two: throw money at the problem, and raises taxes on the rich. When the recession hit two years ago, the liberal answer was clear and swift. W.W.K.D. What would Keynes do? We’ll pay people to dig holes and we’ll pay more people to fill them up. So that’s what they did. They cobbled together close to a trillion taxpayer dollars and threw them at the problem. Actually, that is being generous. Throwing a trillion dollars into the air would have probably done a lot more good than what they did. Instead, in the true spirit of politicians, they sought out projects for their districts. Nevermind, that a significant portion of these projects would create no actual jobs and do little to spur creation; take the $1.9 million to photograph ants in foreign countries (one of at least five ant related stimulus projects) as a chief example. Markets, not politicians, are efficient at allocating resources. Politicians are really only efficient at one thing, getting reelected. It is little wonder then that the stimulus has had a negligible impact on either the economy or the unemployment rate. Debt and deficits rather than jobs was the chief output of the stimulus bill. With Greece having shown the dangers of unsustainable sovereign debt, our nation’s fiscal woes has come to dominate the headlines. Democrats have also transitioned. Stimulus did little to capture the hearts of Americans so let’s try deficit reduction, they argued. Here again liberals stayed true to form. Deficits? Let’s tax the rich. The majority of voters (i.e. the only people who matter in Washington) won’t be effected and a popular storyline will be easy to craft. After all, they can afford it! The deficit creators pulled a U-ie and are now the deficit hawks. The same voices who forcefully argued for the stimulus bill and health care reform are flexing their pipes to rail against extending the Bush tax cuts. They argue that it’s the best way to shave our annual budget deficits. Disregard the fact that our enormous increases in entitlement and discretionary spending is what created the deficits. This is a situation that doesn’t call for rash decisions. Democrats should have learned that lesson from the stimulus. Tax hikes sound like an instant revenue stream. If people pay more taxes, more money should be flowing into federal coffers, right? Wrong. At best, tax hikes would bring in about the same level of revenue as the current rates. At worst, large hikes could depress the economy, stifle the job creators, and prolong the crisis. Take President Kennedy as an example. When Kennedy assumed office the top marginal income tax rate was 91 percent. Over the course of a year Kennedy made a series of drastic cuts, dropping the top rate to (a still high) 70% as well as reducing the lower tax rates. In the four years before the tax cuts government revenue increased at an annual 2.1 percent rate. In the four years following the tax cut, federal income tax revenue increased by 8.6 percent annually. Before passing the cuts Kennedy predicted the positive revenue results saying, [I]n today’s economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit–why reducing taxes is the best way open to us to increase revenues. The experience of other Presidents support the results. Reagan’s Economic Recovery Tax Act cut income tax rates at all income levels by 25 percent, lowered the capital gains rate, and cut unearned income rates. Prior to the reforms, federal income taxes declines by 2.8 percent per year, after the tax cuts federal revenues increased by 2.7 percent annually. Going back a little further in history, Coolidge dropped the top marginal rates from 77 percent to 25 percent. In the four years preceding the tax cuts were implemented revenues declined by 9.2 percent per year. In the four years after the cuts went into effect revenues had an average gain of .1 percent.

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How could lowering tax rates increase revenues? The answer lies in Hauser’s Law. Don’t be scared. I’m not going to lay down a gamut of complicated economics. It’s simple. Hauser’s Law is an empirical observation that federal tax revenues, regardless of the wild fluctuations in the tax rate, have always stayed around 19% of GDP. The reason for this seemingly impossible correlation is that Americans are smart. The more the government raises taxes the more incentives people have to either lower productivity or find ways around paying them. This means that the true way to raise tax revenues is to raise gross domestic product. Increases in tax rates have a contractionary effect on GDP which then drives down total tax revenues. Even Christina Romer, Obama’s Chair of the Council of Economic Advisers, found that “an exogenous tax increase of one percent of GDP lowers real GDP by roughly three percent.” The possibility that raising taxes on the wealthy could reduce tax revenues is very real. But let’s assume, as many economists on both the right and left do, that tax revenues will increase when tax rates go up. Even so, tax hikes are still an unnecessary an undesirable way to balance our budget. As Federal Reserve Chairman Ben Bernanke has argued: In the short term I would believe that we ought to maintain a reasonable degree of fiscal support, stimulus for the economy…There are many ways to do that. [Extending the Bush-era tax cuts are] one way. In other words, tax relief is an economic stimulus, while tax hikes decrease investment and job-creation and depress the economy. So what are our other options for cracking down on our deficits and paying down our debt? Let’s look at New Jersey. When Republican Governor Chris Chistie took office in January of this year, New Jersey faced a projected $2.2 billion budget deficit. The Governor promised to balance that budget without raising taxes or creating new taxes. Guess what? By late June, Christie signed a balanced budget – one that was achieved without any tax hikes. Instead of pushing the failed high taxing policies that have been followed in Maryland, Christie pushed billion in deep government spending cuts. And, yes, this can be done at the Federal level. From the Republican Study Committee’s alternative budget proposal to Senator John Thune’s proposed budget overhaul to Rep. Paul Ryan’s comprehensive Roadmap for America’s Future, many different Republicans are putting forward concrete proposals to balance our budget by seriously trimming the size of the Federal Government without massive tax increases. It isn’t a pipe dream, we can get our fiscal house in order without taxing our economy into not paying taxes. And it’s the Republican Party that’s got the plans to do just that.

Obama Should Learn Some Economic Lessons From Chile
The summer headlines have been dominated by our disastrous national debt and deficits. Things have gotten so bad that leaders from Europe, traditionally not the most fiscally prudent, have chastised us about our ill-conceived economic policies. We’ve all read the comparisons. We must change now or else we shall become Greece. We should learn from the fiscal conservatism of Germany who has escaped the grip of the recession. But there is another success story that is too often overlooked, one that could potentially provide a blueprint and some guidance as to what policies are most effective. While it might be surprising, a look to the South American country of Chile could give us more than a few pointers.

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With a population of 16 million, Chile has gone through its fair share of periods of economic hardship just like every other state. Since the 1970s, however, the Chilean economy has maintained a relatively stable set of economic principles. While we have undergone radical shifts in philosophy, Chile, even when socialists have risen to power, have stayed true to their Friedman-esque roots. It is unsurprising then that they have proven to be one of the resilient economies in not just South America, but also in the global market as well. In 1973, Chile experienced the famous coup d’état in which General Augusto Pinochet seized power and effectively began a dictatorship that lasted 17 years. When Pinochet began, the Chilean economy was routed in a tradition of protectionism and price controls, severely limiting growth and prosperity, which translated into a ripe opportunity for reform. When Pinochet assumed power in 1973, Chile’s economy was underperforming by drastic measures: inflation was in the hundreds of percents, there were no foreign reserves, and GDP continued its plunge, reaching a negative growth rate of -6% that year. With the assistance of Chicago-style economists, Pinochet’s series of economic reforms were focused heavily on stabilizing the Chilean economy. The economic blueprint was composed and comprised of the following three objectives: economic liberalization, privatization of state owned entities, and stabilizing the inflation rate. Much like Reaganomics, Pinochet implemented these measures in three separate rounds: the first was put into place over a span of almost ten years, from 1974-1983, the second in 1985, and then the last in 1990. The plan, which came to be known as “El Ladillo,” or “the brick”, centered around practices that promoted free markets and enterprise, which Milton Friedman argued would help eventually lead to democracy in the country in spite of Pinochet’s dictatorship. After a somewhat rocky start in the first ten years–including two recessions in 1975 and 1983—the reforms began to take root in the Chilean economy and the results became evident. As the economy made the shift toward financial solvency and economic growth, it was impossible to deny the changes: the export industry boomed and unemployment figures began to fall. Since the last of the reforms were implemented and given the time needed to begin to play out, Chile became and has steadfastly remained the strongest and most robust economy in Southern and Central America. The country, despite other political and other administrative issues, has stayed on track with the free-market principles that has guided its success. The success has continued: when the Pinochet dictatorship finally came to an end in 1990 and a democratic government took the reins, Chile has tapped its natural resources, especially its staple copper, as anchors of their economic policy. The Chilean government has since conducted a “rule-based countercyclical fiscal policy, accumulating surpluses in sovereign wealth funds during periods of high copper prices and economic growth, and allowing deficit spending only during periods of low copper prices and growth”. As of September 2008, according to the CIA World Factbook, these “ sovereign wealth funds – kept mostly outside the country and separate from Central Bank reserves – amounted to more than $20 billion. Chile used $4 billion from this fund to finance a fiscal stimulus package to fend off recession.” The proof of their success lie in the numbers: Chile now has free trade agreements with several big players in the global markets. They were the first Latin American country China entered in to a free trade agreement with, and can count Canada, South Korea, and the European Union as trade partners as well. Most recently, the South American powerhouse entered into a FTA with Japan and India—and is still in talks with numerous countries around the globe. Chile’s got it down. What’s most impressive is that they did not have to go into ridiculous, steep debt for a bailout or stimulus package—they just tapped resources already available. Even more, those resources were kept separate from Central Bank reserves. The United States, however, not only pushed a faulty stimulus package, but it was one that only added to our debt. How nice it must be to stick with a policy that allows a country to spend its surpluses to avert deeper downturns and then save money when the economy is booming. Acting like any financially responsible family, they’ve avoided huge monetary consequences. Why can’t our President do the same? Additionally, Chile has made free trade and open markets a cornerstone of their economic policy—while we have a pseudo-protectionist president that has neglected and ignored our free trade agreements. This, of course, is to the detriment of our economy and only adds to the blows the current recession has dealt our country—but I suppose a big union guy like Obama would fail to see it in that light.

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Perhaps the greatest indicator of the success of Friedman-style economics has been the persistent survival of the philosophy despite the huge political differences of successive administrations. A militaristic dictator implemented these, a democratic administration deepened them, and a socialist-leaning government now recognizes the benefits and continues to make policy decisions based on them. The United States, however, goes through the political wringer almost every time a nationwide election is held; if voter frustration is with the left, the right comes to power —and vice versa, depending on the times. So we go from market-oriented, capitalist leaders to those who believe the state should control, and then back again. This kind of push-pull wears not only on our country, but it has shown us that it wreaks havoc on our economy, on our debt, and most importantly, on our ability to govern efficiently. Chile’s impressive turn around and continued stamina as an economic stronghold is something the U.S. and Europe should take note of. Sometimes, it just might take a country a couple of trial and errors before getting something right—but if Chile seems to have found a way that does work, it would be foolish of other countries to not at least attempt to emulate it.

The Liberal Mandate on America
Democrats are clearly out of ideas. Their agenda has kept the economy in the tank, stifled job creation, and driven our nation’s debt to historic levels. Rather than come up with a way out of the mess, they’ve turned to desperate gimmicks and negative campaigning to mock Republican ideas. Their 10 point plan entitled the “Republican-Tea Party Contract With America” is a feeble attempt to kill two birds with one stone – undermine the Tea Party movement and paint Republicans as a party of bad ideas. Can you say…backfire? So we present to you the “Liberal Mandate on America” where we uncover the real accomplishments of Democrats over the past few years:

For the better part of eighteen months, Democrats have failed to lead our country. Despite historically high debt and deficits a significant portion of Americans remains unemployed. However, with the far left Progressives dominating the Democratic agenda, and with the recent launch of health care and other big-government programs being pushed by Democratic leaders like Nancy Pelosi and Harry Reid, their goal of redistribution has become clear. Democratic leaders are rallying around anything that grants more power to the government, increases our taxes, and shapes us in the broken mold of a European welfare state. 1. Mandate That Everyone Have Healthcare, Or Pay the Price [1] Dismiss the “invisible hand of the market” as an “unaccountable system” that is better suited for “leaders with plans.” In essence, eliminate competition and markets in favor of Britain’s NHS model – which is being scaled back in the face of Britain’s budget crisis. 2. Promote The Belief That Social Security Insolvency is a “Myth”[2] “The Social Security crisis exists in only one place: the minds of Republicans . . . until the year 2032, people are going to draw 100 percent of the benefits.” Nevermind that a report by the Social Security Trustees shows that the program will begin to run deficits in 2017 and be completely exhausted by 2041. 3. End Medicare as it Previously Existed[3] Obamacare made $500 billion in cuts to the program – cuts that the CBO warned “could lead many plans to limit the benefits they offer, raise their premiums, or withdraw from the program.” 4. Pass the Largest One-Time Tax Increase in American History[4] Despite polls showing that Americans believe we have a spending problem, not a revenue problem, Democrats plan to discontinue the Bush tax cuts in order to pay for their historic levels of spending. They may also bring back the marriage “penalty,” lower child credits, and raise the death tax, eliminating the positive economic outcomes of supply side economics. 5. Add to the Enormous Bureaucracy Which Missed the Economic Crisis[5]
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Choosing to ignore two of the main culprits behind the economic crisis – Fannie Mae and Freddie Mac – Democrats believe that increasing the number of bureaucrats is the answer to avoiding another crisis. In fact a group of leftleaning economists and former regulators wrote a letter to Democrats explaining that “without serious restructuring, [the Democrats’ legislation] will not prevent a future crisis.” 6. Put Union Alliance Over Cleaning Up The Oil Spill[6] Refusing to waive The Jones Act, which requires vessels operating in US waters to be built in the US and crewed by US workers, in time of crisis to satisfy political alliance with unions. 7. Abolish Summer Vacation And Extend School Day To 12-Hours In an attempt to make schools the center of community life and childhood development, taking that right away from parents.[7] 8. Promote Environmental Imperialism Through Tax Increases[8] Use the oil spill to push through cap and trade that will drastically increase the price of energy, damaging not only our economy, but that of our trading partners as well 9. Use the EPA as a Political Tool To Achieve Progressive Goals Use the EPA to avoid the legislative process and launch a comprehensive regulatory plan that would eliminate jobs and have a profound negative impact on our economy 10. Erode the Power and Meaning of Our Consitution[9] As Congressman Pete Stark (D-CA) says, “I think that there are very few Constitutional limits that would prevent the federal government from rules that could effect your private life. . . The Federal government can do most anything in this country.” [1] Position taken by: Donald Berwick, Administrator of CMS [Speech given in London , 5/12/10]; President Barrack Obama [Ohio, 10/12/08] [2] Position taken by: Sen. Harry Reid (D-NV) [The Cypress Times, 6/29/10] [3] Position Taken by: Douglas Elmendorf, Chairman of the CBO [Washington Post, 10/1/09] [4] Position taken by: Tim Geithner, Secretary of the Treasury [Washington Post, 7/25/10] [5] Position taken by: Coalition of former regulators, left leaning economists and Democratic insiders [Huffington Post; 4/20/10] [6] Position taken by: President Barrack Obama [Fox News, 6/21/10] [7] Position taken by: Arne Duncan, Secretary of Education [The Daily Caller, 7/28/10] [8] Position taken by: EPA Administrator Lisa Jackson and President Barack Obama [Wall Street Journal, 12/11/09] [9] Position taken by: Rep. Pete Starks (D-CA) [The National Review, 7/24/10]

Democrat’s Corruption Charges Could Pave the Way for Republican Majority
Parallels are an important weapon in any history buff’s arsenal. After all, the old saying goes: history repeats itself. And it’s true. Looking into the parallels of history allows us to draw analogies and sometimes even predict how things may play out in the future. As details Charlie Rangel’s and Maxine Waters’ corruption scandals surface and ethics charges are filed, I can’t help but draw the parallels between the 2010 at 2006 midterm elections. Of course history is also very nuanced, carrying with it many details that are often whitewashed and forgotten over the course of time. I don’t dare argue that these ethics trials will be the straw that broke Democrats’ back in their attempts to maintain control of the House. Nevertheless, the situation can illuminate the importance voters tie to the perception that our government is honest and ethical. Admittedly this analogy will evoke some better-forgotten memories from a much different Republican Party. In a not so distant 2006, Republicans across the country were facing scandal after scandal. From Jack Abramoff, to Tom Delay to Mark Foley, Republicans were taking lots of heat from the media and, more importantly, the Democratic Party.
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The Democrats were already shaping up to have a good election that year. The Iraq War was terribly unpopular and the President was under attack for his slow response to Hurricane Katrina. Now, on top of all of that, Republicans, the Party of traditional morality and clean government, was faced with an endless parade of scandals. The Dems exploited these scandals to no end. Then Minority Leader Nancy Pelosi promised to “clean the swamp” of the House of Representatives and Democrats across the country made ethics reform a key part of their 2006 campaign. It paid off. Almost every Republican district with a scandal-ridden Congressmen went Democrat that year. When the dust settled after election night, the Democrats had won control of both the House and Senate. Today in 2010, the similarities are pretty clear. Substitute an unpopular war in Afghanistan for an unpopular war in Iraq. Change out a slow response to Hurricane Katrina for a plodding response to the Gulf oil spill. Now, replace Delay, Foley, and Abramoff with Rangel and Waters. The severity of the scandals may not be on par, but when mixed with an already combustible agenda, the results may be the same. Even before the recent ethics violations Republicans stood to make significant gains in the November elections. Obamacare is terribly unpopular. The stimulus hasn’t translated into anything but a huge hole of debt. Unemployment has remained stubbornly high despite Democrats’ attempt to label everything that comes out of the House as a “jobs bill.” Now, on top of all that, Democrats, the party that retook Congress with the assurance that they would clean up government and bring ethics back to Washington, is faced with an endless parade of scandals. The promises of “change” and “open and transparent” proved to be nothing more than hollow talking points. Whether or not all these scandals will lead to large Republican victories in November remains to be seen. Unlike in 2006, where those under the cloud of scandal were mainly from swing areas, the local impact of the scandals will be much more muted. With Rangel from Harlem and Waters from Los Angeles, Democrats, regardless of what happens are likely to remain entrenched. Nevertheless, the impact on the larger election storyline could be similar to 2006. The dreaded stain of “hypocrisy” – right up there with flip-flopper – in the list of things you don’t want to be called, may leave a large mark on Democrats’ November chances. And the Democrat Party that rode to victory in 2006 on a crusade to bring ethics back to Washington faces the full force of that hypocrite label. The times are as ripe as ever for an historic Republican victory in November. Should we win, we will be charged with offering a serious alternative to the Liberal Democrat agenda and truly bringing a high ethical standard to Washington. It is time to clean up Washington from top to bottom. From ethics to our balance sheet. We need to scrub this town of corruption and red ink. If we can do that, then we can take the House in November. More importantly, we can keep the House for the foreseeable future.

John Kerry’s Tax Lesson for Democrats
I never thought that I would say this, but I think America can learn a lot about good tax policy from Senator John Kerry (D-MA). Don’t get me wrong, I don’t think anyone ought to take cues about tax policy from the Senator’s voting record. But the way this tax-and-spend Democrat craftily avoided oppressive taxation can teach us quite a lot about the wisdom of raising taxes to soak the rich. Here’s the story. Senator Kerry, resident of Massachusetts, decided to dock his family’s new $7 million yacht in neighboring Road Island. As the AP reported, If the “Isabel” were kept at the 2004 Democratic presidential nominee’s summer vacation home on Nantucket, or in Boston Harbor near his city residence, he would be liable for $437,500 in one-time sales tax. He would also have to pay $70,000 in annual excise taxes. Rhode Island repealed those taxes in 1993. That has made the state something of a nautical tax haven.

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Unlike the media, I don’t begrudge him for trying to save himself some money. You see, the Senator was doing what most rational people do: they change their actions in response to incentives. It is a lesson we can learn from. This phenomenon was recently addressed in two separate Wall Street Journal pieces by renowned economist Arthur Laffer. In one of these columns, Laffer describes how: The highest tax bracket income earners, when compared with those people in lower tax brackets, are far more capable of changing their taxable income by hiring lawyers, accountants, deferred income specialists and the like. They can change the location, timing, composition and volume of income to avoid taxation. In order to illustrate his point, Laffer gives us the following facts: [T]he nine states without an income tax are growing far faster and attracting more people than are the nine states with the highest income tax rates. Change in location. According to a 2004 U.S. Treasury report, “high income taxpayers accelerated the receipt of wages and year-end bonuses from 1993 to 1992—over $15 billion—in order to avoid the effects of the anticipated increase in the top rate from 31% to 39.6%. Change in timing. [T]he two wealthiest Americans—Bill Gates and Warren Buffett—hold the bulk of their wealth in the nontaxed form of unrealized capital gains. Change in composition. What all this information adds up to, Laffer argues, is that tax hikes on the wealthy, like the ones coming in January if the Bush tax cuts aren’t extended could have two very worrisome consequences. The first is that the tax hikes won’t accomplish the government’s stated objective – raising revenues. Rather, it will provide incentives for the wealthy to manipulate the variables so as to keep their tax burden at or around the same level. In response to the expected spike in capital gains and income taxes, the wealthy may convert their assets into non-taxable forms. They may shift production and income from next year to this year, so as to take advantage of the lower tax levels. The practical upshot of all this is that the tax base will likely contract significantly, ultimately reducing government revenues.

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The impact of incorrectly incentivizing the tax code could be much worse than a stagnation of tax revenue. As Laffer argues, the shift in production and income out of next year could inflate this year at the expense of next year. When we pass the tax boundary of Jan. 1, 2011, my best guess is that the train goes off the tracks and we get our worst nightmare of a severe “double dip” recession. Democrats and Liberals live in a world where the economic behavior of individuals is completely unaffected by government tax policy. They think the market forces of supply and demand are completely inelastic. But in the real world, the wealthy, like any other group, will act to minimize their profit losses. Just look at John Kerry. Money is a prized good. Americans will go to great lengths to be able to keep as much of it as possible. When the government threatens to take more, the lengths to which we will go increase. Likewise, people will spend and inject money into the economy when they will be able to reap the biggest returns. They will save and hoard when they face the prospect of shrinking profits. The government should beware. As the tax cuts expire next year, the bubble market of this year should be expected to pop. The dreaded double dip recession could become a reality. Should America face a massive tax hike next year, there will be a lot more wealthy individuals acting like Senator Kerry. We can’t blame them, but we can say, we will all be the worse off for it.

Pelosi’s Summer PR Campaign Long on Rhetoric, Short on Reality
Sometimes, people say or do things that are so outrageous and unreal you have to wonder if they’re being completely serious or really just pulling wool over your eyes. For the past 19 months, I’ve been thinking the Democrats in Congress have been pulling the latter off masterfully. Pelosi has been one of the best of the snake oil salesmen. This past week she was at it again, switching from cunning politician to sly campaigner, pulling out all the stops to protect her fragile majority (and thus her fragile job as Speaker). Pelosi said that during the summer recess Congressional Democrats are going back to their home districts armed with a “portfolio of accomplishments”, and supposedly, a reminder that “all politics is personal”. Thank you, Captain Obvious. Considering the fact that every piece of legislation you craft, manipulate, and enact affects the lives of every single American, it’s innately personal. Whether or not it is an actual accomplishment worth bragging about is quite a different story. Given the backlash by citizens over the health care reform, the worry of investors regarding the financial regulation bill, and the concern of just about damn near everyone regarding the need for higher taxes to pay off our debt, I’m not quite sure “accomplishment” describes what Democrats have done. Another goldmine of Pelosi disillusionment? “They kept hope alive last August,” she said of rank-and-file lawmakers who weathered stormy town meetings and still came back to help her enact health care reform. “Last year, they had to defend a bill that wasn’t even settled upon.” What Pelosi seems to be forgetting is that they kept hope alive for themselves, not for the American people. The American people wanted the bill to be killed, or to be fixed to their liking. They got neither. They wanted to talk about jobs, the economy, and the deficit. They got none of the above. Above all, they just hoped to be heard. Time and again they were ignored. The only reason our hope was kept alive was the fact that we knew November 2010 would roll around eventually. Pelosi continues: ““Nobody wants you to go out there and talk about legislation; they want to talk about the impact it has on them.” I respectfully disagree, Speaker. You don’t want to talk about legislation. And who could blame you? The way you rammed through piece after piece, completely ignoring public opinion and in the process, upping our deficit to horrifying numbers—it would only serve to further damage your majority. Then again, we’d also be happy to talk about personal impact. How about this – the millions of people sitting without jobs because businesses are unwilling to hire given the uncertain regulatory environment.

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And she really lays it on thick when she completely distorts the reality of her reforms. Health care reform? She likes to call it “patients’ bill of rights”. The Wall Street reform is simply nothing more than “consumer protection.” Hilarious! I find it sardonically funny that she calls our quagmire of a health care reform a “bill of rights”. I’m also sure that our Founding Fathers are rolling over in their graves, branding something that results in such a catastrophic debt as a “bill of rights”. Especially when the majority of Americans were against it but all of whom will be paying for it. And consumer protection? Let’s not forget about the quotas companies must fill in times of hiring, and the red tape put on big business, and the astonishing disregard of reform with Fannie Mae and Freddie Mac. The fact that Pelosi can say any of this with a straight face – despite it being riddled with fallacies and inaccuracies – isn’t too terribly surprising. It is, however, indicative of a Congressional leadership desperate to hold onto a majority that is, by all accounts, in serious jeopardy. But it gets better. In discussing the issue of the impending Bust tax cuts at the end of this year: “We would welcome the distinction between tax cuts for the middle class,” Pelosi said. “And tax cuts for the wealthiest people in the country holding hostage the tax cuts for the middle class.” Breathe in, breathe out. Count to 10. Close your eyes, go to your happy place. Apparently (because I was unaware of such a plot) the wealthiest people in the country are holding tax cuts for the middle class hostage. Not the splintering of the Democratic leadership, not the Democratic defectors arguing that tax hikes are a bad idea in a bad economy, and the Republicans who have preaching that “we have a spending problem, not a revenue problem.” The fact is, Democrats are accused of holding the tax cuts hostage. They understand that without their enormous spending agenda, citizens would actually be able to keep the money they earn (a novel concept in liberal-land). Rather than trim the fat they’ll jack up taxes on the rich. Surely they can afford it. Disregard the fact that they could use the money to create jobs for the middle class. After all, who do you trust to spend money wisely businessmen or politicians? But lastly, my favorite. “If we weren’t effective, they wouldn’t be coming after us. They don’t like the things that we have done. The special interests had all the leverage here. Now, the people have the leverage.” She is, of course, referencing Republicans here. The glaring irony is that it is for this reason the Republicans are in a much better place than the Democrats, Pelosi included. The vast majority of the Republicans don’t like the things they’ve done. That is a given. The problem with Pelosi’s statement is that voters don’t like the things Democrats have done either. That is the reason Democrats are under a serious threat to lose the House. The people do have the leverage. That should be Democrats worst nightmare because pulling that lever means Democrats may lose the House.

Obama and Krugman Undone by Keynes’ Animal Spirits
John Maynard Keynes once said, “The state of confidence as they term it, is a matter to which practical men pay the closest and most anxious attention.” He labeled such confidence “animal spirits” in his magnum opus, The General Theory of Employment Interest and Money. Keynes said that, “Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits – a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.

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College Republican National Committee

In other words, economists cannot be relied on for everything. They can play with interest rates, control the money supply, manipulate the tax code, or issue stimulus plans as much as they want. They can plug all kinds of numbers into fancy formulas to predict where we are headed and what kind of governmental response we can take. But, there is a but. There is a variable which all of our carefully tuned macroeconomic models fails to accommodate for – animal spirits. The fact is, what we think matters. Economists can’t tell us that it matters but it does. Our sense of security, our take on our nation’s leadership, and our own economic predictions, regardless of what they are based on, have a demonstrable, if unpredictable, effect on our economy. Unfortunately, many of Keynes most ardent followers of today (I’m looking at you Paul Krugman) completely fail to understand the impact of animal spirits. For instance, Krugman argues in a recent column: For example, last week Richard Fisher, president of the Federal Reserve Bank of Dallas, argued that the Fed bears no responsibility for the economy’s weakness, which he attributed to business uncertainty about future regulations — a view that’s popular in conservative circles, but completely at odds with all the actual evidence. Business uncertainty is today’s animal spirit, it is the state of confidence (or lack thereof) which is driving our economy into a ditch. Krugman can wail forever about the “actual evidence.” He can input numbers in his economic formulas until the end of time. But it doesn’t matter, the evidence, which is Krugman’s crutch, exists in a world colored by what we, American consumers and businesses, feel. And frankly, we feel like crap. Our economic animal spirits are poor. For instance, the U.S. Chamber of Commerce issued an open letter urging “immediate action to address the new regulatory stranglehold placed on America’s job creators.” Ivan Seidenberg, chief executive of Verizon and chair of the Business Roundtable added, “in our judgment, we have reached a point where the negative effects of the proposed policies are simply too significant to ignore.” These are two anecdotal, but from what I’ve read, representative responses from the business community. They are reluctant to hire because they don’t know how much that employee is going to cost. They don’t want to invest because they are unsure of what their tax burden will be going forward. Banks will not free up credit because no one is sure (because nobody has figured out) how the Wall Street regulations will impact them. Krugman can toss the “actual evidence” out the window. It is not what matters. The mood of America should be the core concern of Obama and his team of economists. It is these amorphous Keynesian animal instincts that are the true judge of a successful or failed economic recovery agenda. Funny how the Keynesian disciples are undone by their own economic hero.

August Compendium!

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