Issue No.

2, May 2013

Enterprise Report

Restoring Liberty, Opportunity, and Enterprise in America

Inside
• Making • Kyl •A

the Case for Social Security Reform

and Lieberman to Collaborate on AEI Project

Look at New Initiatives from AEI Scholars will Jill DiLosa, Enterprise Club Member

• Q&A

75
years

Freedom. Opportunity. Enterprise.

Friends, It was terrific to see so many of you at AEI’s Annual Dinner earlier this month. It was one of our best events ever—and for good reason. Rep. Paul Ryan, the recipient of AEI’s Irving Kristol Award, delivered a fantastic address that challenged us all to strengthen our arguments for freedom, enterprise, and opportunity. The Annual Dinner signals the arrival of the hot and humid weather that characterizes Washington in the summer. It’s the time of year that many in this city clear out for cooler destinations and leave work by the wayside. Not the case at AEI. Our
Jason Bertsch
Vice President, Development

scholars are ramping up on numerous key projects and initiatives—several of which are profiled in this issue of the Enterprise Report—that are exciting, important, and potentially transformative. Fortunately, AEI scholars will have a chance to escape the heat and bring the “ideas exchange” to you. As we continue to expand our circle of friends, we are hosting more and more regional events with AEI scholars and supporters in select cities nationwide. Later this spring and into the summer, we’ll hold AEI gatherings in Aspen, Boston, Charlotte, New York, and Tampa, among other cities. As always, my colleagues in AEI’s development department and I are eager to hear your thoughts about our work, connect you with our scholars, and explore how we can collaborate to strengthen the free enterprise system. Please do not hesitate to contact us or drop by AEI headquarters if you happen to be in Washington. Have a terrific summer, and thank you again for your support.

Future AEI Headquarters
AEI has occupied our current location near Farragut Square in Washington, DC, since 1972. Last year, we learned that we must move out of our rented space, which is slated for demolition in 2016. After conducting an extensive search of available real estate, AEI signed a purchase and sale agreement to acquire the National Trust for Historic Preservation’s building at 1785 Massachusetts Avenue, NW, in downtown Washington. This Beaux Arts style building is an iconic architectural landmark, abutting the Brookings Institution and the Carnegie Endowment for International Peace. We anticipate moving into our new home by late 2015. In the meantime, we are launching a capital campaign to support its purchase and renovation.

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The Winning Argument

SOCIAL SECURITY
Nearly 70 percent of Americans agree that the free enterprise system is the best system for America’s economy. Why is it, then, that candidates who favor free enterprise have fared so poorly in recent elections? Their instincts are right, their reforms are sound, but their arguments are weak.

By delaying reform, we are putting at risk millions of Americans who depend on Social Security for their livelihood.

The road to electoral victory begins by making a more persuasive case for free enterprise policies—one that focuses specifically on improving the lives of vulnerable people. With this goal in mind, AEI scholars are helping reframe the debate on a full range of policy issues. Here are the facts and arguments that you can use to be a more effective champion of free enterprise reforms to Social Security. The Conventional Wisdom During the first presidential debate, President Obama told Americans that Social Security is “structurally sound.” Echoing that sentiment, Senate Minority Leader Harry Reid wrote last fall that “Social Security has contributed not a single penny to the deficit.” And many policymakers who do acknowledge that Social Security is unsustainable downplay the need for immediate reform, insisting that the program will remain solvent for decades. The Facts • 2010 was the first time in over 25 years that Social Security paid more in benefits than it drew in revenue, running a $49 billion deficit. • Social Security’s annual deficit will average $66 billion through 2018 before rising sharply as more workers begin to retire. • Current deficits are financed by the Social Security Trust Fund, but that resource is depleting rapidly. The Winning Argument For many of us, the facts speak for themselves. But there is an even more powerful case for reform—43 percent of elderly Americans would fall below the poverty threshold if they stopped receiving Social Security benefits. By delaying reform, we are putting at risk millions of Americans who depend on Social Security for their livelihood. • Recent studies that incorporate new trends in health and employment suggest that the Social Security Trust Fund will be completely exhausted by 2031— two years earlier than the federal government had anticipated. • Moving to a flat basic benefit (which would be relatively generous to low-income retirees); • Incentivizing work by eliminating payroll taxes on retirementage workers; • Raising the early retirement age from 62 to 65; and • Instituting universal retirement savings accounts.
Andrew Biggs, AEI

But if we act now, we can spread any changes to Social Security over more time, meaning that adjustments to payroll taxes, benefits, or the retirement age would be less drastic and disruptive to those who need it most. AEI in the Fight AEI scholar Andrew Biggs is working on a major research paper that outlines policy changes to make Social Security financially sustainable. His recommendations include:

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Sequestration is Here. Now What?
Like it or not, sequestration is here, and with it comes $500 billion in cuts to the Pentagon—cuts that follow nearly $1 trillion in defense budget reductions during the Obama administration. AEI resident fellow Mackenzie Eaglen has released a groundbreaking paper, “Shrinking Bureaucracy, Overhead, and Infrastructure: Why This Defense Drawdown Must Be Different for the Pentagon,” which explains exactly how defense officials can leverage this budget cut to place military spending on a sustainable trajectory without compromising American military strength. It is commonplace and relatively easy for the Pentagon to count “savings” by terminating modernization projects. But in doing so, the Pentagon is ultimately shifting costs into the future—as the price of maintaining antiquated equipment rises. As Mackenzie explains, the Pentagon’s bureaucratic overhead, physical infrastructure, and benefits programs are the areas most in need of reform. Consider the Pentagon’s civilian workforce: it has grown since 2003 by nearly twenty percent. The ratio of combat soldiers to administrative personnel is 25 to 75; among other industrialized nations, that ratio averages 37 combat soldiers to 63 civilian administrators. Mackenzie’s paper sets forth the groundwork to eliminate redundant positions, introduce more rigorous evaluations for performance-based pay increases, and shed resources that are no longer needed once a mission is complete. Her work is attracting interest and buy-in from key stakeholders across the political spectrum, and members of Congress have contacted her directly to learn more about her proposed reforms.

IN MEMORIAM

To learn more visit www.aei.org/ foreign-and-defense-policy

“American conservatives, I know, sometimes differ about the degree to which the United States should be actively engaged around the world. But we can all agree, I hope, that only the United States has the wealth, weaponry, and technology to be both a European and an Asian power, and that even America’s quite narrowly defined national interests will ensure it remains engaged in some fashion in both regions.”
—MARGARET THATCHER,
speaking at AEI’s 1998 World Forum

American Internationalism Project
Fiscal constraints, a weakened Pentagon, and a war-weary electorate are transforming America’s role in the world, marking a departure from the internationalism that guided our foreign policy during the twentieth century. Former U.S. senators John Kyl and Joseph Lieberman will lead a new initiative through AEI’s Marilyn Ware Center for Security Studies that examines the costs of leading from behind.
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Jon Kyl, AEI

America’s global interests and articulate an intellectual framework to defend those interests. Through a series of working groups, conferences, and reports, the project will seek to cultivate stronger bipartisan support for a globally The “American Internationalism Project” will convene thought leaders from academia, the military, government, and the private sector to help define engaged America and educate Americans about the intersection of freedom, leadership, and a strong defense and national security posture.

The Pipeline

AEI Projects to Watch
Combatting Corruption in Free Trade Zones Roger Bate is launching a new project to highlight corruption in free trade zones (FTZs) around the world. FTZs are characterized by liberalized markets, low regulation, and the American Migrations Michael Barone will release a new book documenting the history of immigration to America, as well as migration within the country. His book will examine the ways in which Americans have been shaped by surges of migration, the beginnings of which were usually unforeseen and the sudden ends of which were unpredicted. These surges were not just a matter of responding to economic incentives. As Michael explains, they were mass movements of people pursuing dreams or escaping nightmares. Beginning with the surge of Scots-Irish settlers, Michael’s book extends to the present day—Michael will describe the unprecedented movement of Hispanic and Asian immigrants to a nation whose previous immigrants were almost all from Europe. Moreover, he plans to discuss a new surge in “volitional immigration,” that is, Americans moving from high-tax states to low-tax states and moving to places which are culturally congenial. Crown Forum, a division of Random House, will publish Michael’s book this fall. These pathologies can complicate and even discredit free trade and regulatory reform, as citizens associate crony capitalism and mafia-dominated business with capitalism. As such, Roger will study corruption and other illegal activities to understand and describe how western actors (including policymakers, NGOs, and multi-national corporations) can take steps to lower criminal activity in FTZs. In doing so, Roger believes that this research will help ensure that successful examples of absence of taxes and tariffs—all of which are conducive to robust local development. Indeed, FTZs represent a triumph of the global free enterprise movement and demonstrate the advantages of free markets to other localities that lack the same degree of liberalization. However, FTZs have also become havens for smugglers, money launderers, counterfeiters, and even terror financiers, which threaten to undermine the progress of liberalization. Center for Internet, Communications, and Technology Policy Jeff Eisenach will lead a substantial expansion of AEI’s scholarship on competition and innovation, with a particular focus on technology policy. This new center is a response to the growing regulatory burdens on information technology and the Internet that simultaneously inhibit “creative destruction,” perpetuate crony capitalism, and undermine market competition. This center will examine a broad range of issues—from intellectual property rights to international regulation and Internet governance to cybersecurity. Indeed, this center will augment the work of many AEI research divisions, including economics, foreign and defense policy, legal studies, education, and health, and include scholar contributions to a new blog focusing exclusively on government regulation and dynamic competition. Jeff is planning a major AEI event on patent legislation later this spring to inaugurate this critical initiative.
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FTZs are replicated and therefore improve the long-term prospects for global liberalization.

Murray’s Coming Apart; I give a

Jill DiLosa, member of AEI’s Enterprise Club
Ms. DiLosa is the founder of Vanna Asset Management, LLC, where she serves as the sole Managing Member and Portfolio Manager of the Vanna Partners Fund, LP, a consumer-sector focused long/short equity fund.
Your educational and professional background is in finance—how did you become interested in public policy?

lot of my friends Charles’s quiz about whether they live in the bubble. I also tremendously appreciated Ayaan Hirsi Ali sharing her life story in Infidel and speaking out for women’s and human rights.

I’ve traveled around the world, and as a result, I do not take our freedom for granted. Our government might not be perfect, but our system unleashes human potential in a way that other systems do not. I’m proud to be a part of that—proud to be an American; proud to have started my own business; proud to be living the American Dream. I’m willing to work hard to make sure that continues for others who are smart, hardworking, enterprising, disciplined, and want to create and live their American Dream.

And as I meet more scholars at Enterprise Club events, I inevitably follow their work.
Is there a particular Enterprise Club event that you especially enjoyed?

Oh, Rick Hess was fun! I grew up in New Orleans and the social experiment that is the New Orleans education system post-Katrina is fascinating to watch unfold. I liked hearing about Rick’s experience teaching and working in the public school system and appreciated some book recommendations that he made to me at dinner.
You speak to young people about defining their success— what is some advice that you would give to a student who is graduating from college this spring?

Ever since I was a child, I’ve been interested in the world’s problems and how I might help contribute to solving them. I once believed that I’d have a career in public service and thus have always been interested in public policy. Even though my career took a different route, I’m still interested in public policy. You could say that investing is my vocation, but public policy is my avocation.
Why did you decide to join AEI’s Enterprise Club?

“Our government might not be perfect, but our system unleashes human potential in a way that other systems do not.”
Who are some of the AEI scholars whose work you follow?

Spend less than you make. No matter how much you make, if you spend more than you earn, then you will never get rich. Take risks. Compete. And don’t expect others to work for your goals if you are not willing to work for them yourself.

I love to learn and to meet smart people from whom I can learn. I figured that I could do both by becoming involved with AEI—meeting other Enterprise Club members my age and engaging with scholars at Enterprise Club events.
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Michael Barone, John Bolton, Arthur Brooks, Ed Conrad, Rick Hess Ayaan Hirsi Ali, Charles Murray, and Michael Rubin. As a sociology and political science major, I enjoyed Charles

Scholar Snapshot

AEI Scholars on the Hill, in Print, and on the Airwaves
The following are highlights of AEI scholars’ media appearances and government testimony over a typical, two-day period in early April.

Intern Program

TWO-DAY AUDIENCE IMPACT

14.8 million+
IN PRINT

Jonah Goldberg with AEI spring interns

TELEVISION John Bolton (On the Record with Greta Van Susteren, Fox News) Ed Conard (Markets Now, Fox Business) Jeff Eisenach (Erin Burnett Out Front, CNN) Jonah Goldberg (America’s Newsroom, Fox News) Scott Gottlieb (The Willis Report, Fox Business) Ed Pinto (Street Smart, Bloomberg) Ed Pinto (The Kudlow Report, CNBC) Alex Pollock (Nightly Business Report, CNBC) Peter Wallison (Special Report with Bret Baier, Fox News)

The end of the spring academic semester signals the arrival of AEI’s summer 2013 class of interns— some 60 college students and recent graduates. Competition for an internship is intense: 2,854 applied for the summer term, making AEI more selective than even the nation’s highest-ranked universities. For those who are selected to participate in AEI’s internship program (which includes summer, fall, and spring terms), the benefits are substantial. Interns work alongside an AEI scholar or executive and have myriad opportunities to prepare for entering the workforce, including blogging seminars with the editor of AEIdeas, professional development sessions with AEI scholars, and demanding assignments that help hone their research and writing skills. And arguably the best perk of all is the free daily breakfast and lunch at AEI’s dining room and the chance to talk about public policy with AEI scholars and staff over a meal.

Roger Bate, Wall Street Journal Asia John Bolton, Washington Times Sadanand Dhume, Wall Street Journal Asia Jonah Goldberg, Los Angeles Times Michael Rubin, Kurdistan Times Marc Thiessen, Washington Post

ONLINE Aspen Gorry and Sita Slavov, RealClearMarkets Scott Gottlieb, Forbes Jim Pethokoukis, Mackenzie Eaglen, Mark Perry, Desmond Lachman, Roger Bate, and Roger Noriega, AEI Ideas Ramesh Ponnuru, Bloomberg

RADIO Karlyn Bowman (Bill Martinez Live, Global American Broadcasting) Michael Mazza (5 Live, BBC Radio) Michael Rubin (Bill Bennett’s Morning in America, Salem Radio Network) Marc Thiessen (The John Gibson Show, Fox News Radio

CONGRESSIONAL TESTIMONY Tom Miller, Health Subcommittee of the House Energy and Commerce Committee

To learn more about AEI’s internship program, visit www.aei.org/internships
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AEI in LA
A special thanks to Frank Baxter, Brian Brooks, Mark Carlin, Bob Eckert, Paul Haaga, Jr., Kip Hagopian, Brad Jones, Tom McCarthy, Richard Roeder, and Paul Tosetti for co-hosting AEI’s Los Angeles Roundtable last month. Dan Blumenthal, Alex Brill, Jonah Goldberg, and Henry Olsen shared their thoughts on the domestic and foreign policy landscape at the April 30 event, which gathered AEI’s growing community in southern California. AEI is deepening our engagement in key cities across the nation, including Los Angeles, Chicago, Tampa, New York, and Boston. For more information about our regional events, please contact Mallory Johnson (202.862.5949; mallory.johnson@aei.org).

AEI Enterprise Club
The Enterprise Club is an invitationonly group of under–40 AEI supporters in business, finance, law, and public policy, who are interested in serious discussions on the most significant challenges facing our nation and world. They engage with AEI scholars—including Rick Hess, Charles Murray, Paul Wolfowitz, and Michael Barone—on a broad array of topics and participate in regular, exclusive gatherings in New York and Washington, as well as private events around the nation. Members of this growing national network are selected based on their depth of intellectual interest in policy, record of achievement, and potential for future impact. For more information about joining AEI’s Enterprise Club, please contact Toby Stock at 202.862.5834 or toby.stock@aei.org.

75
years

Freedom. Opportunity. Enterprise.

Founded in 1938, AEI (then-American Enterprise Association) dedicated itself to promoting “a clearer understanding of our system of free enterprise and its relationship to America’s social and political institutions.” Our timeless mission is more important today than ever before. Thank you for helping make our 75th anniversary possible.

75
years
www.aei.org/rss @AEI

Freedom. Opportunity. Enterprise.

The American Enterprise Institute is a community of scholars and supporters committed to expanding liberty, increasing individual opportunity, and strengthening free enterprise. AEI’s work is made possible only by the financial backing of those who share our values and support our aims. To learn more about AEI’s scholars and their work, visit www.aei.org | www.american.com | www.aei-ideas.org To find out how you can invest in our scholars’ work, visit www.aei.org/support

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