CRNC Research Compendium November 2010

Editor: Brandon Greife, Political Director

College Republican National Committee

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Table of Contents
24 Hours to Go – It’s Time to Show Washington Who is Boss! Election Day a Chance to Rebuke Democrats for Wasteful Stimulus! Elections Are Only the Beginning – Republicans Must Follow Through! Historic Republican Gains Sets Stage for Redistricting Coup! Election Results Show the True “Will of the People”! Post-Election Obama Shows Willingness to Compromise on Spending! Obama’s New Triangulation – A Mix of Truman and Clinton! Reckless Spending Threatens America’s Spot at the Top! GOP Election Wins Portend More Good Job Reports! Tax and Spend Please? California Bucks Conservative Trend! Dumb and Dumber – Obama and Pelosi! Obama the Compromiser?! Debt Limit Vote Presents Opportunity for Republicans! Out of Touch Pelosi Throws Party for Their “Accomplishments”! Operation Red November by the Numbers! Wealth Redistribution is Not the Solution to Inequality! Moderate Democrats Should Contest Pelosi’s Minority Leader Bid!

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Deficit Commission Report – A Credible Starting Point for an Imperative Debate! Higher Taxes Among Flaws of Deficit Commission Report! Deficit Commission’s Welcome Ideas for Trimming Size of Government! Creating Jobs is First Priority, But Don’t Overlook Deficit! Post-Election Struggles Exposing Democratic Rifts ! Pro Football Is a Beacon of Capitalism, Not Socialism! Increased Border Violence Shows Threat of Mexican Drug Cartels! Healthcare Rationing Champion, Berwick to Testify Before Senate! Dems Stick to Old Guard While Republicans Welcome Fresh Faces! Obama’s Business Stance Threatens Sustained Recovery! New Debt Calculator Reveals Hidden Truths About Our Deficit Woes ! The Government’s Subprime Way of Solving the Subprime Mortgage Crisis! Recent Worldwide Elections Show Fiscal Sustainability is Finally Being Rewarded! New State Taxes Forcing Employers to Reconsider Hiring! Study: Higher Taxes Only Encourage Government to Spend More! In Ireland, the Bailout Needs a Bailout! Americans Face Tough Question Over Our Financial Future! Medicaid’s Unsustainable Costs Lead States to Consider Opting Out! Obama’s Pay Freeze is Just the Start of Government Belt-Tightening! Too Big to Fail Becoming Too Big to Bail! Global Tax System Threatening American Competitiveness!

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24 Hours to Go – It’s Time to Show Washington Who is Boss
On Halloween the GOP was confronted with news that was anything but scary. In polling likely voters, Gallup showed the GOP was leading the generic vote by historic measures – 15 percent! That is higher than any time since the 1994 Republican Revolution. This election season has been all about metaphors. It began as a wave, turned into an earthquake, grew into a hurricane, which then morphed into a tsunami. But Gallup dispenses with the forecast ands goes straight to the point – “seat projections have moved into uncharted territory.” With just hours before elections, Gallup took another poll to see just what is compelling so many voters to head to the ballot boxes for the GOP. This poll shows the two most influential driving forces. The primary drive for voters is the desire to send a message to President Obama. By a 38%-to24% margin, voters say they will vote for a candidate in order to send a message that they oppose rather than support the President. That is the largest percentage of people who are using their vote against the President since before the 1998 elections. The failure to create jobs, the perception that the stimulus has done little to help the economy, the dislike of the new healthcare bill, and the belief that the Obama administration has done little to curb the spending problem in Washington have all contributed to the desire to rebuke the President. A second reason for the Republican momentum amongst voters is that they national issues such as the recession, persistent joblessness, and the healthcare system are dominating the minds of voters. The Gallup poll finds that 41 percent of voters will be basing their vote on national issues while only 21 percent say local issues will make the biggest difference in deciding their vote. Democrats only hope of winning this election was if they successfully localized the races. From the get go, Democrats understood that if national issues dominated the election year debate, they would face an uphill battle. In a year of voter dissatisfaction, most of the blame has been pointed squarely at Washington. Party leaders like Majority Leader Harry Reid and House Speaker Nancy Pelosi have become the face of the problems facing the entire country. In that vein, Republicans have been successful at tying Democratic candidates to Washington leadership while Democrats have been dramatically unsuccessful at differentiating themselves from the Reid/Pelosi agenda. The reason appears clear…their votes showed they marched in lock step with the far-left leadership. There is simply no running away from your votes on the stimulus bill, Obamacare, and countless other spending measures.

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The final pre-election polls are showing historic wins. But their results don’t decide who goes to Congress. It will be your vote at the ballot box that makes the true difference in this nation. With less than 36 hours to go until the polls close it is no time to rest on our laurels and hope the generic ballot polls successfully predicted election results. No, its time to show Washington who is boss, namely, US.

Election Day a Chance to Rebuke Democrats for Wasteful Stimulus
The only thing that the stimulus stimulated was the size of government debt. You don’t have to be a Nobel Prize winning economist or an award-winning professor at a top-notch university to realize. In fact, polls of average Americans show that a strong majority of people don’t believe that the stimulus has worked to turn the economy around. A recent Rasmussen poll found that 39 percent of people believe the stimulus has hurt the economy, 22 percent say it has had no impact, and only 34 percent say it has actually helped.

But in fact we do have a Nobel Prize winning economist and an award winning Stanford economics professor saying that the stimulus was poor policy. Christopher Pissarides, this year’s Nobel winner in the field of economics, has spoken at length about the troubling debt held by his home country, Great Britain, and the United States. He encouraged the British government to avoid the downward “spiral of uncertainty, confusion, and higher interest, forcing the government to borrow more to service its debt.” He counseled the

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government to avoid “getting into a Greek-style situation in which financial institutions lose confidence in public finances and start requiring higher interests rates for loans to the government.” America should heed his warning. Although we are a much larger nation with a much bigger economy we are not immune from this disastrous cycle of debt and higher interest rates. In fact, Pissarides warned in yesterday’s Wall Street Journal that the United States’ plan to pump more money into the economy through a process known as “quantitative easing” will not cure the underlying problem, which is, in his words “fiscal indiscipline.” Perhaps if this fiscal indiscipline was coupled by results the backlash in today’s elections would not have been so severe. Sadly, as Stanford economist John B. Taylor explains in his recent blog post, the government stimulus was an utter flop. He argues that the existing debate on the success of the stimulus has been too centered around the size of the “multiplier effect” – the idea that for each dollar you spend it creates more than one dollar in the economy. But missing from the debate is a study of the what multiplier effect has actually multiplied. Using that rubric Taylor found that government purchases, the things that actually carry a multiplier effect, represent only about 2 percent of the $862 billion stimulus bill. This means that rather than increase their purchase of goods and services state have “reduced borrowing and increased transfer payments.” In other words, the money was used to prop up state and local balance sheets rather than go toward actually job creation or economic growth. The result highlights one of the fundamental problems of the Democrats’ stimulus bill – it was so poorly planned and targeted that regardless of size it could not have the needed economic impact. Fortunately, today is Election Day. That means you have an opportunity to rebuke a Washington that was quick to throw taxpayer money into a wasteful bill and slow to admit its mistake. Fiscal indiscipline is not something that we have to accept from our elected officials. If we want to avoid the fate of Greece; if we want legislation that delivers on its promises, then we must make a change in Washington. So today let’s pass a new stimulus and elect new members willing to bring conservative economic principles to government.

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Elections Are Only the Beginning – Republicans Must Follow Through
By now you’ve probably cast your vote (if you haven’t stop reading this right now and vote!) and are anxiously awaiting the election results. The results, whatever they may be, will be endlessly debated for the next month. Is it a mandate? Is it a rebuke? Are Dems done? Are Republicans back? Those and countless other questions will be asked and “answered” by the pundits who dominate our airwaves. But let me be the first to tell you the secret behind these elections. In the grand scheme of things the results tonight don’t matter. Now, let me tell you what that does and doesn’t mean. That doesn’t mean that your vote was wasted and it surely doesn’t mean these elections weren’t important. Quite the contrary this is quite possibly the most important election season of our lifetimes. Politicians in Washington of all political stripes are digging a fiscal hole for this country that we will find it difficult to escape from. Business as usual has become unusually bad business. Our deficits have exploded, our debts have become unsustainable, and government spending continues its upward march. These elections are voters chance to show elected officials that their desires have fundamentally changed. Previous electorates, and thus previous representatives, were concerned about getting as much as they can. We wanted more…more of everything. More generous Social Security payments, bigger Medicare plans, more education spending, and more government money being brought to our districts. The government was all too happy to oblige. More programs meant more votes. But the fact that existed behind the curtain was that it also meant more debt or more taxes. Now the paradigm has shifted. The curtain has been pulled back and voters now understand that our freespending days are over. We no longer want a representative who will do the best he can to spend as much money as he can. Instead, we want someone who will do his best to keep our money in our pockets. The ability to send that message to Washington is what makes your vote and these elections so important. That said, in the larger picture tonight doesn’t matter. Tonight doesn’t matter in the grander scheme because there is so much more to be done. This is but one battle in what will be a decades long war to restore our nation’s chances of continued prosperity. This is the mistake President Obama and Democrats made in 2008. They won and they won big. And yet here they are two years later preparing to get trounced at the polls.

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If you imagine back two years ago, as Barack Obama was dominating the polls and Democratic candidates were preparing for huge wins, much of the nation was elated. Change was coming. It was the end of business as usual in Washington. It is almost the exact same message, if not tone, that you are hearing in today’s elections. The problem is that Democrats didn’t follow through. The very things that got people excited to vote were the things that the elected officials allowed to fall through the cracks. As it turns out, not all that surprisingly, voters pay attention to whether or not you fulfill your promises. Republicans in this election have also made big promises. We’re promising to change the culture of Washington (sound familiar?), cut spending, put the nation back on a fiscally sustainable course, and create an environment that allows businesses to thrive. These are all great and laudable promises. With the growing ire of the electorate aimed straight at Democrats promises of something different are all you need to win this election. But, neither the elections nor the promises mean anything unless Republicans live up to them. We cannot make the same mistake that Democrats made and believe that winning elections is enough. Tonight’s results, regardless of whether they reach the level of an earthquake, hurricane, or tsunami, are not an end in and of themselves. They do not grant Republicans the right to legislate according to their desires, they merely grant Republicans the opportunity to listen and follow the will of the people. So tonight as the election results roll in, Republicans will likely have reason to celebrate. But unless we follow through with the promises we have made we will find ourselves once again on the wrong side of a wave come 2012.

Historic Republican Gains Sets Stage for Redistricting Coup
It was a historic night. I was at the Columbus Renaissance hotel in Ohio, home of the Republican victory party, sitting at the hotel restaurant and watching the results pour in. One floor above me the ballroom was packed with volunteers, donors, and supporters waiting to hear the acceptance speeches from newly elected Governor John Kasich and Senator Rob Portman. On this night, Ohio was the place to be. The state, largely considered a bell-weather for the rest of the nation, had swung dramatically from blue to red. We won nearly every race, from Senate, to Governor, to the House delegation where Republicans went from being a 8-10 minority to a 13-5 majority. Moreover, the huge House wins propelled Ohio representative John Boehner into
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the Speaker’s chair. Election night was reason for celebration amongst conservatives around the nation, but nowhere more than Ohio. Lost in the hubbub over Republican victories in the House of Representatives, Senate, and governor’s offices is a much less talked about, but no less important triumph. Republicans swept to historic gains in the statehouses. I know it doesn’t seem quite as sexy as being able to say we retired Nancy Pelosi as Speaker of the House, but in the long term it may be more important. All told Republicans picked up 680 seats in state legislatures – the largest statehouse seat gain by either party in history. That means that Republican representation in statehouses nationwide is larger than at any point since 1928. The new seats translate into new GOP majorities in 14 statehouse chambers and unified control (both chambers) of 26 state legislatures. Some of the gains were historic. In Alabama and North Carolina, for instance, Republicans haven’t held both chambers of the state legislatures in more than a century. GOP control in Minnesota goes even further back – this will be the first time Republicans have a majority of seats since the state joined the Union in 1858! The huge gains provide more than just the opportunity for fun trivia, they will likely have a longlasting impact on Washington. As the New York Times explains, The party’s victories on Tuesday, giving Republicans a majority of the nation’s governorships and legislative chambers, came at a politically advantageous moment. Republicans will now have the upper hand next year just as states begin the once-a-decade process of drawing new Congressional districts, when both parties traditionally try to gain an electoral edge through gerrymandering and other forms of creative cartography. Tim Storey, a senior fellow at the National Conference of State Legislatures, said in an interview that Republicans will have the power to unilaterally draw 190 Congressional districts, while Democrats can only hope to unilaterally draw up to 70 at most. Republicans were already looking to benefit from the decennial census, reapportionment, and redistricting extravaganza. According to population projections from Polidata Inc, states carried by John McCain in 2008 will gain a net seven seats while states carried by Barack Obama will lose seven. But, reapportionment exists apart from redistricting. Just because conservative states gain seats does not mean Republicans will gain House seats. That depends on how the lines are drawn.

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In that sense, the power of line drawing becomes incredibly important. It will allow Republicans to undo many of the gerrymandered districts that have facilitated Democratic majorities over the past decade, as well as ensure maximum Republican representation in Congress.

North Carolina's 12th Congressional District As Republican strategist Karl Rove explained the importance of redistricting, “Consider that the GOP gained somewhere between 25 and 30 seats because of the redistricting that followed the 1990 census. Without those seats, Republicans would not have won the House in 1994. In other words, the so-called Republican Revolution would not have even existed if not for redistricting. I’m not sure what future politicos will call this year’s elections, but it will no doubt play a huge role in the future growth and success of the Republican Party for many years to come.

Election Results Show the True “Will of the People”
No matter what the results, elections leave some elated, others disappointed, and in some cases angry…very angry. Over the past two days I have spoken, often not by choice, with some who have vehemently decried the election results as “not the will of the people.” I quietly disagreed and sensing an unwillingness to use reason, abstained from asking them to tell me the elections

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actually did mean. Honestly, their attitudes are baffling. I have no doubt that many of these same people would have told me that the 2008 election results were an overwhelming demonstration of the “will of the people.” Now that Democrats’ electoral tides have once again ebbed, are they prepared to change their narrative? I ask because recent polls clearly indicate that the historic Republican victories on Tuesday were nothing if not the will of the people. On Election Day, Rasmussen released a poll in which 52% of voters say the election is more about a referendum on President Obama’s agenda than individual candidates. Fifty-six percent of voters believe Obama should “change course” and listen to the election results. So a majority voters do see the election as a national report card on the agenda put forth by the President and the Democratic leadership in Congress. This election was as much a repudiation of Obama and Democrats as 2008 was a repudiation of Bush and Republicans. This is no doubt a frustrating thought for many liberal voters who believed that 2008 was merely the beginning of a “permanent majority,” but it makes it no less true. Two other pre-election Rasmussen polls suggest the same thing. One found that only 31% of Americans felt that the US was heading in the right direction. The other found that, by a 51% to 39% margin, Republicans were still winning the generic congressional ballot. People weren’t happy with where America was headed and it is only natural to blame the political party behind the wheel. Voters from all across America took those attitudes to the polls. The truth, which many Democrats are loath to acknowledge, is that we live in a center-right country. According to the latest Gallup numbers, 40% of Americans identify their political views as conservative, 35% as moderate, and 21% as liberal. This lean was acutely realized on Tuesday night as Republicans made huge gains in the House, Senate, statehouses, and governor’s races. The marquee prize for Republicans was the House of Representatives. As of 10:52 this morning Republicans have gained 60 seats in the House of Representatives. There are still 10 races that remain too close to call so the number of seats gained for Republicans could still increase – most likely to between 62 and 64 seats. Republicans made gains in every corner of the country. From the Pacific shores of Washington to the Rocky heights of Colorado to Minnesota where the headwaters of the Mississippi River flow to the shores of the Great Lakes in Michigan to New York, the Empire State herself, and to the sunny beaches of Florida, Democrats were ousted and Republicans were voted in. Democratic losses were not just isolated to the 16 freshman “Obama-babies” who were elected in 2008 in mostly marginal districts. Three major committee chairmen and seven Representatives with at least 20 years seniority in Congress were defeated. James Oberstar (MN), chairman of

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the Transportation and Infrastructure Committee, John Spratt (SC), chairman of the Budget Committee, and Ike Skelton (MO), chairman of the Armed Services Committee, lost their seats outright in the election. David Obey (WI), chairman of the Appropriations Committee, retired this year and Alan Mollohan (WV), a member of Obey’s committee, lost his primary. Chet Edwards (TX), a 10 year incumbent, and one of the Democrats most promising rising stars also lost his reelection campaign. This shows that the results of the election are not regional flukes but a fundamental shift in the attitude of the American people. Republicans also gained nine governorships. States are aligned with Republicans by a 29 to 17 margin, 4 seats are still undecided. The only gubernatorial race for a GOP held seat that Republicans lost was in California. Swing states such as Michigan, Ohio, Pennsylvania, and Florida switched from Blue to Red. Republicans gained or held the gubernatorial seats in the fastgrowing states of Texas, Florida, South Carolina, Nevada, Arizona, and Georgia. Because of their growing populations those states will most likely be gaining a new seat (or multiple seats for Texas and Florida) in the House of Representatives. All told, states that voted for McCain in 2008 will likely gain seven House seats, while states that voted for Obama will lose seven. With a swing this momentous, how can the will of the people be denied? The Rasmussen polls and the election results are not a coincidence. President Obama and other Democrats understand the shift in voter wants and expectations. The President took responsibility for failing to restore job growth more quickly and promised to do more to reach a consensus with Republicans. But perhaps most importantly he recognized, that “Every election, regardless of who wins and who loses, is a reminder that in our democracy, power rests not with those of us in elected office, but with the people we have the privilege to serve. . . Over the last two years, we’ve made progress. But, clearly, too many Americans haven’t felt that progress yet, and they told us that yesterday. And as President, I take responsibility for that.” The President understands what many of his followers do not, that elections represent the will of the people. This is true not merely when elections go the way you want, but also when the results are something less than desired. This election showed that Americans wanted a different course. They wanted a limited government focused on job creation and deficit reduction. Republicans like Rep. Eric Cantor, Rep. Paul Ryan, and Rep. John Boehner have already formulated detailed plans on how to regain America’s core greatness. Republicans have had the way and now voters have given them the will.

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Post-Election Obama Shows Willingness to Compromise on Spending
Pundits are lining up to tell President Obama what he should do after his party suffered a major defeat in Tuesday’s elections. Some, like Salon’s Robert Reich, suggest that Obama must not “move to the center” but rather “push even harder for what you believe in.” Others suggest that the fundamental change needed is not substance, but delivery. The USA Today argued that he must ditch the “stiff, defensive and clinical” Obama and return to his campaign trail persona which emphasized a “human connection and a common touch.” Still others suggest Obama fundamentally alter his approach and make a sharp move to the center. Former Clinton adviser Doug Schoen best espouses this position, arguing that for Obama “to secure his political future, he need to change his approach in the way that Bill Clinton did halfway through his first term” through a strategy called triangulation. But his electoral success may center around policy more than approach. As Schoen explained, Obama like Clinton, must turn “around his administration’s reputation: from one of big-spending liberalism to one of fiscal discipline and growth.” At this point Americans don’t seem to care whether you are a Republican or a Democrat, they are willing to flip back and forth until one of the party’s finally addresses their concern about the size and spending habits of Washington. In that sense, appearing partisan or bipartisan, progressive or conservative, is much less important than appearing concerned about the deficit. Fortunately, the first press conference President Obama gave following Tuesday’s election results signals that Obama is ready to address the level of spending in Washington. Although he still does not appear ready to address deficits in the short term he does emphasize the need to sit down and figure out “what kinds of budget cuts we can make that are intelligent, that are smart, that won’t be undermining our recovery but, in fact, will be encouraging job growth.” That represents a fundamental change in position from our President and many of his advisers. Obama has previously suggested that maintaining the flow of government money is necessary to grease the wheels of this economy. Just one year ago Obama was making the push for a new government stimulus, saying that the nation must continue to “spend our way out of this recession.”

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His recent comments at least represent a step forward by demonstrating an understanding that a certain (if unspecified) level of government spending can actually undermine growth by taking money out of the hands of the private sector. In that regard he suggested that we “arrive at some consensus on some areas where we can eliminate programs that don’t work, cut back on government spending that is inefficient, can streamline government, but isn’t cutting into the core investments that are going to make sure that we are a competitive economy that is growing and providing opportunity for years to come.” Although the statement leaves much room for conservatives to worry exactly what Obama and Democrats consider “core investments,” it is another positive step. If nothing else it signals a willingness to cut back on the government bureaucracy that has ballooned under his watch. Moreover, it tacitly admits that some government expenditures are inefficient, apparently ditching the Keynesian approach in which the efficiency of spending is secondary, if not inconsequential, in judging desirability. Finally, President Obama admitted to becoming lax on the enforcement of one of his earlier promises – stopping the tide of earmarks. He acknowledged that “in the rush to get things done” he had to sign “a bunch of bills” containing earmarks despite this being “contrary to what I had talked about.” In fact he claims that he is “a strong believer that the earmarking process in Congress isn’t what the American people really want to see when it comes to making tough decisions about how taxpayer dollars are spent.” Admitting a mistake is a rare show of humility for President Obama and a positive sign that business as usual may actually change now that a Republican majority can hold his feet to the fire. There is still a long way to go until 2012. Nevertheless, with the midterms now in the past, voters will be keenly focused on how the President responds to the historic rebuke he received in these elections. Will he kowtow or will be press on? Obama’s future is still yet to be determined; nevertheless, his first step into a divided government was promising.

Obama’s New Triangulation – A Mix of Truman and Clinton
We are only three days removed from the election and Obama is already forced with a challenge that not many presidents have had to deal with. Obama is stuck between Scylla and Charybdis, two opposing paths for what he must do next, each fraught with its own dangers. Should Obama try to govern with the resurgent Republicans or should he govern in spite of the Republicans? Conflicting answers to the question lie in the histories of two presidents who faced similar circumstances – Bill Clinton and Harry Truman. Bill Clinton tailored his agenda with the RepubliNovember Compendium! 13

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can majority in Congress while Harry Truman continued his polices in spite of the Republican majority. “Had enough?” That was Republicans simple, yet devastatingly effective, midterm slogan following Truman’s disastrous first two years in office. That year Republicans ended up picking up 55 seats in the House and 12 in the Senate, enough to give the GOP control of Congress for the first time since 1928. Nevertheless, Truman didn’t back down. Instead he went on the offensive, exemplified by his opening line in the Democratic National Convention, “I will win this election and make these Republicans like it – don’t you forget that.” Robert Kuttner explained the strategy by saying, “Truman’s strategy was not to achieve flawed compromise legislation but to underscore differences” between the two parties. It worked. In the next election cycle Democrats recaptured huge majorities in both houses of Congress and Truman ended up in a better position to govern as a liberal. Clinton took a much different approach. Following his party’s enormous losses in the 1994 midterm elections he made a sharp move to the center as part of his famed “triangulation” strategy. Largely because of a healthcare reform gaffe that rivaled the size of President Obama’s, Democrats ended up on the wrong side of the “Revolution” in 1994. Democrats lost a net of 54 House seats and 8 Senate seats, leading to the first time Republicans controlled both houses since 1952! So he pulled back, moving away from liberal Democrats and keeping his distance from Republicans, but most importantly moving up above the partisan divide that the public hated. Following the midterms Clinton sided with Republicans in passing a historic reform of welfare, cut taxes and spending, and succeeded in moving towards a balanced budget. It worked, for him moreso than his party, as he ran away with the 1996 Presidential race. Oddly enough, the few days since the elections have shown that Obama may be enacting his own “triangulation” strategy – following a model somewhere between the hard-line Truman approach and the pillowy soft Clinton plan. As National Journal writer Donald Brownstein explained, “Where Clinton agonized, Obama analyzed. It was clear that Obama has started to think seriously about how he will navigate a Washington with many more Republicans in it. But nothing about him suggested that he viewed the impending arrival of those Republicans as evidence that he needed to radically rethink his presidency. Obama sounded neither shell-shocked nor defiant.” Though he may not be ready to give in on Republican ideas to overhaul his healthcare reform or drop his plans on energy or immigration reform, President Obama has struck a conciliatory tone. Following Tuesday’s election he has made it a priority to meet with congressional leaders including new Speaker of the House John Boehner and Senate Minority Leader Mitch McConnell. In fact, the meeting already has a label – the “Slurpee Summit.” In proposing the meeting Obama

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went on to say that the US “can’t afford two years of just squabbling,” hopefully setting the tone for a civil and productive discourse in the next two years of his presidency. Obama’s press secretary Robert Gibbs echoed the need for bipartisanship saying that the only way to solve our national problems is “to do it working together.” The bipartisan embrace may not go over well with members of his party. Senator Harry Reid appears to be pushing for a Truman-esque leadership style, emboldened by his surprise win in the Nevada elections. Reid said Republican’s method of “just saying no doesn’t do the trick.” Democratic Sen. Charles Schumer (NY) and Sen. Dick Durbin (IL) are joining him at the partisan altar, suggesting there will be Congressional gridlock and are unapologetically warning Republicans that it is their responsibility to not block legislation. This is all, of course, nothing more than speculation. Words are meaningless until they are substantiated through the weight of action. There is, and always will be, a chance that Obama sees the Republicans as nothing more than political foils, Iago to his Othello, that will strengthen his reelection bid. Yet, Obama seems to conducting his own overture to Republicans. And to weary voters, that symphony could be Obama’s magnum opus.

Reckless Spending Threatens America’s Spot at the Top
The house of cards that Democrats have been building over the past two years is teetering precariously. Namely, we have misused our status as the world’s global reserve currency of choice. Over the past year the Democrats have spearheaded a fiscal effort to jumpstart the economy. The centerpiece of this approach was the $862 billion stimulus bill that was supposed to pump money into the hands of consumers and jumpstart our economic recovery. Except that none of that happened. Instead we were left with historic debt and deficits and an economy that was still sluggish at best. Despite the lackluster performance of the package, many liberal economists, most visibly Paul Krugman, argued that the President needed to pass another stimulus plan. As he wrote in yesterday’s New York Times, “Mr. Obama’s problem wasn’t a lack of focus [on the economy]; it was a lack of audacity. At the start of his administration he settled for an economic plan that was far too weak.”

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These economists argued that austerity was foolish at a time like this. “Right now, investors don’t seem at all worried about the solvency of the U.S. government; the interest rates on federal bonds are near historic lows. In other words, why should we cut back on government spending if we can continue to borrow money at really low rates? If other nations are willing to fund our extravagance why hold back? The latest slap in the face to foreign investors is a new round of “quantitative easing.” This is a plan implemented by the Federal Reserve in which they purchase 5-to-10 year Treasury securities in the hopes that it will increase the price of bonds and thus reduce interest rates. The hope is that the lower interest rates will increase liquidity and make corporate financing cheaper. But as Duke professor and National Bureau of Economic Research associate Campbell Harvey explains, There is a secondary effect. As U.S. interest rates go down, the U.S. is presumably less attractive for foreign fixed-income investors. This may put downward pressure on the exchange rate. A cheaper exchange rate means exports are more competitive and imports are more expensive. The combination of these two policy trajectories – fiscal and monetary – is beginning to leave a bad taste in the mouths of some foreign governments. Some are openly resenting the dollar’s preeminent status as the de facto world currency. In their view, such “dollar hegemony” was a “major cause of both the imbalances and the crisis, for it allowed more or less unbounded borrowing by the US from the rest of the world, at very favourable rates.” The dollar has been the world’s reserve currency since World War II. With many of the world’s financial systems in shambles the Allied nations gathered in Bretton Woods to set up a new system of rules to manage the new international monetary system. One of the primary results of the meeting was an obligation that every nation adopt an exchange rate that stayed within a fixed value. This combined with the newly established ‘gold standard” persuaded other nation to peg their currencies to the price of the U.S. dollar. For seven decades this system worked fine because the US was the dominant economy, had a sterling credit rating, and was a very stable monetary system. Now some are wondering if that reality holds true. As Jeremy Warner wrote in the UK Telegraph,

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America has squandered this advantage on credit-fuelled spending; with the developing world expected to represent more than half of the global economy within five years, dollar hegemony no longer makes any sense. Warner senses that the United States is leveraging its role as the global currency to address its domestic needs, the rest of the world be damned. And frankly, if you agree with Paul Krugman’s assessment – that we should lap up cheap debt so long as the world is giving it to us – then Warner is exactly right. Our fiscal impropriety will not last forever. We are still the world’s dominant economy. But we must not let our hubris blind us from the harsh reality – that our reckless spending has compromised our place at the top.

GOP Election Wins Portend More Good Job Reports
The new job numbers are in, and finally we can see the light at the end of the tunnel. The light is nothing more than a faint flicker. For the first time since May the economy has actually gained jobs. The Department of Labor has reported that the private sector gained 159,000 jobs in October. Perhaps another good sign for conservatives is that the public sector shrank by 8,000 jobs, mostly the result of the decennial census winding down. While 151,000 new jobs is an encouraging sign, the pace of growth remains too slow to overcome the enormous job losses suffered during the recession. With around 100,000 workers being added to the workforce each month, the private sector needs to be able to hire between 200,000 and 250,000 people to make any significant dent in the unemployment rate. Thus, despite the modest gains the unemployment remained mired at 9.6% – meaning that unemployment has been above 9% for 17 straight months. Since the Great Depression there has only been one other comparable string of consecutive months with that level of unemployment – a 19-month span from 1982-83. To give you a sense of the hole that we must fill consider that in October 2007 we had 7.3 million more payroll jobs than October 2010. There were 15 million unemployed workers in June of 2009, the month the recession officially ended. Fifteen million are unemployed, with 6 million of those people being unemployed for six months or longer. 151,000 is a start, but it is like using a spade when we need a backhoe. Clearly we have a lot more work to do.

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Big businesses and small businesses alike are facing uncertainty over taxes and government regulations. Employers have been keeping money in reserve due to the uncertainty of the business climate. Estimates of the amount range from $1 to $1.8 trillion. Instead of hiring new employees and dealing with new and uncertain health care, payroll, and regulation costs, companies are investing in new equipment and software to increase productivity. The environment of uncertainty is damping any hope for acceleration in job creation in the short term. The results of a survey among small businesses by the National Federation of Independent Business show that while there is optimism in future business conditions there is nothing tangible, yet, to convince them to produce a surge in job creation plans. Currently job creation plans for small businesses remain at recession levels. Rep. Eric Cantor is right on the money in his take on the Department of Labor report; he said “we must get the ‘for hire’ signs out of government windows and into the windows of small businesses.” The private sector is the only thing that can truly create long term growth. As an economic actor the government is bloated and inefficient. The government uses a combination government hiring and spending and artificial bubbles to fuel certain sectors of the economy that they deem vitally important for economic growth. Government hiring and spending sprees are unsustainable. They are propped up on the taxpayers back and that is a burden that America cannot endure for long. We have chronicled many of the government spending choices at http://ourtab.org/, so the wastefulness and idiocy that accompanies government spending should come as no surprise. Just today a story came out that the Federal government has recently awarded a $700,000 grant to study the greenhouse effects of the methane released by dairy cow burps. To grow the private sector, and the economy as a whole, individual tax rates must be maintained, corporate taxes must be lowered, and burdensome business red-tape must be relaxed. Taxes and regulations are two sides to the same coin. Both are key cogs in economic growth. When pressing a CEO about why they were not hiring, a person who was privy to the conversation said Rahm Emanuel got a response like this: “I know you’re paid to do the president’s bidding, but I’m paid to answer to shareholders and a board of directors and your health care plan is costing me $1.5 billion, your tax increases another $1 billion, and regulation another half a billion.” We will never know how candid the actual response was, but the abridged version is just as telling. That is $3 billion directly deducted from the company’s revenues, revenues that could be going to hire more workers.

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The current regulations and taxes are impeding our economic growth. One CEO is on the record saying that the US corporate tax code has made the US a “no-fly zone” in the world trade zone and that the tax policy is reducing investment in the US by greatly reducing American enterprises competitiveness in the increasingly global economy. The intent of excessive government intervention in the economy is completely irrelevant. What matters is the final result of economic productivity. The one thing that has been proven since the implementation of Keynesian economics is that government intervention and involvement does not correlate to a strong and productive economy. While the new job numbers are encouraging, encouragement is not what keeps the lights on. We need sustentative results and the Republican victory on November 2nd is putting us one step closer to those results.

Tax and Spend Please? California Bucks Conservative Trend
The left coast broke for the Left last Tuesday. After the elections, California exists as one of the true havens for Democrats over the next two years. California reelected Barbara Boxer as senator, changed their governor’s seat from RINO to Democrat, only one incumbent Democrat lost their seat in Congress, and the state elected Democrats to be their Lieutenant Governor, Attorney General, Secretary of State, Treasurer, and Comptroller. The state’s liberal tilt was reaffirmed by votes on a series of Propositions that, on the one hand demonstrate the state’s dedication to liberalism, but on the other doom it to further fiscal trouble. Proposition 23 was a measure that would suspend air pollution laws until unemployment dropped. Under the proposition, California’s greenhouse gas emission targets would be suspended until unemployment, currently around 12%, dropped to 5.5% and remained at that level for a year. Prior to the election analysts warned that the increase cost of cleaning for refineries would raise the cost of refining to a level that would make the California more susceptible to importing refined products for Asia. This would lead to a drop in Californian revenues from the refining and could lead to job outsourcing. The vote came mere weeks after a report was issued revealing how the state of California grossly miscalculated pollution levels in a scientific analysis used to determine the state’s clean air standards. The state’s pollution estimate was off by 340%. Independent researchers found that the state’s methods of calculating the pollution was due to both flawed work and a faulty method by the Air Resources Board. The Board claims that the discrepancy is due to calculating the emissions before the economy went into a recession.

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The debate over environmental protection is very tricky. On one side, it is clear that we have a responsibility to protect the environment. To that end, finding a balance between protecting the environment and protecting jobs should be the end-goal of government policy. The economic recession has shifted that balance temporarily. There is a dire need to create a policy setting that fosters job creation because we have a moral imperative to help the jobless. Raising California’s greenhouse emissions targets until a return to reasonable levels of employment isn’t a jab at the environment, it’s a stab at trying to stem job losses. Sadly the measure didn’t pass, forcing businesses to potentially choose between meeting carbon regulations and hiring employees. Moreover, in a state with record levels of public debt and is on the brink of bankruptcy, the loss of extra tax revenues spells potential disaster. A second ballot measure, Proposition 25, was passed. The Proposition reduces the majority needed to pass legislative acts such as budgets. Previously, the California legislature was divided between Republicans and Democrats in such a way that it took some degree of bipartisan agreement to pass. This meant that the tax-and-spend Democratic majority had a check on their ability to pass a progressive agenda with very little means to pay for it. Proposition 25 will eliminate this check by lowering the requirement for legislation to pass to a point at which the Republican minority is essentially non-consequential. The results of the elections and the Proposition votes show that California, like many liberals, continue to be deluded into believing that their way is working. The state is facing a $20 billion budget gap. According to Blooomberg, market indices show that worldwide investors believe that California is more likely to default on its debt that Kazakhstan. Hey Democrats, Borat says hi. This is not a sustainable situation and last Tuesday showed that while the rest of the nation is painfully self-aware of its troubles, California continues to exist in its own budgetary fantasyland. I realize that being a contrarian is the cool thing to do in California, but c’mon, we’re talking about the financial future of an entire state. Across the country, with the notable exception of California, Americans elected officials that get the idea that the government doesn’t always know better and it almost never spends better than private citizens. California may have doomed itself to another two years of more debt, higher taxes and fewer jobs, but should it find a way to remain solvent, we conservatives will be here waiting in 2012.

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Dumb and Dumber – Obama and Pelosi

Nancy Pelosi, the recently deposed Speaker of the House, declared over the weekend that she would be running for Minority Leader. How out of touch can you be! Democrats are on track to lose up to 65 net seats after all of the ballots are counted. For comparison’s sake, consider that the average midterm seat loss for a party where the president’s approval was below 50 percent was 36. In other words, things were stacked against Democrats and they still found a way to massively underperform One of the main reasons for the Election Day route was the ability of the Republican Party to nationalize the races. Voters across the country hated the Obama, Pelosi, Reid triumvirate. But PeNovember Compendium! 21

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losi was the worst of all. She came to embody everything that was wrong in Washington over the past four years – pushing big-ticket policies through Congress, the public’s will be damned. Now, the villain of the 2010 narrative, the woman who single-handedly lost more seats for the Democrats than anyone else, wants to stay on as the Democrats’ leader in the House. Can you say out of touch? The situation reminds me of a classic Dumb and Dumber scene. Alright, that’s kind of a contradiction in terms, but stick with me. It’s the scene where Harry and Lloyd are travelling across the United States on their way to Aspen, Colorado. Jim Carrey’s character Lloyd decides to trade their van straight up for a tiny two-wheel scooter. His travelling companion Harry, played by Jeff Daniels, stares at him, obviously dumbfounded by how badly Lloyd just got ripped off. In his most condescending voice Harry says, “Just when I think you couldn’t possibly be any dumber, you go and do something like this…and totally redeem yourself.” To any rational outsider it was a dumb move, whether or not you really could get 70 miles to the gallon on that hog. But to Harry and Lloyd, aka Dumb and Dumber, it seemed like a brilliant strategic move. That is exactly how I feel about Nancy Pelosi’s decision to run for Majority Leader. As a rational political person, I can’t imagine a scenario in which she should be chosen as Majority Leader. She’s unpopular, people didn’t like her legislation, her far-left politics are out of line with most Americans, and she presided over the largest losses in the House in modern history. It’s a dumb move for her to stay. And yet, somehow, in her mind this is the best idea ever. It’s exactly like Dumb and Dumber, except that it’s real, and unfortunately that makes this misadventure more terrifying than funny. After all, Pelosi presided over a four year span of historic spending, debt, and deficits. The consequences of her I.O.U.’s will take more than one briefcase to fill and more than one generation to pay back. As for why she wants to stay in power, Nancy Pelosi told colleagues that “our work is not finished.” Terrifying considering that most of her work seemed to be focused around the idea that the federal government should be bigger and spend more. Apparently she won’t be satisfied until we reach Greek-like levels of public debt. She later tweeted that “driven by urgency of creating jobs…I am running for Dem leader.” Where was this urgency during her term as Speaker. Rather than focus on jumpstarting the economy or creating jobs, she seemed to spend most of her time trying to find a way to trick the Senate into including a public option into the healthcare bill. With her insistence to still lead house Democrats, Nancy Pelosi seems to have adopted President Obama’s incorrect assumption that it wasn’t the policies that failed; it was the “communication” of the policy’s rhetoric that fell short. It seems she’s come to believe Washington Post columnist Eugene Robinson when he said, “She’s losing her job not because she does it poorly but because

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she does it so well.” Funnily enough, I tell myself that every time I’m fired. Self-delusion is much easier than honest self reflection. But to the rest of the sane world, soon-to-be House Majority Leader Eric Cantor hits the target in arguing that electing Pelosi to minority leaders would simply show that Democrats continue to ignore the will of voters. Cantor wasn’t just spouting Republican talking points either, members of Pelosi’s own party have discovered that truism too. Reps Larry Kissell (NC), Heath Schuler (NC), Albio Sires (NJ), Mike Ross (AR), Dan Boren (OK), and John Yarmuth (KY) have all spoken out against her bid to be minority leader since the election results were determined. A letter written by defeated house Democrats has been circulating around Capitol Hill today imploring Nancy Pelosi to step down. The defeated Democrats write “it is impossible not to judge the results of November 2 as anything but a profound loss.” Those Democrats have come to the conclusion that in order to rebuild the Democratic party to counter a Republican party that is “simply too daunting,” Nancy Pelosi will need to step down, because of the ease of which Republicans can successfully “demonize” her. Ding! Ding! Ding! For evidence of that just head over to the Republican National Committee headquarters where they’ve taken down the pre-election sign “Fire Pelosi” and replaced it with the hopeful “Hire Pelosi.” While the economy was bad when they took over, it has gotten even worse under their leadership. After accumulating trillions of dollars of debt at the fastest rate ever to pay for ineffective bailouts and inefficient health care the US economy is far worse off. The new taxes and regulations imposed on businesses large and small is corrupting the long term strength of the economy and stifling short term growth. To put it in Dumb and Dumber terms, their policies have made the economic viability of the United States appear much closer to I Got Worms than it does to say, Petsmart. In the Pelosi-Obama world, the 65% of voters who believe the US is heading in the wrong direction must either be inconsequential or do not exist. Her desire to run for Minority Leader only shows that Democrats continue to act as if nothing happened last Tuesday. They are treating a historic rebuke as nothing more than an anomaly. They are ignoring altogether the downward slide in their approval ratings, shouting moronically to voters, “So you’re telling me there’s a chance.” No, Dumb and Dumber, we’re telling you to take a hike.

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Obama the Compromiser?

Will Obama be known as, “OBAMA THE GREAT?” Or maybe he will become, “OBAMA THE CONQUEROR”, or maybe even my favorite, “OBAMA THE TERRIBLE.” With a 9.6% unemployment rate, what America has been looking for the past 2 years is an, “OBAMA, THE SAVIOR OF THE ECONOMY!”, instead all we got was “OBAMA THE CLUELESS” or at best, “OBAMA THE OUT OF TOUCH.” Not exactly nicknames that are destined to stick in the history books. Can Obama achieve “the great” status a la Alexander? Probably not. But can the Obama still rescue his presidency? The answer is undoubtedly, yes. Then again the issue has never been whether he can, it has always been whether he will. That largely depends on his strategy going into the second half of his term. Remember that both Presidents Clinton and Reagan both had approval ratings very similar to Obama following their first two years in office. Clinton was marred by the mishandling of healthcare and a general sense that he was out of touch with the average American (sound familiar?). Reagan, on the other hand, suffered dismal approval ratings mainly because of a woeful economy (sound familiar?) Clinton responded to his party’s crushing defeats in the midterms by moving himself away from the liberal Democrats and working with Republicans to accomplish an ambitious agenda. Reagan righted the ship by enacting sweeping economic reforms including an across the board tax cuts and sound monetary policies that led to the longest period of sustained peacetime economic growth in US history.

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So how will President Obama respond? To this point, it is no surprise to anyone but himself that he is disliked by broad swaths of the general public. It’s not that his public persona does not have redeeming traits. He comes off as well spoken, intelligent, and dare I say, cool. Yet at times he takes these positive traits to the extreme. Well spoken becomes lectury. Intelligent becomes arrogance. Cool becomes aloof. The resultant persona is ill-equipped to handle criticism of his policies. Rather than address American’s concern over the healthcare bill or the historic level of spending, he is content to ignore the masses, content that he is sure that he is right. Fortunately for President Obama, the first step towards resuscitating his approval ratings just got a lot easier. Last Tuesday President Obama was given, quite possibly, the best gift he never asked for – an overwhelming GOP majority in the House. How does “OBAMA THE CONCILIATOR” sound? If that is too much of a “big word”, maybe he can go for, “CAPTAIN OF COMPROMISE”. I like that one. With the GOP taking control of the House, there will be a great opportunity for Obama to show his ability to play well with others. Like President Clinton, this will be his opportunity to rise above the partisan bickering that has driven voters bonkers, and instead work to get things done. Unlike his previous attempts at bipartisanship, this will actually require more than lip service. To succeed over the next two years he must drop the pretense and be prepared to have an honest and open debate about the direction of this country. So how will this all play out? First, the GOP must stick to its guns, with the understanding that they were not given a mandate to govern, they were given a mandate to fix things. This will likely entail fights on tax cuts, Obamacare, discretionary spending, earmarks, and the financial direction of our entitlement system. Second, Obama must choose. He can maintain his ideological position, and attempt, out of some misguided principle, to continue to push his agenda. This will further the tension between Americans and Washington who are already tired of the partisan bickering. Obama could also decide to work with the GOP. In the end, the policies passed will likely be tough to swallow for both parties, that is simply the nature of compromise. If he succeeds in spearheading a couple of common sense policies such as reforming the earmark process and slashing spending in order to reduce the deficit he shouldn’t be surprised to see his approval ratings rise. He also shouldn’t be surprised if he arrives at better policy. Consider what would have happened if Republicans were involved, rather than simply talked to, in the healthcare debate. Imagine if we could have combined Democrats’ focus on universal coverage with Republicans’ focus on lowering healthcare costs. Perhaps we would have actually gotten a bill that worked. Instead, we

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have a broken piece of legislation that actually mandates people into a broken system rather than take reform steps to improve the system. So here is my advice to Obama: Here is your second chance. Although it may not seem like it now, consider it a gift. An opportunity for you to become a great President in the mold of Clinton or Reagan. America has a wonderfully (if maddeningly) elastic political memory. The slate of the past two years can be easily wiped away if you use the next two wisely. Shed your pride. You don’t have to abandon all of your liberal ideals, but you must understand that they should be tempered by a mix of conservative ideas. Whatever you do, don’t be an ideological tyrant. Don’t attempt to pass legislation just because you can. Don’t ignore the GOP just because you’re advisers tell you its good politics. Most of all, don’t continue to ignore the majority of Americans who disapprove of your work. Simply put…listen. If so maybe we can adopt the title “OBAMA, THE BIPARTISAN SO THAT HE COULD SAVE AMERICAN JOBS AND PAY DOWN OUR DEBT SO AND GOT ELECTED FOR FOUR MORE YEARS.” Ok, so it needs a little work, but you get the point.

Debt Limit Vote Presents Opportunity for Republicans
Wasting no time from last week’s elections, Republicans are already seeking to prevent the US’s mountain of debt from becoming its Tower of Babel. The US currently has $13.7t worth of debt, which in May 2011, is excepted to pass the $14.3t limit set by Democrats last February. With whispers of a government shutdown murmuring through the halls of Capitol Hill, Republicans are seeking to allay those fears while turning them into tangible results for fiscal hawks. The GOP has decided to take the offensive on the looming issue of the need to raise the debt cap. The debt ceiling is a dollar limit set by the US Congress to determine how much the U.S. can borrow. If it feels like we just had this problem. You’re right, we did. Unfortunately, our spending habits haven’t improved and the new debt limit, set just last year, needs to be raised again to prevent a shutdown of government. The current debt limit is $14.3 trillion, while the national debt is $13.7 trillion and rising fast. The vote to raise the ceiling will likely be the first test for Republicans to see whether they will live up to their promises to put the federal budget on a diet. Fortunately, the Wall Street Journal reports that,
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Republicans are planning to demand major spending cuts next year before they would agree to raise the amount of federal debt that can be issued, setting up a clash between the Obama administration and a Congress stocked with lawmakers who campaigned as deficit hawks. House Republicans have yet to lay out their exact demands, but have already mentioned the desire to return discretionary spending back to 2008 levels – prior to the spending binge under the Obama administration. Of course, if a compromise is not reached on raising the level of debt, and the debt ceiling is reached, the US could face a perilous situation in which it may default on its loans. Both Democrats and Republicans are having flashbacks of the 1995 government shutdown. During a vicious impasse between Treasury Secretary Robert Rubin and House Speaker Newt Gingrich the US actually hit the debt ceiling and had to borrow money from at least two different federal pension funds to avoid defaulting. The debt ceiling was later raised, only after a brief government shutdown and a threat from the Clinton administration that Social Security checks would not be mailed. That government shutdown was largely blamed on Republicans, who had just made sweeping gains in the 1994 elections, and helped Bill Clinton get reelected in 1996. Nevertheless, the clash represented a key turning point in the battle over federal spending and showed that Republicans had a take-no-prisoners attitude that was ultimately responsible for a balanced budget. Presumptive Speaker of the House John Boehner dismissed a government shutdown as a possibility this year. In an interview with Diane Sawyer he said, “Increasing the debt limit allows our government to meet its obligations, and I think that there are multiple options for how you deal with it. But for our team, I think we’re going to have to demonstrate that we’ve got to have reductions in spending. The government’s spending more than what we bring in. We can’t afford it.” … We’re not quite sure when we’re going to face this increase in the debt limit, but when we do, we’ll be ready to meet our obligations.” Although refusing to raise the debt limit appears to be on the table, Boehner did hint at one procedural change that should allow a clear distinction to be drawn between the spenders and the savers. Bohner said that he would make the debt limit hike a stand-alone vote, allowing lawmakers to vote straight up on the issue without being able to hide it from the record. Previous votes on the debt limit were accomplished through the “Gephardt Rule” which allowed House members to vote on a budget, but send another bill to Senate, so that they don’t have to ever vote on

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the budget specifically. But as Boehner promised in his campaign for Speaker, such electoral gymnastics are a thing of the past. It’s time to get serious about our budget deficit. Constantly raising the debt limit year-after-year does nothing but feed the beast. Unfortunately, Republicans will likely be forced to vote to raise it, but it at least presents an opportunity for Republicans to lower the bar on future spending. The US’s gross debt percentage of GDP was 62% in 2007; the 2011 forecast catapults that percentage to 100%. With skyrocketing growing entitlement spending, a sluggish economic growth rate, and chronic unemployment Republicans look to champion a return to the free market capitalism that has helped America prosper in the past. by Justin Williams

Out of Touch Pelosi Throws Party for Their “Accomplishments”

“My girl wants to party all the time,” he sung, as the hurt in his voice neared its emotional crescendo.
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“I wish you bring some of your love home to me,” the voice bled. Sorrow trickled out of the speakers and into our ears. Eddie Murphy’s voice rang out in sublime revelation nearly 25 years ago. Americans heard him and immediately felt his lament for his plight. Murphy’s afflicted affection was directed to a woman who gave attention to everyone but he who mattered. The song, a tragic ballad of scorned love, left America wondering who that girl who liked to party all the time was. We all wanted to know who was it was who broke the Beverly Hills cop’s heart. For 25 years, that question has remained unanswered. The mademoiselle of misery has remained anonymous. Until now. Nancy Pelosi has mailed out the invites to a party she is throwing tomorrow afternoon. Whaa? Partying on a Wednesday afternoon? Yup, that’s what makes her America’s sweetheart. Ew, She’s not really America’s sweetheart. She is not Miley Cyrus, but that won’t stop her from throwing a party anyways. You may be asking yourself “what could warrant a shindig on a Wednesday afternoon?” The 111th Congress is what! I wonder if America got its invite… “I can’t understand it why you want to hurt me,” “I buy you champagne and roses and puts diamonds on your finger.” That’s not Rick James’s voice layering Murphy’s tribulations with funk. That’s America’s impassioned choral reverberation. Eddie Murphy’s torment is now our torture. Americans want her love; we want the jobs and economic stability she promised to deliver as speaker of the house. Instead of roses, champagne, and diamonds, Americans paid the rent on her $18,000 a week office. To return the favor, she hurt us with a $1.1 trillion increase in government spending and $3.1 trillion increase in national debt. Perhaps the proudest Pelosi achievement is passage of the Patient Protection and Affordable Care Act. In this act the government took the reins of our healthcare system to assure that no one got left in the dust. Pelosi and her posse, unfortunately, over looked the fact that the act is likely to corrupt the system to a point where the American health care system is a benefit to no one.

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First off, using CBO estimates the health care bill does not lower the slope of health care cost’s increase. The CBO has also found that the effect of healthcare legislation is an increase of government spending by $3.8t over the next ten years. Over the next ten years, tax payers will have to dish out an additional $420b over the next ten years to pay for health insurance. Instead of reducing the average family’s insurance premium by $2,500, premiums will increase by $2,100. 21 states are now fighting the “individual mandate” clause, a penalty that forces people to have health insurance with a fine that will be close to $800 in 2016, in the courts. Since health insurances cannot legally charge more for coverage for sick children than well children all children are being dropped from coverage. Because of rules like that, the Principal Financial Group decided that offering medical insurance was too much of a liability and left the market. This means they dropped coverage for 840,000 Americans. Aetna, and Aetna’s clients, is in the same boat. McDonalds, Home Depot, Disney, and others are seriously considering dropping coverage because they cannot afford to stay afloat and provide health care for their employees. Another achievement of the 111th Congress is the various bailouts and stimuli designed to keep the economy afloat. The results of those measures have been lackluster at best. Tax payers are shouldering the bailouts have flooded the market with unearned capital. The Treasury Department has misled tax payers over the cost of bailing out companies like AIG. In AIG’s case, the Treasury announced tax payers would lose only “$5b,” the special investigator for TARP found that number was actually closer to the outside estimates of $45b. With the government’s hand guiding the decisions of AIG, AIG earned losses of $2.4b in the third quarter alone of this year. Fannie Mae and Freddie Mac’s, the corrupt symbols of what caused this recession, bailout is likely to increase to $154b. Failed economic policies and a deficit that has surged 21.4% is what the leadership of the 111th Congress has given America. Unemployment has been above 9% for 17 consecutive months now, a streak that did not start until the 111th Congress had been in session for several months. What happened to the ‘shovel ready jobs?’ Where are Americans going to work now that Obama has admitted that they ‘don’t exist.’ Banks and businesses are keeping $1.8t in reserve because of fear and uncertainty over the costs of future government rules and regulations. That’s $1.8t that could be going to hire new workers. Wednesday November 10th 2010 is when Nancy Pelosi is holding a reception honoring the accomplishments of the 111th Congress. Yes, the very Congress that started off with Democrats controlling both the executive and legislative branches of government and the first supermajority in the Senate since 1974, and ended with a 60 house seat loss and the most gains by a party in 70 years. It seems that Republicans should be the ones celebrating the accomplishments of the 111th

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Congress. Our stagnant recovery seems to be rousing more and more Americans from their Keynesian nightmares. “What am I to do,” Murphy’s question cuts through the air in a way that only Matt Lauer can emulate. If only Eddie Murphy had the choices in that club back in 1985 that we have in 2010. Last Tuesday, the vast majority of Americans rejected the summation of what Pelosi is. Americans have been growing weary of the tremendous yoke the 111th Congress placed on us. Americans are reigniting the fire of what America should be and what America is. Free market enterprise and the idea of the Individual are making a comeback. This is more proof of how out of touch Nancy Pelosi is. Members of her own party, and not just the Congressional Democrats who just lost their reelection campaign, are growing more and more vocal against her. They know that the election cannot be interpreted as anything but a rejection of the policies of the last two years. Republicans are not out having celebratory soirees toasting the 111th Congress. Republicans made historical gains last Tuesday because they understand how worried Americans are not just for their own future but for their children’s future as well. Republicans know that the real party starts once American’s have jobs again.

Operation Red November by the Numbers
Operation Red November was a grassroots movement by College Republicans nationwide to recruit and mobilize college students to take back our future by voting and volunteering for Republican candidates in the 2010 mid-term election. We did just that, and we did it BIG! The below numbers quantify several goals of the program, which included training twenty-three paid field representatives and our College Republican state leaders to recruit students to join the College Republicans, set up volunteer opportunities for them and then encourage them to volunteer, as well as vote for, the Republican Party and it’s message of eliminating the federal budget deficit, eradicating the national debt and returning government spending back to sustainable, responsible levels. The numbers below speak for themselves, but I will say this: these numbers strongly suggest that in the more than fifty “toss up” Gubernatorial, Senatorial and Congressional races, of which the Republican Party won more than twenty-five, the College Republican efforts were the difference between the Republican candidate winning and losing. Without College Republicans and OperaNovember Compendium! 31

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tion Red November, there would, without question, be fewer Republican Governors, Senators and Congressman waiting to be officially sworn in January 2011. The College Republicans were indispensable to the Republican victories on Tuesday, November 2. Period. The numbers prove it.

Operation Red November Field Representatives and state leaders recruited 27,362 college students to join College Republicans and pledge to vote and volunteer for the Republican Party in the 2010 mid-term elections. The number of College Republican volunteer hours that Operation Red November Field Representatives and state leaders recruited is 71,526. The Operation Red November Field Representatives themselves personally invested 9,844.50 hours pent recruiting, phone banking, precinct walking, sign waving and more. This means that the total hours given by college students to the Republican cause this election cycle tops 80,000 hours. Of the students recruited to join the College Republicans and Operation Red November, the field representatives recruited 14,868 as volunteers who called, door-knocked and rallied Republican candidates to victory all over the country. Operation Red November Field Representatives were responsible for setting up 1,708 get-out-the-vote phone banks, 707 campus recruitment events, 361 Red November rallies, 228 get-out-the-vote precinct walks, 124 Red November sign waves and 21 absentee ballot drives. This comes to a total of 3,149 separate political events that young people participated in this election season directly attributable to Operation Red November and it’s College Republican Field Representatives.

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What we saw this election was that the Democrats’ reckless policies got students paying attention, the Republicans’ message of job creation, lower taxes and less spending got them thinking, and, as the numbers above show, Operation Red November got them to the polls and Republican volunteer centers. This was a Red November, but make no mistake, without the College Republicans, this November would have been a lot less red.

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Four Freshman Republicans To Keep an Eye On

The marquee over Congress has changed forever. This November’s election has ushered in a new era of conservative leaders in both the House and Senate. After the recount dust settles, Republicans could end up winning 63 seats in the House of Representatives and pick up 6 Senate seats. All told it will be the biggest freshman class in recent memory. Our new lawmakers bring with them diverse backgrounds; doctors, lawyers, car dealers, pilots, FBI agents, a former NFL player, and even a former reality TV. Moreover, the class shows the growing diversity within the Republican Party. The old white-male businessman stereotype that has dominated the GOP has given way to a historic new mix of women, Latinos, African Americans, and youth. These new Congressmen will be the future leaders of our nation. Somewhere amongst this class likely exists a future Speaker of the House, Majority Leader, or President. So who are these future leaders? Here’s a look at four of the most likely freshman stars in a start-studded class.

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Marco Rubio

If you haven’t heard this guys name yet, (a) Where have you been for the last 6 months and (b) you will. Having already been labeled the “Latino Obama,” Rubio is one of the first names that arise when discussing the future of conservatism in America. After arising out of seemingly nowhere, Rubio won his Senate seat in Florida by a landslide victory against his opponent Charlie Crist who was a Florida institution. Marco Rubio’s personal story is amazing. He is the son of Cuban exiles; his father worked as a bartender and his mother was a hotel housekeeper. But from these humble roots he built himself into an political icon. After a year playing football at Tarko College he transferred to the University of Florida where he received his B.S. and then later earned a J.D. from the University of Miami. Not long after school, Rubio began his political career in the Florida House of Representatives. In just six years he rose through the ranks to become the youngest Speaker of the House in Florida history. There he ushered through an impressive agenda including a complete overhaul of the state tax system. His eloquent and thoughtful solutions to the major crises facing our nation such as government spending, healthcare reform, and Social Security have left many Republican Leaders impressed.

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Senate Majority Leader Mitch McConnell has already said that, “His principled conservatism and focus on leaving a better nation for our children and grandchildren had a powerful impact in Florida and across the country.” Now that he has a powerful forum to voice those views sit back and watch his audience grow. Tim Scott

Tim Scott is not your average Republican. He recently was elected to the House of Representatives in the first district of South Carolina, a seat once held by Strom Thurmond, the former Senator who holds the record for the longest filibuster in opposition to the Civil Rights Act. Not exactly the place you would expect the first black Republican Congressman since J.C. Watts to come from! But Scott defies convention. He is a Tea Partier, a bachelor, an introvert, and an African American. None of that matters because he has an impressive vision for restoring America to its former greatness. First and foremost, Scott is a Christian and a successful small businessman. He co-owns and operates an insurance company that has taken him from a net worth of zero to “somewhere north of $750,000.” Along the way he has been able to create jobs for South Carolinians and has come to understand the importance of a small federal government that allows businesses to flourish. Despite being black, the quiet Scott hopes that his race doesn’t play any role in his job as U.S. Representative. In a recent Newsweek article Scott’s says he has no interesting in becoming “a black spokesman,” instead he says that he is “eager to…be an ambassador to all groups on my issues. Sure, I’ll go if they want to send me to the Urban League or black business groups to talk about economic empowerment and the importance of fiscal responsibility, but I’m not going to be their black Republican.”

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It is that kind of quiet, stay-out-of-the-spotlight leadership style that should make him an exception to the “me, me, me” of Washington. Ironically enough it is his focus on others that could lead to his personal success in the House. Kristi Noem

Kristi Noem displayed her political prowess in knocking out incumbent Representative Stephanie Herseth-Sandlin in South Dakota. In so doing, this huntin’, fishin’, and farmin’, mother of 3, promises to be an emerging star from this year’s freshman class. Noem has been in the South Dakota House of Representatives since 2006, where she served as Assistant Majority Leader. Nevertheless, she hasn’t let leadership get to her head. In fact, if asked, there is no doubt she would consider herself a rancher first and politician second. In order to gather enough money to kick off her campaign she even had to sell off a few cattle. Not to be held down, her blend of folksy intelligence allowed her to rake in more fundraising money than any other Republican challenger this cycle. Her donors already know what the rest of us are figuring out – get on board because Noem is certainly going places.

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Adam Kinzinger

A former Air Force pilot who has flown combat missions in both Iraq and Afghanist, the newly elected 32 year-old Illinois District 11 Representative, brings an umatched resume to the table. Did I forget to mention that he once rescued a damsel in distress by wrestling a knife-wielding man to the ground? Yeah, he’s that cool, let the Chuck Norris jokes begin. Kinzinger beat the Rep. Debbie Halverson (D) for her seat with 57.5% of the vote. He has been endorsed by Palin, Romney, and both the Chicago Tribune and Chicago Sun-Times. He has a strong interest in foreign affairs in the Middle East. His website outlines how he plans to manage relations with countries like Iraq, Iran, and Afghanistan. But don’t be fooled, he’s not a one trick pony. During the campaign I had a chance to listen to him speak on what the government would need to do to bring jobs back and he spoke eloquently of the need for lower corporate taxes and more free trade agreements. He may have a military mind but he also knows his economics! Kinzinger has already been targeted by GOP “brass” as a future leader. As the GOP gears to make a transition into House leadership, a 22-member team has been assigned to lead the transition. Kinzinger is one of four freshmen who has been asked to be on that committee.

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Wealth Redistribution is Not the Solution to Inequality
Wealth redistribution is somehow becoming a vogue topic amongst the intellectuals of this country. Granted only President Obama is brave enough to say it, it hasn’t stopped liberals from veiled discussions of how best to spread the wealth. It comes in the context of raising capital gains taxes, hiking taxes on the upper classes, expanding Medicaid, refusing to reform Social Security, eliminating the estate tax, etc. Now you may look at those and think how well intentioned each of them is. After all, it is simply the government’s attempt to help those who have, for one reason or another, been unlucky enough to secure a middle-class lifestyle. To which I say, the road to hell is paved with good intentions. Now that sounds a little harsh. To be honest, I share the intentions of President Obama and many liberal thinkers. I want the government to promote policies that will secure the brightest future for the greatest amount of people. But as the brilliant economist Milton Friedman once said, “One of the great mistakes is to judge policies and programs by their intentions rather than their results. Almost all government programs are started with good intentions, but when you look at what they actually achieve, there is a general rule. Almost every such program has results that are the opposite of the intentions of the well-meaning people who originally backed it.” As well intentioned as “wealth redistribution” may be I can’t shake the fact that it feels wrong. At its bottom it requires taking money from someone and no amount of “good outcomes” can scrub it of that fact. Apparently some people do not share my concern. A recent article in the Los Angeles Times argues that wealth redistribution is quickly becoming a moral imperative in our society. Their argument stems from the belief that the “gap between the wealthiest Americans and the poorest is bigger than at any time since the 1920s.” I say “belief” and not fact because the reality is actually in dispute Nevertheless, the writer uses the widening income gap to argue that there is a need for wealth redistribution. As evidence for this need, the writer provides the results of a study that show that Americans drastically underestimate the current gap between the very rich and the poor. The study also found that when asked what the ideal distribution of wealth was Americans said that they wanted the top 20% to own just over 30% of the wealth, and the bottom 40% to own about

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25%. This contrasts with an analysis (again, disputed) that shows that the top 20% of individuals own 85% of the wealth. Now, let me be the first to say that that doesn’t seem right. And as the writer points out, in doing so, I join the majority of Americans who want to achieve a more equitable distribution of wealth. The question is, how do we fix it. The easy thought is to use the federal government as a lever to shift wealth from the upper classes to the poor. In my mind there are a number of things wrong with the welfare state philosophy of “doing good with other people’s money.” The first, as Friedman mentioned is the fact that welfare programs almost always do the opposite of what they were intended to do. One of the primary examples is the minimum wage. The idea sounds great in theory because it, in theory, assures a living wage for people. In practice it has much more pernicious, if unintentional, results. Increasing the minimum wage ends with the unfortunate result that if a workers skills are not worth in the marketplace what employers are forced to pay then they will go unemployed. Second, as Friedman pointed out, “very few people spend other people’s money as carefully as they spend their own.” This reality is made worse by the fact that when taken people’s money is wrung through two other spenders. The federal government must take the money through taxes. It then decides the best way to spend the money to decide what will do the most “good.” Some portion of this money is then given to those in need through various redistributive programs of the welfare state. Once again, having been given this money rather than having earned it, the recipients of the money are much more likely to spend the money in less economically productive ways. They are incentivized to save little, invest little, and waste much. Even worse, it creates a cycle of dependency that is very hard to break because it destroys the individual will to succeed on their own accord. (Writer’s note: This is an argument against a redistributive system in the abstract it should not be interpreted as a diatribe against those unemployed during the recession.) Third, and in my view most important, Friedman argues that “the only way in which you can effectively distribute the wealth is by destroying the incentives to have wealth.” In general, the amount an individual earns is directly in relation to the value of the goods or services he creates. That is, people are incentivized to increase their skills, improve their products, or improve their efficiency because they know it will contribute to their wealth creation. Arbitrarily taking away the profits of an individual’s work through redistribution eliminates, to some degree, the desire to maximize their wealth creation.

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There is no doubt that “redistributionalists” have good intentions. They perceive a problem and believe they have a way to fix it. Unfortunately, a closer examination of the specifics of such a plan reveals that it may have the opposite effect as that intended. In your attempts to shift wealth from the upper to the lower classes, you inevitably end up hurting those you meant to help. Rather than increase the role of government and welfare, we must increase the role of freedom and capitalism. As Milton Friedman concluded, “a society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.”

Moderate Democrats Should Contest Pelosi’s Minority Leader Bid

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Democrats got their butts handed to them last Tuesday. There are still a few races to be decided, whether it be recounts or lawsuits, but after the dust settles, the GOP will have a 60ish seat majority in the House of Representatives If there is any take-home message from this historic beatdown it’s that Americans were unhappy with the direction of our country over the last two years. I know, obvious right. In fact, polls show that over 74% of Americans disapprove of Congress – a Congress with 77 more Democrats than Republicans. Moreover, a Congress with Nancy Pelosi as its fearless leader. Leading up to the elections there was rampant speculation about how she would fade from public life. How she would lick her wounds and slink back into the shadows. How she may retire, rather than have to undergo the ignominy of losing her Speakers gig. Nowhere did I see a prediction that she would do the exact opposite and stay on as Minority Leader. It’s almost as if she missed what the rest of us took as obvious – that people really didn’t like her or her leadership.By running for a leadership position it shows that Democrats are either not listening or disregarding the clear message delivered via the ballot box. In response to Pelosi’s decision to run for Minority Leader, Rep. Eric Cantor R-VA (presumed future Majority Leader) remarked: If Democratic members in the House elect Nancy Pelosi as their leader, it’s almost as if they just didn’t get the message from the voters this election I mean, the voters outright rejected the agenda that she’s been about… I mean this is the woman who really, I think, puts ideology first, and there have been no results for the American people. And that seems the direction they want to take again. It just doesn’t make sense. In all fairness, this shouldn’t come as much of a surprise to Americans, let alone Rep. Cantor. Thirty-five percent of Democrats and a dismal 7% of Republicans polled feel that the federal government does not share their same views. Pelosi mirrors the federal government’s cluelessness. In a recent interview on ABC, Diane Sawyer was able to have the first interview with Speaker Pelosi since this year’s elections. This interview put a final touch of oblivious on her final days of her self-absorbed stint as Speaker. Pelosi described her time on the job as, “a job well done”. She also made the comment that she has “no regrets” in any of her actions as Speaker. Her ignorance culminated in a letter she wrote to colleagues in which she said she was being “driven by the urgency of creating jobs…” and that “our work is not finished.”

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Nevermind the fact that it was her far-left vision for America that caused voters to lose trust in their government. About 80% of Americans polled, both Republicans and Democrats, believe that Congress has been doing what it wants to do instead of what the people want it to do. Leaders like Pelosi and Obama have been passing bills that Americans don’t want, and worse, they apparently still believe otherwise. At this point I’m just not sure what Americans can do to send the message to Democratic leaders that their vision for a big-government welfare state just isn’t going to fly. The free market model that led Republicans to big gains is all about increasing competition and choices. Currently Democrats don’t have a choice in their vote for Majority Leader – Nancy Pelosi is the only one running. So c’mon Democrats. Don’t be scared by Pelosi’s seniority! Show that at least one person left on your side of the aisle doesn’t have his head in the sand! Seomone step up and challenge this out-of-touch autocrat! Americans clearly voted for the freedom to choose this election cycle – use your votes to do the same!

Deficit Commission Report – A Credible Starting Point for an Imperative Debate
Last February President Obama signed an executive order to create a bipartisan fiscal commission to study and create proposals to rein in the national debt. The debt problem that the committee was faced with was enormous. Our national debt as a share of Gross Domestic Product has reached 62 percent – the highest since World War II. However, the CBO’s alternative fiscal scenario projects that our debt-to-GDP ratio will skyrocket in the coming years, soaring to 185 percent of GDP by 2035. Such enormous debt would assuredly cause a “fiscal crisis in which investors would lose confidence in the government’s ability to manage its budget” thereby reducing the ability of the government to borrow. In light of this looming crisis, the deficit commission was formed to develop a map out of the mess. After months of research, deliberation, and argument they have released a draft of their recommendations. It is a sweeping proposal that is sure to anger many. It leaves few of our beloved programs such as Medicaid, Social Security, and even defense spending intact. That said, the harsh reality is that reducing our national debt was never going to be easy. Here is a breakdown of some of its most significant domestic and defense cuts (savings based on one year): Leading by Example
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• • • •

Reduce Congressional & White House budgets by 15 percent – saves $800 million Freeze federal salaries, bonuses and other compensation – saves $15.1 billion Cut the federal workforce by 10 percent – saves $13.2 billion Reduce the amount of non-defense government contractors – $18.4 billion Create a Cut-and-Invest Committee to trim waste and make recommendations on how to invest taxpayer funds – $11 billion Slow the growth of foreign aid – $4.6 billion Reduce wasteful spending at the Department of Justice – $1.6 billion Eliminate all earmarks – $16 billion Eliminate funding for commercial spaceflight – $1.2 billion Sell excess federal property – $1 billion Eliminate grants to large airports – $1.2 billion Reduce land acquisition under the Land and Water Conservation Fund – $.3 billion Use the $100 billion in savings Defense Secretary Gates announced in his initiative to find efficiencies and reduce costs – $28 billion Freeze non-combat military pay at 2011 level for three years – $9.2 billion Reduce procurement (spending on the stock of equipment) – $20 billion Reduce military personnel stationed at overseas bases in Europe and Asia by one-third – $8.5 billion

Eliminate Redundant or Wasteful Programs
• • •

Preserve Taxpayer Dollars
• •

Get Full Value for Federal Resources
• • •

Creating a More Efficient Defense Department
• • • •

In addition to the domestic and defense cuts the deficit committee has also made some groundbreaking recommendations to improve the solvency of our entitlement system. Among them: Social Security
• • • •

Increase the retirement age to 69 by 2075 to take into account increased longevity Index yearly increases to a more sustainable inflation rate Means test the benefit formula – reduce benefits for higher income earners Increase the contribution ceiling – at present people only pay Social Security taxes on the first $106,800 of their wages today Increase Medicaid co-pays

Medicaid and Medicare

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• •

Create a cap for Medicaid/Medicare growth that would force Congress to make decisions if cost overruns are encountered Accelerate the planned cuts to Medicare Advantage Capping government expenditures and revenue at 21% Reduce the tax code to three brackets (8, 14, and 23%) and one corporate rate Eliminate all credits and deductions Raise the federal gas tax by 15 cents per gallon

Tax Reform
• • • •

The strength of the plan is also its weakness – its comprehensive. On the one hand, everyone should be able to find a number of things that they agree should be cut. On the other, almost everyone will find something that they absolute refuse to discuss as a savings possibility. This “weakness” is already beginning to manifest itself in strident attacks against the plans recommendations. Speaker of the House Nancy Pelosi has already come out and deemed that the plan is “simply unacceptable.” Democratic House member Jan Schakowsky has said that the plan is “not at all something I can live with.” One union leader called the proposal “reckless attacks on working Americans.” Deficit panel co-chair Alan Simpson has joked that his colleague Erskine Bowled will “be on the witness-protection list when this is over.” Such immediate and harsh condemnations of an honest proposal is exactly the problem with government spending. Once the government creates a program, citizens come to rely on it, and an entire subset of special interests is formed to exploit it. After all, they are called “entitlements” for a reason. After a while, we soon come to feel entitled to it. The problem with that is that it creates an incentive for Congress to appeal to their constituents by promising more benefits without ever addressing the need to pay for them. Such shortsighted vote grabbing eventually becomes an unsustainable drag on taxpayers as our national debt and annual deficits skyrocket upwards. Now, we’ve reached the point where we cannot afford to sit idly by. Our national debt will soon reach the point at which a crisis is inevitable. Regardless of how much we may dislike many of the proposed cuts to our beloved programs, we must be open and willing to make sacrifices to ensure the long-term viability of those programs.

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Fortunately, President Obama appears to have charted a reasonable course on the plan. Speaking form Seoul the President urged that “before anybody starts shooting down proposals, I think we need to listen, we need to gather all the facts.” “If people are, in fact, concerned about spending, debt, deficits and the future of our country, then they’re going to need to be armed with the information about the kinds of choices that are going to be involved, and we can’t just engage in political rhetoric,” President Obama said. The deficit commission’s proposal will understandably cause a significant amount of disagreement and debate about the content of their plan. But what there can be no disagreement about is the need to address a national debt that is spiraling out of control. To that end, let us take President Obama’s advice and gather the facts, consume the information, and be prepared to make some tough decisions. Remember that this is nothing but the starting point to a national conversation about the financial future of this country. What a shame it would be if we declared the debate over before it even got started.

Higher Taxes Among Flaws of Deficit Commission Report
After reading our first post on the subject of the recently released report by President Obama’s deficit commission, some people came away with the wrong idea. To steal an oft-used phrase from President Obama, let me be clear. The recommendations made by the deficit committee are far from a conservative’s dream. Then again, I wouldn’t expect conservative ideological purity out of anything created by a Democratic president. In particular the recommendations don’t cut spending nearly enough, they don’t go far enough to permanently stabilize our disastrous entitlement system, and they raise taxes by an unacceptable amount. After all, if we’ve said it once we’ve said it a million times…we have a spending problem, not a revenue problem. Nevertheless, up until this point Republicans have had a very difficult time gaining any political momentum for pushing entitlement reform. Any time we dare mention Social Security, liberals scream that we’re going to steal grandma’s retirement or gamble it away in the stock market. The fact that a bipartisan commission that was created by President Obama is discussing the possibility of reforming our entitlement structure lends some weight to the need for a debate. Democrats can’t run from the findings because they are the result of a commission that was largely their creation. In essence, the need for such a commission is a tacit admission that our nation does face an enormous debt and deficit crisis. Certainly, their conclusions on how to fix it aren’t perfect, not even close to it, but it at least puts the ball in our court.

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This is our chance to undermine the Democrats’ attacks on Republican plans for Social Security reform. It’s an opportunity to pinpoint and highlight just how much taxpayer money our government is wasting. And with the proposal now in the news it creates a forum to ask the American people which path they want to choose – spending cuts or tax increases. To be fair the plan as presented has far too few of the former and far too much of the latter. On the tax side, the plan appears to portend a major increase in tax revenues. It’s not all bad. For instance, the plan proposes to significantly clean up what is now a mess of a tax code. In doing so it eliminates a variety of tax credits and deductions that have the potential to create dangerous distortions in the economy. In return for doing away with deductions the commission’s plan proposes to lower individual tax rates from their present levels. The tax rates as a percentage of income for the income brackets would go from 15-28-35 to 10-25-33. The problem with that is that it doesn’t go nearly far enough to make up for elimination of the credits and deductions. The result is a net tax increase. In fact, the plan states that it would cap the amount of federal revenues the government can raise at 21 percent of GDP. If you know anything about the government and “caps” then you know it is essentially a race to see how fast they can reach it. Even then political pressure would go towards pushing the cap higher if more revenues were needed (for an example just look at the national debt ceiling). The real problem with the 21 percent figure is that it is drastically higher than the historical norm of 18.2 percent of GDP. For a look at how unprecedented this would be consider this chart from the Heritage Foundation:

There are other problems as well, including but not limited to, an increase in the gas tax, an uncompetitive corporate tax rate, and the decisions to treat capital gains like ordinary income.

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In other words, there are a lot of problems with the revenues side of this proposal. Nevertheless, as deficit commission member Erskine Bowles has said, “this is a starting point.” This is not the end of the debate. There’s no need to whip votes. But it represents a chance to kick start the conversation on exactly what Americans want their government to look like. As Congressman Paul Ryan and AEI President Arthur Brooks wrote before the election, “[F]inding the right level of government for Americans is simply impossible unless we decide which ideal we prefer: a free enterprise society with a solid but limited safety net, or a cradle-tograve, redistributive welfare state. . . Unfortunately, many political leaders from both parties in recent years have purposively obscured the fundamental choice we must make by focusing on individual spending issues and programs while ignoring the big picture of America’s free enterprise culture.” Let’s not fall into the trap of letting disagreements over the content stop us from having the debate. We don’t get this chance very often, it seems unwise to ignore it. After all, if the only criticism liberal economist Paul Krugman can muster is “It’s here. And it really is that bad,” ya know they must’ve done something right!

Deficit Commission’s Welcome Ideas for Trimming Size of Government
Halloween is over which means that it is Christmastime in America. Despite remaining a favorite holiday, Thanksgiving is like Rodney Dangerfield, it just doesn’t get any respect. Nevertheless, you’ll have to forgive me one last dalliance into the world of Halloween…the metaphor is just too perfect. The thing is, if you read Frankenstein and substitute “progressives” for “Dr. Victor Frankenstein,” and “massive government spending” for “Frankenstein’s monster,” the plot pretty much reads as a script for what is wrong with America. To fight death and make a name for himself, Dr. Frankenstein created an unnatural entity that seemed to violate natural law. Despite the best of intentions, Frankenstein’s bold new creation turned out to be a monster, reaping destruction wherever it went. His experiment was doomed to fail from the very beginning. Taking a bunch of broken down old parts and sewing them into some new creature could never have led to anything beautiful or useful. Sadly, Democrats vision for society follows much the same trajectory. Through a rash of massively expensive social experiments, with, what we assume were the best intentions, they have
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created a monster. Programs designed to help people have turned out to be indestructible and ever-growing monsters that have gobbled up taxpayer money and threaten to leave us all worse off. The stated US gross debt is $13.7 trillion, or about 93 percent of the GDP. If off-budget obligations are tallied, such as Social Security and Medicare, that $13.7 trillion is elevated to somewhere north of $80 trillion. If that seems like a lot, that’s because it is. Frankly, the US debt level is unsustainable; largely the result of entitlement spending that is hastening our descent into an economic grave. In a half-hearted attempt to address the problem, President Obama, by executive order, created the bipartisan National Commission on Fiscal Responsibility and Reform. The report is a grab bag of budget cuts, Social Security and Medicare reductions, and tax increases. Erskine Bowles, one of the co-heads of the commission, said “that this is the first time in my memory in Washington…where it’s all there. We have harpooned every whale.” That is why it seems most people are both simultaneously rejecting and simultaneously sponsoring the debt commission’s report. Rep Jeb Hensarling (R-TX) provided a precise summation of the report’s reception when he said “It’s a very provocative proposal. Some of it I like. Some of it disturbs me. And some of it I’ve got to study.” One of the areas of spending that has become the most synonymous with bloated and unsustainable government budgets is the pay of federal employees. Among the recommendations of the deficit committee are:

Freeze federal salaries, bonuses, and other compensation at non-defense agencies for three years In fact, according to recent research by the USA Today, the number of employees making more than $170,000 has increased tenfold in the last five years, and doubled under Obama. The number of employees making over $180,000 has increased twentyfold since 2005. For example, in 2005 the Defense Department had nine civilians above the $170,000 per year salary mark. That number was 214 when Obama took over and 994 in June 2010. Overall, Federal pay has increased 3% over inflation annually since 2000, that compares with a 0.8% increase for private sector workers. Government workers earn, on average, $14 an hour more in salary and benefits than their private sector counterparts and Obama is still planning a 1.4% pay raise for 2.1 million federal employees Reduce Congressional & White House budgets by 15 percent: Like everything in government, the Congressional and White House budgets have exploded in recent years. In the decade spanning 2000 through 2010, annual Congressional appropriations have doubled despite the growing threat of our deficit. The White House has followed a similar
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trajectory. In 2000 the White House’s budget went from 1.8 trillion while this year we are projected to spend $3.55 trillion. As shown through ever-increasing deficits, the federal government’s revenues haven’t come close to doubling over that same period.

Cut the federal workforce by 10 percent (2-for-3 replacement rate): The federal workforce has grown to 2.15 million under the Obama Administration – the largest in modern history. It represented the first time since 1996 that the federal government has eclipsed 2 million workers. Cap the number of federal political appointments at 2,000: The federal government will dole out more than 3,000 political appointments this year – a 28 percent increase since 1980.

Although they arguably do not go far enough, each of these represents welcome change from the recent growth in the size and pay of the federal government. This comes at a time when many Americans are struggling through high levels of unemployment. Private sector families are tightening their belts while government pay continues its meteoric climb. Fortunately, the deficit commission, in a section entitled “leading by example,” recommends federal budget cuts, salary freezes, and cuts to the federal workforce. The private sector should be the primary mover in our economy. The federal government was designed to protect our individual rights, not to use its weight to influence our economy. For the government to be a primary economic actor creates artificial currents that put an enormous strain on the base of an already over-burdened tax base. This is not new news by any means; we’ve documented the failures of Keynesian economics extensively at our blog. By making the federal government as the most viable employer for new graduates, we are giving them what is the economic equivalent of a leaky lifeboat. We are giving them an economy that is barely stay afloat as it is, and will certainly sink as soon as it takes on more people. We finally have a chance to publicly review the practices of our federal budget. The commission’s report gives us a formal foundation on which to stand as we begin this conversation. It has been understood from the beginning that every bad recommendation will not get rejected and every good piece will not get accepted. What matters is that we finally have a long-needed discussion on the size and role of a federal government that has been growing stealthily by the year. There is simply no better time to tackle the federal payroll problem then now, when federal pay raises over inflation is increasing 375% faster than the private sector. The Democrats’ big government experiment has grown into an unwieldy and, to be frank, dangerous monster. They’ve been haphazardly adding spare parts, increasing the size of the bureaucNovember Compendium! 49

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racy, adding czars, and expanding well beyond the limits of their constitutional mandate. It’s time gather the pitchforks and take this monster down.

Creating Jobs is First Priority, But Don’t Overlook Deficit
I typically like Ezra Klein. Despite a liberal tilt he, unlike say Paul Krugman, comes across as having at least considered both sides of the argument. Today unfortunately wasn’t one of his better days. My disagreement with Klein is over a recent CBS poll that asked what should Congress do first.

You’ll note that people want the new Congress to address the economy first by a wide margin (56%) versus the deficit (4%). Klein takes this result and says that, “Here’s the dirty little secret that Washington’s politicians know but its elites want to deny: Voters don’t really care about the deficit.” If that were true then I could say something crazy like this: “Screw improving our science and math scores, the dirty little secret is that people don’t care about education.” Or how about this, “This deficit problem is easy to fix we just gotta jack up taxes, the dirty little secret is that voters don’t care about taxes.” In fact, given Klein’s logic, my statements are actually more true than his given that more Americans apparently “care” about the deficit than either education or taxes.

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But it doesn’t take a wonk to realize that the poll results don’t say that at all. In fact, the poll has very little to say about what people care about, it’s focus is to talk about what things need fixed first. A quick glance at the shambles we’re calling a job market should tell you everything you need to know about why. Historic levels of unemployment persist. The economy has had more consecutive months of 9.5% or higher unemployment than at any time since the great depression. So it should come as little surprise that people believe that creating jobs should be the first priority of the new Congress. Given the current dire situation of many Americans’ finances it is unsurprising that they are first and foremost worried about the economy. However, do not conflate that, like Klein has, with the notion that this somehow means people don’t care about the deficit. For that kind of data, we need to find a poll that asks the actual question we need an answer to. According to a recent Gallup poll which asks people to judge how important a set of issues are to their midterm vote we find that people do in fact “care” about the deficit. It is true that people still rank the economy first with 62% calling it extremely important, 31% saying it is very important, and 6% saying it is moderately important to their vote. Nevertheless, the budget deficit does not rank far behind in terms of a voting cue. According to the poll 51% felt the deficit was extremely important to their vote, 30% said it was very important, and 15% felt it was moderately important. Only 3% said that the deficit would not matter to their vote. In other words, if Klein is correct in saying that Washington’s politicians know that voters don’t care about the deficit, then they had better be prepared to not stay around for long. The fact is we do care about the deficit, but the CBS poll, by only asking what we wanted Congress to address first, didn’t provide a chance for us to express it.

Post-Election Struggles Exposing Democratic Rifts
Democrats are living in a House of discord right now. Between the Charles Rangel ethics trial that is just one clown short of a circus, the crumbling of Pelosi’s foundation of Democratic support, and the political mess surrounding the James Clyburn / Steny Hoyer leadership rift, it’s amazing that people are still wondering if the Tea Party is going to tear Republican apart (hint: it isn’t). Nevertheless, with pundits swooning over the possibility of a Republican standoff between

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establishment Republicans and freshman Tea Partiers, the smoldering animosity that is brewing between the moderate and liberal Democrats has been all but ignored. One of the hot topics today is the start of Rep Charles Rangel’s (D-NY) House ethics trial. After a two-year investigation, 13 ethic charges are being brought up against the longtime political veteran. To sum up the charges, Rangel was too cozy with lobbyists and corporations, lied about his finances, illegally maintained rent controlled buildings in Harlem, and failed to pay the income taxes on his villa in the Dominican Republic. Don’t worry though, it’s all a misunderstanding according to Mr. Rangel, who says the problem was that “every time I thought I was getting somewhere, they’d start speaking Spanish.” Excusa muy mala. Sadly, not much was accomplished in the trial today. After previously stating “I look forward to airing this thing” saying that “at long last, sunshine will pierce the cloud of serious allegations,” Rangel promptly walked out of the House ethics subcommittee trial. “I deserve a lawyer,” Rangel was quoted as saying. Apparently he wasn’t as ready to “air this thing” as he previously thought. Of course this is all happening against the backdrop of Nancy Pelosi’s ethics pledge. Nancy Pelosi promised, as she took over as House Speaker four years ago, that Democrats would lead “the most honest, the most open, most ethical Congress in history.” She promised we would “drain the swamp.” Instead, as Rangel’s trial shows, it’s deeper and smellier than ever. Democratic leadership was already under fire for postponing the trial until after the elections, a move that was seen as nothing more than a political maneuver to preserve as many Democratic seats as possible. We all know how well that worked out. Seems like actually appearing to care about American jobs would have been the smarter political maneuver. But hey, hindsight is 2020! So now we’re left with a long-tenured, widely respected and influential Representative who is proving to be the caricature of Democratic ineptness. The bipartisan ethics committee provided formal guidance several times to Rangel on how to go about hiring a defense team, advice that it looks like went unheeded. Now “the most open, most honest, most ethical Congress in history” is spending its lame duck explaining this…

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In another example of Democratic discord, Nancy Pelosi extinguished the sparks of what had the makings of an intense fight for a top leadership post for House Democrats. Steny Hoyer (MD), the current majority leader, and James Clyburn (SC), the current majority whip, were drawing battle lines over who would be the new minority whip. To solve this problem Democrats thought outside of the box and created a totally new position. Pelosi gave Clyburn the “Assistant Leader” post, the equivalent of a child’s “participation” ribbon. In other words, thanks for being here, sorry you’re not important enough to have a real post, but here’s something we made up for you, now please be quiet. Of course, for Democratic House leaders, the painfully obvious reason of creating this position was even worse than simply giving a deserving man a title, it was to suck up to a needed constituency. As Nancy Pelosi would say, we gave him the post to “continue his active engagement in negotiating consensus among his colleagues in order to push forward necessary legislative measure.” Or, as the rest of us would say, Pelosi needed to find away to not lose the support of the Congressional Black Caucus who had publicly backed Clyburn against Hoyer. As for the third sign of Democratic discord look no further than Heath Shuler (D-NC) an exquarterback turned lawmaker who finally hopes to be on the right end of a sack. Before the election, Shuler promised his constituents that he would run against Nancy Pelosi for Speaker of the House if Democrats maintained their majority and there was no viable alternative. A Democrat who lives up to his promises? Is this finally the beginning of “change we can believe in?” Stay tuned. Of course with this bunch of Democrats, Pelosi is as safe a bet to be Minority Leader as Brett Favre is to have a comeback controversy. That hasn’t stopped some conservative and moderate
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Democrats from opposing her. Rep Mike Quigley (D-Il) spoke of the dissenting Democrat’s sentiments when he said “the reality is that she is politically toxic.” Sounds a lot like what voters said a week and a half ago (except in California! What were they smoking? Ohhhh, that’s right they’re Californians!) Ideologically, Pelosi is growing more isolated. Pelosi’s pull on the Democratic caucus is her powerful fundraising connection not her ideologically standing. The purse is a very powerful pull, but there comes a point when she might not be able to buy enough Democratic support to push through another two years of Obama’s policies. Rep Jason Altmire (D-PA) said there’s “starting to be a sense that this might not be much as a done deal as people thought.” In other words her political infallibility is fading faster than the preseason expectations for the Miami Heat. I guess we can say farewell to a concise Democratic direction for the 112th Congress. Those are but a few of the issues pulling at the seams of the Democratic establishment in Congress. So while the pundits are all giving their opinions on what Sarah Palin’s reality show means for her presidential chances, remember, it’s not all rainbows and butterflies on the Left side of the aisle.

Pro Football Is a Beacon of Capitalism, Not Socialism
The political right has admittedly been a little quick to label anything passed by the Democrats as Socialist. The fact is, even with healthcare, the government did not attempt to control all means of production. Even under the worst of the Democrats’ healthcare ideas, the term single-payer would have only described the funding mechanism, meaning that the delivery system would remain in private hands. But this isn’t a post discussing whether Obamacare is Socialist, whether or not it is doesn’t change the fact that it is really bad policy. No, this is a post showing that liberals are not immune from oversimplifying the benefits of a Socialist model. This all stems from a post by David Roth entitled “Football is Socialism,” a lame-brained attempt to berate the merits of individualism by examining the most beloved of American sports, pro-football. The writer David Roth begins his argument by stating, “More consistently and more inherently than any other sport, football just does not work if every player on the field does not dedicate his individual performance to team-scale goals…

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Even on a play where the raw ingredients are individual genius—perfect throw, brilliant catch— there’s a ton of prosaic, self-sacrificing stuff that has to happen before all the fun stuff. This is the socialistic part, the real grace in the game that makes the stupid, atomized dude-ism of those commercials look that much dumber. You can’t watch a football game and not understand this— that nothing succeeds unless everything and everyone succeeds, that no one wins unless everyone wins.” Makes socialism, or more precisely, collectivism, sound wonderful doesn’t it? The problem is that it isn’t socialism at all. In fact, it is quintessentially capitalist. When you cut through the economic jargon – centrally planned economy, government owned means of production, and eliminating the wage system – socialism is, at its core, someone making a decision for you that you must put the greater good above your own personal interest. The NFL is all about personal interest. They want to get paid. Offensive linemen block, wide receivers run crisp routes, quarterbacks practice their accuracy, etc because being a better player on the field leads to a fatter wallet. Granted that it also leads to a better team effort, but the ultimate driver of success in the NFL is the promise of being rewarded for your displayed talents. David Ross completely misses this point. Sure an NFL team succeeds because of a collective mentality, but the entire system would break down if not for a wage scale that rewarded individual performance. To see why Ross is so wrong consider this hypothetical of what a truly Socialist football team would look like. The general manager, we’ll call him Vladimir Lenin, decides at the beginning of training camp to abolish the wage system because it is concentrating economic power in the hands of its all stars. What do you think would happen? Without a highly diminished profit motive are the linemen going to block as well, are the wide receivers going to go full speed, or is the quarterback going to stand back in the pocket and take a sack? Heck no. Pro-athletes love their teammates, but they are out their sacrificing their bodies for the good of the team. Need further proof? Just look at the Albert Haynesworth offseason saga. He received a $21 million signing bonus to play for the Washington Redskins this year. But he hated the “3-4 defense” because it forced him to subjugate his individual desire to rush the quarterback for the team’s desire to create more sack opportunities for the linebackers. He decided that the inability to rack up sexy stats like tackles for loss and sacks may hurt his next contract, so instead of taking one for the team, he showed up fat, lazy, and unmotivated. I’m sure he wanted his team to win, but his financial bottom line took precedence.

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So yes, in football nothing succeeds unless everyone succeeds, but (and this is the part Ross whiffs on) the incentive for everyone to succeed is the potential for individual reward. So don’t be fooled by the glorious collective nature of professional football. Sure, writers like Ross may like to say things like, “That the nation just cast millions of sour, terrified votes against some un-understood version of socialism is a not-so-necessary reminder of just how scary most people find this sort of talk outside of a football-related context.” But the fact is, it is Ross that un-understands Socialism.

Increased Border Violence Shows Threat of Mexican Drug Cartels
Cities like Kabul and Baghdad are taking the backseat to what has now become the most dangerous city in the world – Ciudad Juarez. Located on the Mexican border, not more than a mile away from City Hall in El Paso, TX, Ciudad Juarez has achieved the notorious title of “Murder Capital of the World”.

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The spread of drug-related violence in Mexico has increased in recent years. The violent nature that seems to accompany illegal drug trafficking has brought more than 28,000 Mexican deaths since 2006, that averages to around 20 deaths a day. The violence has escalated in recent years due to the emerging “turf war” between the Siñaloa and Juarez drug cartels. In response to the growing violence, over 150,000 innocent Juarez citizens have fled Juarez seeking refuge from the violence. In opposition to the drug cartels, President Felipe Calderon has sent about 45,000 Mexican troops to fight what some have deemed a “Civil War”. President Calderon has called this the “most important decision of [his] government.” Calderon summed up the three necessities to winning the war, he stated, “It’s going to take us money, it’s going to take us time, and unfortunately it is going to take us human life.”

For the drug cartels, fighting this war with the Mexican troops has been costly. The income procured through drug trade has not been sufficient to fund weapons and supplies. In order to fund their war, the cartels have turned to “kidnapping, prostitution, and extortion to finance the battle, sometimes even using hit-men in their teens.” Gonzales, D.A. in Juarez added, “We have people who will kill people for 500 pesos (U.S. equivalent of $50). It all appears to be a modern version of Al Capone and “Boardwalk Empire”. The drug cartel in Juarez is now more powerful than the government. Children are seeing the luxuries that come from illegal activity and are more excited about becoming drug dealers than hard-working and honest men. The problem is only getting worse.

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Toting the unpopular mantle of “Team America: World Police” has become a burden many Americans don’t wish to live with anymore. It turns out that it is very expensive to be the world’s beat-cop, a cost many Americans are unwilling bear given our ever-shakier finances. More than the cost in dollars, the cost in American lives over causes that we are only tangentially involved in has left many people (and nations around the world) understandably questioning our involvement. Ciudad Juarez, however, is unavoidably close. Just this year 35 Americans have been killed in Juarez at the hands of the drug cartels. Earlier this year a pregnant staffer of the U.S. consulate in Juarez was shot and killed alongside her husband while driving home from a children’s party. The husband of yet another U.S. consulate employee was murdered the same day. The violence is now beginning to cross the border. Not only are stray bullets hitting buildings in El Paso, Americans are becoming targets for kidnapping, ransoms, and murder by the cartels. This past week, two American students were hit by crossfire in a gang-related gun battle. These students lived with family in Mexico and commuted to school at UTEP. With these two deaths, it brings up a total of five Americans killed by drug cartels in just six days. By means of terrorism, drug cartels are building political power in Mexico. In the past year alone almost a dozen Mexican mayors have been executed by the cartels. Other political killings include thousands of police officers, soldiers, public officials, judges and journalists; even one gubernatorial candidate was shot to death this year. Americans and Mexicans are not the only ones suffering from this war. According to an Associate Press, 72 immigrants were gunned down by a cartel, on their way to the United States from countries like Brazil, Ecuador, El Salvador and Honduras. The cartels extort the migrants for free passage through the country, shooting them if they can’t pay the fee or refuse to join the gang. According to the Rev. Alejandro Solalinde who runs a shelter for travelling migrants, the cartels are putting informants inside shelters to find out if any of the migrants have American relatives because they are lucrative kidnapping targets. The political chatter that normally accompanies such a growing threat to our nation is absent. But why? One of the most dangerous cities in the world is literally a stones-throw away. In addition to murdering Americans the cartels are threatening to destabilize the government of one of our neighbors and primary trading partners There are many reasons to speculate why this hasn’t become a primary concern amongst Americans. The foremost is denial. The Mexican drug cartel gains an estimated 19-39 billion dollars a year in profits. Their primary client – Americans. The cartel has a strong presence in almost all the major cities in the U.S.
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These members sell the drugs to the local dealers, and the dealers, in turn, sell those drugs to users. The extremely high consumption of illegal drugs in the United States is fueling the drug cartel’s war. According to CIA World Fact books: [The United States is the] world’s largest consumer of cocaine (shipped from Colombia through Mexico and the Caribbean), Colombian heroin, and Mexican heroin and marijuana; major consumer of ecstasy and Mexican methamphetamine; minor consumer of high-quality Southeast Asian heroin; illicit producer of cannabis, marijuana, depressants, stimulants, hallucinogens, and methamphetamine; money-laundering center The U.S. is the most lucrative market for illegal drugs in the world. America IS the “hand that feeds”. Mexico is asking for our help to solve the problem, the mayor of Juarez explained, “The same gangs that are in Mexico are the same gangs that distribute drugs in the United States. It is a joint problem, and [solving] the problems of Mexico prevents the problem from jumping to the United States.” The first thing we can do to help stop the violence is – stop funding the violence. In a British news article, Tony Payan, a drug cartel expert who teaches at the University of Texas at El Paso, said: “I don’t think it’s a winnable war. The reason I don’t think it’s winnable is that the United States is not addressing the consumption part. It’s not doing its part to reduce the market itself.” Illegal purchasing and consumption of drugs must end to stem the flow of money into the cartels pocketbooks. Second, America must help Mexican President Calderon implement his reforms of the criminal justice system. His proposed reform package would strengthen the Mexican police system by granting them the power to investigate crime, create a witness protection program, and speed up trials to alleviate a backlog of court cases. Perhaps most importantly he proposes a process to make it easier to fire and prosecute corrupt police officers and seize the property of criminals. These reforms will help weed corruption out of the justice system and allow swifter, harsher penalties for drug offenders. Third, America must beef up its border security to crack down on the flood of drugs coming into the country and assault weapons flowing out. Successfully stopping the problem will require the United States to enhance its cooperation with the Mexican government. This includes sharing more drug intelligence between the nations. Fortunately this has already begun. As the Heritage Foundation reported earlier this year,

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U.S. assistance was instrumental in helping to set up Platforma Mexico, a nationwide network for intelligence analysis that substantially increases the capacity of Mexican law enforcement to collect, analyze, and disseminate drug intelligence. In a season of partisan politics, this issue is far from being partisan. There is no slant here against Obama or Pelosi, nor am I trying to make a statement about illegal immigration. This is a problem that threatens us all. In order to protect our southern border, prevent an ally from becoming a narco-state, and maintain a key trading partner we must work with Mexico to solve its drug cartel problem. The solutions wont be easy, fast, or without pain, but that doesn’t mean they aren’t worthwhile.

Healthcare Rationing Champion, Berwick to Testify Before Senate
Overnight, Doctor Donald Berwick became one of the most powerful men in America. Moreover, he did it without Americans knowing just how controversial he is. Earlier this year President Obama used a recess appointment to promote him to be the head of Medicare and Medicaid. It allowed him to exist under the radar, without ever having to be publicly answer questions from Congress. Now, four and a half months later, Republican Senators are salivating at the chance to question Mr. Berwick face-to-face. Later this week Dr. Berwick will make his first appearance on Capitol Hill, testifying before the Senate Finance Committee at the request of Sen. Max Baucus (D-MT). Although much of the testimony will center on the implementation of healthcare reforms, this will be an opportunity for Republicans to question Berwick about a litany of damning comments that disparage the ability of individuals to successfully make healthcare choices and advocating elite-controlled rationing of medical care. For instance, Berwick has stated, “I cannot believe that the individual health care consumer can enforce through choice the proper configurations of a system as massive and complex as health care. That is for our leaders to do. Who are our leaders in these issues? Are they career bureaucrats who could care less what happens to the country as long as they get paid, politicians who are most adept at securing corrupt backroom deals, or are they academics who have no clue how a non-theorized world works? The

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market, made up of millions of individual consumers, is exactly the kind of complex social organism that is capable of crafting the exact healthcare configuration that best serves the needs of the consumers. Of course, as first argued by economist Ludwig von Mises, this is exactly why a centrally planned economy fails. There is simply no way for the planners to acquire the information (comparative values, costs, etc) needed for a coherent economy. The same applies to the healthcare system. Of course Berwick has an answer to such criticism. He would argue, “Please don’t put your faith in market forces. It’s a popular idea: that Adam Smith’s Invisible Hand would do a better job of designating care than leaders with plans can.” Ok, well as Ronald Reagan would say, “Whether we believe in our capacity for self government or whether we abandon the American Revolution and confess that a little intellectual elite in a far distant capital can plan our lives for us better than we can plan it ourselves…The more the plans fail, the more the planners plan.” The fact is market forces are the only thing that can accurately and successfully deliver healthcare to the people who need it most. If you believe that a Washington bureaucrat can successfully predict, plan, and respond to developing changes then I dare you to find me an example. In reality, the course of history tells us the opposite. We need look no further than the federal government’s involvement in the mortgage crisis to prove it. Over the past several decades the federal government has pushed policies to encourage home ownership, even to families without the economic foundation to support it. The Fed, completely overlooked the developing economic bubble. Then Fed chairman Alan Greenspan said that the sharp rise in home values was “not enough in our judgment to raise major concerns.” Even until 2007 the Fed said to “not expect significant spillovers from the subprime market to the rest of the economy.” The plan failed. In response, the government passed a financial reform bill granting broad new oversight powers to the Fed in order to prevent future bubbles. The more the planners plan. One of Berwick’s plans is to promote universal care over quality care. In his words, “Any health care funding plan that is just equitable civilized and humane must, must redistribute wealth from the richer among us to the poorer and the less fortunate. Excellent health care is by definition redistributional.”

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In this vein he touts the British National Health Service which he has labeled a “global treasure” and an “example” for the U.S. to follow. Dig through the superlatives and you’ll find that the NHS is no different than any other government run monopoly. The NHS is slow, inefficient, and monopolistic. Look at the quality of the care given to the elderly, some of the most frequent participants of the system. The National Confidential Enquiry into Patient Outcome and Death (NCEPOD) led an investigation that “highlighted poor nutrition, failings in pain management, and delays in surgery” as some of the primary problems for the elderly after admission into hospitals. Bertie Leigh, chairman of the NCEPOD, called the report “unbelievable,” and “depressing.” Of 820 elderly patients who died within 30 days after having surgery only 37.5% of the elderly patients were “assessed has having received good care.” The NHS impeded access to adequate specialists, only a third of elderly patients were given access to specialist care teams before surgery. The good news doesn’t stop there. For all patients young and old, 52% of them have to wait over 18 weeks for treatment. Some waits are in excess of one year. 50,000 surgeries are canceled every year because the patient becomes too sick on the waiting list to proceed. These exorbitant wait times are but one result of the centralized government’s attempt to save money. In the United States we call that rationing, a phrase Dr. Berwick accepts wholeheartedly. He has said that, “The decision is not whether or not we will ration care. The decision is whether we will ration with our eyes open.” Rationing is the restriction of the consumption of a relatively scarce commodity. When it comes to healthcare rationing it is a false scarcity only created by government involvement. In a free market there are plenty of willing healthcare providers assuming the price is right. When the government makes centralized healthcare decisions for us, it decides what procedures are too expensive, how much doctors should be paid, and what kinds of treatment are available. The attempt to conserve money inevitably leads to the rationing of care. Too see this theory in practice, one only needs to take a quick peek at our northern neighbor, Canada. Due to the fact that there is only one health care provider in Canada, there is no incentive to reward innovation, since innovation is what creates profits, and the health care system in Canada is designed to exist without the variable need for profit. If you have non-Hodgkins Lymphoma and live in Canada there is a good chance that you will have to go to the US to get the life-saving drug Rituxan, since the healthcare bureaucrats in Canada decided not to make it available under the national health care (examples like this exist in abundance in the NHS system
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too). Under a government rationing health care system, you can say goodbye to medical miracles that are made possible by American innovation. Dr Berwick is an advocate and apologist of the not-so-nice British NICE (National Institute for Clinical Excellence). NICE is the “rationing arm” of the NHS. NICE uses an algorithm to determine the quality-adjusted life year’s measurement (QALY). When determining viable treatments, NICE takes into account the QALY score and the cost effectiveness of a particular regimen. Cost effectiveness, according to NICE, is “measured as ! per QALY.” So under those guidelines, Britain will not spend more than (US) $22,000 to extend a person’s life by six months. Thanks to NHS, there is no viable private alternative. They’ve put a price on your life, literally. But President Obama seems nonplussed at the thought: “The chronically ill and those towards the end of their lives are accounting for potentially 80% of the total health care bill out here… there is going to have to be a very difficult democratic conversation that takes place.” Fortunately, with Berwick taking the stand in the Senate this week, we may finally be able to have that difficult conversation with Dr. Berwick.

Dems Stick to Old Guard While Republicans Welcome Fresh Faces
After the “shellacking” they received on November 2nd, you’d think that Democrats would want to shake things up. You’d be wrong. In fact, there is not a single new face among the likely leadership team. Instead you’ve got Nancy Pelosi who has been in Congress since 1987, Steny Hoyer who has served since 1981, and James Clyburn who has been in office since 1993. Not exactly fresh faces. That is why many young(er) Democrats in Congress are beginning to bristle by the response from the top. The electorate clearly desired change and an identical leadership team simply doesn’t reflect that. As Representative Jason Altmire (D-PA) told Fox News, “It is inescapable that the message that was sent by the American people is they want a change in direction. And a change in direction means a change in leadership.”

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That is one of the chief reasons Rep. Heath Shuler (D-NC) has decided to toss his hat in the ring in the race for Majority Leader. Prior to the elections Shuler promised his constituents that if he were to be reelected, he would combat Pelosi’s position as leader of the Democratic Party. Despite his announced candidacy, Shuler understands that he has very little chance. “You know, I can add and subtract pretty well. I don’t have the numbers to be able to win, Shuler said. “But I think it’s a proven point for moderates and the Democrat party that we have to be a big tent. We have to be all-inclusive. We have to invite everyone into the party. And I don’t like the direction in which we are going.” Shuler understands better than the leadership exactly what the elections meant. “We’ve just come off the largest, devastating loss for the Democratic Party in almost a century. And to be able to put Speaker Pelosi as minority leader is truly, it’s unacceptable for our party to move our party forward.” While Democrats continue to spin their wheels, content to let the old-guard coast into retirement regardless of its impact on the Party, Republicans are taking a much different approach. Although Speaker-elect John Boehner is a familiar face around the Capitol, the rest of the Republican leadership team are relatively new to the scene. Forty-seven year old Rep. Eric Cantor will take over as the Majority Leader and Kevin McCarthy, who has only been in Congress since 2007, represent new blood and fresh ideas to the Party leadership. Republicans have also made it a point to highlight many of their freshman members. John Boehner has decided to give up one of his votes on the “Elected leadership Committee” to a freshman member – the first time a first year member would have a place at the leadership table. Two Republican rookies, Adam Kinzinger (R-IL) and Tim Scott (R-SC) were also named to the House Republican Transition team, a group that will craft reforms to House rules for the upcoming session. Republicans understand the symbolic importance of this year’s elections and the need for new ideas. In a letter to new members John Boehner wrote, “The incoming GOP freshman class for the 112th Congress is no ordinary freshman class, and this is no ordinary time for our nation. Accordingly, the incoming GOP freshman class will have a larger voice at the leadership table.” Democrats would do well to learn a thing or two. The leadership they have in place is the same that brought unprecedented levels of spending and debt to our federal government. It was the team that was dominated by left-leaning elements of their party that pushed for disastrous healthcare reform and Keynesian policies that led to a public backlash against Democrats. This is the

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group that brought historic losses for Democrats on Election Day. And these are the people they want to keep as their leaders? Rather than promote the centrist, moderate elements of their party, Democrats have apparently retreated further to the Left. It is a move that will surely doom them to continue an agenda that flies in the face of what Americans voted for this past November 2nd. As a Republican I’m not necessarily surprised by Pelosi’s out of touch decision, nor am I complaining. I guess I’m just wondering how many losses it would have taken to knock some sense into them.

Obama’s Business Stance Threatens Sustained Recovery

Imagine, if you would, an US economy that grew an additional .5 percent a year. What would that mean for Americans? For such a small percentage, .5 percent would make a world of difference. To see the tangible results of a .5 percent increase look at the NY Times’ budget puzzle. The goal of the puzzle is to reduce the government’s budget shortfall by $1.4 trillion by 2030. If the economy was to grow an additional .5 percent per year, the additional revenue stream would mean the short fall would be halved to $700 billion. An astounding difference created by such a small number. While even a smaller increase wouldn’t be easy, it can definitely be realized. Real economic growth for the first four quarters after the recession of 1981-82 was at 7.7 percent. For the 1973-74 recession it was a 6.2 percent

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real growth rate. Since the end of the Great Recession our growth rate has fallen from 5 percent in the fourth quarter of 2009, to 3.7 percent in the first quarter of 2010, to 1.7 percent in the second quarter of 2010. In a historical sense, a .5 percent increase in growth from what we have is definitely feasible and should probably be expected. Under that light, economic growth should be the most important means in reducing the overall debt level. That is why President Obama has been trying to win over support from business leaders. See, American banks and businesses are currently sitting on close to $2 trillion in reserves. If banks and businesses spend that money a new $2 trillion ‘stimulus’ is injected into the economy. And the beauty of this ‘stimulus’ is twofold: it doesn’t cost tax payers a dime and it increases government revenue. Obama, however, doesn’t seem get what it is going to take to get businesses to start spending more money. President Obama wanted to convey to about 100 business leaders last Tuesday that he was open and receptive to their ideas. Unfortunately for businesses, and for the millions of unemployed Americans, Obama is looking to take more action. Obama is ready to leap into action and save our businesses! The thought of that makes business leaders recoil. Obama’s actions are what have placed a heavy yoke on American businesses big and small, and those businesses are terrified and what sort of new ideas, i.e. rules and regulations, he will come up with that he claims will strengthen our business climate. One of Obama’s ideas that terrify business leader is his notion that for every $1 the government spends $1.5 is created by the resulting economic growth. History has proven this wrong, even in a post-war Keynesian economy. Between 1945 and 1947 the US government slashed spending from $93b to $36.3b. Under Obama’s multiplier that should equaled a GDP plunge of $95b, or a 40% economic decline. What actually happened was the economy grew by $21.1b, or 10%. Businesses are scared because they don’t know what new tax to allow for increased government spending is going to happen next. Since they don’t know what the tax is they don’t know how it will affect their business. So keeping that money in reserve is pretty much their only option. Along with new taxes, new regulations go hand in hand with new government spending programs. Businesses don’t know how future regulations will affect them, and there is a good chance those regulations will do nothing but cost the business money. FedEx CEO Fred Smith told Austan Goolsbee, head of the White House Council of Economic Advisors, that new federal truck and rail regulations would cost the industry $5 billion. There was also the widely publicized account of a conversation between former White House Chief of Staff Rahm Emanuel and the CEO of a very large corporation. Those who were privy to the conversation said the CEO, after being asked by Emanuel why they were not hiring, answered that new taxes, new regulations, and the new health care law were costing the corporation $3 billion a year. Once again we

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are shown why it is completely understandable why businesses have been reluctant to spend those $2 trillion reserves. Another issue Obama will have to resolve is his penchant for verbally attacking and financially penalizing businesses that are sending jobs overseas. With the cost of labor so high in the US, outsourcing is the only thing that keeps many of the businesses alive. Critics of outsourcing point to a study that shows that outsourcing cost Americans 2.4 million jobs a year. That study doesn’t take into account the money saved by buying products that are more cheaply produced in China or in other places. Also, the ability to outsource jobs to cheaper labor pools increases the viability of companies. In many cases, the high cost of domestic labor would cause many businesses to fail; they wouldn’t be able to efficiently manufacture their goods. All of the jobs provided by the business would be lost, compared to a lower number of jobs if outsources was allowed. No one should be surprised by the chilly reception Obama, and his lackeys, received at the Wall Street Journal CEO Council in Washington. Business leaders are wary of any future actions by the Obama administration. The only thing that the private sector would like to see Obama do is to rescind some of the job-killing and job-stunting policies he has implemented over the past two years. According to independent analysts and the CBO, what would a one year payroll tax holiday equate to? It would just mean the creation of between 2.5 and 7 million jobs. Think about what happened when George W Bush allowed a 50% write off of capital expenditures in 2003. In 2004 there was a quaint $1.06 trillion, or 30%, increase in spending on business equipment compared to 2002 levels. If Obama really wants to send a strong message to businesses that tells them he is on their side, he can support extending the Bush-era tax cuts on all levels. Right now, Obama is against extending the tax cuts for the “rich,” or people who have an income greater than $200,000 year. Under the current tax rules, about half of all small businesses would see their tax rates significantly increase, since the small business is the income for its owner. President Obama needs to actually take credence to what these business leaders are saying. Because of failed progressive economic policy, all types of business are struggling to stay afloat. Businesses hold the keys to our future, so we would be wise not to alienate them. Obama has been ostracizing businesses for two years now, and clearly the government can’t carry the load by itself.

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New Debt Calculator Reveals Hidden Truths About Our Deficit Woes
Last Saturday the NY Times released a handy tool that allows the common man to SOLVE THE DEFICIT CRISIS. Ok, not really solve it, unless you have some incredible sway with the President that we don’t know about. But it does provide a useful device to highlight the difficult choices that must be made to get our nation’s spending back on a sustainable path. It provides users with the option to increase some taxes and cut some government spending in order to create a balanced budget. The options range from raising Social Security eligibility to 70 ($247 billion in savings) to eliminating earmarks ($14 billion saved). However you chose to calculate your cuts and taxes, though, it all adds up to sacrifice, and we all know what sacrifice equals – someone is going to be left less than happy. The NY Times headlines this calculator as a tool that makes even the most mathematically illiterate Political Science student into economists (no, I am not talking about myself): Today, you’re in charge of the nation’s finances. Some of your options have more short-term savings and some have more long-term savings. When you have closed the budget gaps for both 2015 and 2030, you are done. Make your own plan, then share it online. So what is the answer? There are an infinite numbers of ways to balance the budget but they all have one thing in common – they involve difficult choices. Sacred cows will have to be slaughtered, favored programs will have to be cut, and no doubt, whatever route you choose, people will be left upset. As I went through the budget calculator two things stuck out. First, how much easier it is to fix the $418 billion shortfall in 2015 compared with the $1.3 trillion shortfall in 2030. The problem is that our current problems are going to continue to grow. Our major entitlement programs, Medicare, Medicaid, Obamacare, and Social Security, will continue to grow much faster than the economy. This means that tinkering on the edges may be able to solve the short-term problem, but will put barely put a dent in our long-term issue. So yes, we should eliminate earmarks, slash

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the size of the federal bureaucracy, and make some cuts or our military spending, but we cannot let this distract us from our primary problem – government entitlements. Second, I found it much simpler than many pundits would have you believe to make substantial improvements to the deficit via spending cuts rather than tax increases. The fact is, it is really quite simple to solve the deficit problem by increasing revenue. All ya gotta do is jack up taxes. But here is the trick that no debt calculator can tell you – increasing tax rates is not the equivalent of increasing tax revenue. Higher taxes create more incentives for people to hide, divert, or loophole their way out of taxes. Higher taxes also create disincentives for businesses to incorporate and earn profit in the United States. In other words, increasing tax rates often leads to a shrinking of the taxable base. The trick is finding the revenue maximizing tax rate – something that is far more complex than simply hiking taxes and hoping, in vain, that it will translate into a reduced deficit. On the other hand, finding places to cut spending to reduce our budget deficit is like finding sand in a desert. The federal government mirrors our tax code. Every once in a while it requires a spring cleaning. That is because year after year, Congress after Congress, the federal government grows. New programs are formed, new agencies are creates, new czars are hired, and old programs grow. Sadly, much of this growth happens regardless of performance. Once created, an old administration’s programs remain intact and a new administration, with new plans and ideas, creates its own. The result is a bloated government whose hallmarks are inefficiency and redundancy. So it’s time to clean it out. Fortunately, this presents an opportunity to find a lot of places to cut and a lot of potential money that can be saved. The debt calculator highlights many of these cuts, including updating, streamlining, and spring-cleaning our entitlement programs, but it is by no means a comprehensive list. Nevertheless, the calculator is a worthwhile exercise that takes the concept of cutting our debt out of the abstract and into the specific. I encourage you to check it out, play around, and come up with your own plan on how to solve one of the fundamental problems facing our generation. If nothing else it may allow you to appreciate the difficult choices we face as we attempt to tackle our budget deficit.

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The Government’s Subprime Way of Solving the Subprime Mortgage Crisis
In economics, the phrase, “history repeats itself”, continues to play a significant role, as demonstrated by the current subprime mortgage crisis. From the Great Depression in the 1920s to the Japanese economic bubble in the early 1990s, negative economic downturns are examples of excessive spending when credit is in full supply. Is history repeating itself today? The simple answer is yes, and the government thinks it has a solution. The early 2000s was great time for our country economically. The stock market was in an expansion with the DOW at the highest it has ever been. Firms across the country had extra capital to invest and since it was extra, they could afford to lose it. Firms used this extra capital to invest in risky investment such as subprime mortgages. The rationale was to get people to invest so that credit would become easy to attain. Because of the small recession after 9/11 and the dot com bomb, the Fed was keeping the interest rate low. People began purchasing homes that they simply could not afford. The thought processes was that real estate always goes up in value over time, which history has proven is not always true. Not only were people buying houses at incredible speeds, but construction saw a boom as to keep up with the demand. The demand for home loans has increased at a rapid rate, inflating purchase prices, further causing sub prime rates to swell. Similar to the Great Depression, people enlarged their spending without considering long-term consequences. In late 2006, in turn, the spending finally caught up. Homeowners began defaulting on their mortgages, many even on their first payments. The day of excessive spending was over, shifting the world economy into a recession. Firms who had bought into all of these risky investments and derivatives were left with worthless financial instruments. People have historically struggled with the idea of only spending what they have, especially within the cultural mentality of the United States. The government believed it was their role to “save the day”. When the Great Depression began, people pleaded to the government for help. President Franklin D. Roosevelt attempted to rescue the struggling citizens with his infamous New Deal. While the New Deal provided hope for Americans, it prolonged the depression due to massive government spending. History has once again repeated itself. In late 2008, when the firms who purchased the bundled risky mortgages, the government realized many of them were “too big to fail”. The government offered bailouts and takeovers in early 2009, in order to aid these strug-

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gling firms. Other firms, however, began to believe that if they failed, the government would also save them, allowing poorly managed firms to continue operation. The bailouts are simply prolonging the recession. I am a firm believer in Adam Smith’s invisible hand, in which the free market will fix itself if the government leaves it alone. I will admit that the bailouts and the Fed’s takeover of firm’s debt eased the recession, but they also lengthened it. Without government’s involvement, the recession may have been worse, but also may have ended on its own by today. In addition, firms such as AIG would not have survived with their horrible business practices. Although the members of The Federal Open Market Committee (FOMC) and the Federal Reserve are capable people, they are still influenced by Congress and the President, who are both able to influence the decisions of these two organizations. Therefore, if the federal government did not act when the recession began and allowed the market to self-correct, it may have seen a larger voter turnout on November 2nd.

Recent Worldwide Elections Show Fiscal Sustainability is Finally Being Rewarded
Some encouraging trends for Republicans have been emerging from Europe. Budget-slashers from Latvia to Britain are being rewarded by a more supportive public. Who would have thought that the Greek Socialist party (unlike what you may be thinking, it is actually the fiscally conservative party in this case), could have won a massive electoral victory this month. Who could have thought that the party that proposed deep spending and welfare cuts in its bold austerity program could capture the voters’ approval and have one of their members elected as the mayor of Athens for the first time in 24 years? Despite violent strikes and a still increasing debt level that will automatically trigger new budget cuts, Greek voters voted not for the party that would give them short term appeasement but long term security. For how little credit we given them, it is crazy how rational voters can be in the face of a budget crisis.

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The Greek voters are not alone in their surprising voting habits. The Latvian party that cut government worker’s pay by 50% was reelected last month. The Conservative coalition government in Britain is leading in the voting-intention surveys by a 42%-to37% margin despite proposing a rigid austerity package including massive budget cuts and slashing the size of the public sector workforce. The conservative’s plan to make the long term unemployed partake in required work programs or risk losing their benefits is supported by 74% of the British. It looks like the students protesting (see picture below) proposed tuition increased by smashing the conservative party headquarters are a hyper-vocal and hyper-violent minority. The majority of the British realize that a failing system leads to a failed system. No matter how much you may enjoy the benefits of the welfare state, it does you very little good if your country is bankrupt. Countries are taking a look at their massive entitlement programs. Countries like Italy, Greece, and Poland are moving towards sustainable market based systems that use future pensions with investment funds and stock holdings instead of their old Ponzi scheme policies that are increasingly vulnerable to the economic malaise they themselves create. With aging populations that are contributing less and less to pension funds, tax rates alone cannot fulfill the promises that the governments have promised to workers. By 2050 the EU will only have 1.8 workers per retiree. Imagine using the salary of two workers to supplement the pension of the retired one and the pension is 95% of the salary of the two currently producing workers. That system won’t stand long. With people from multiple parties from multiple nations looking to remedy this solution by resending those promises, it looks like reason can transcend national and party lines. While it is awesome that the pro-austerity parties have been greeted with increased public support, it is unfortunate that it is so surprising. It should be common sense that the majority of people will applaud common sense reform no matter how much politicking is involved in trying to fight it. The CBO estimates the by 2050 the US national debt will equal 344% of the US’s GDP. Before the recession the CBO estimated it would be at 292% of the GDP. Either way, both are
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bad numbers for Americans. Americans are finally coming to their senses about how unsustainable our fiscal policy is. Like many Europeans, Americans are tired of having their future and the future of their children jeopardized. That is why Republicans made historic gains on November 2 2010. Republicans did not win because of a failure to communicate. Republicans won because they stood on the side of limited government spending. Republicans articulate their platform in their ‘Pledge to America.’ While the Pledge had some holes and was attacked by the left, the fundamentals that it was based upon were shared with the American people. Americans were tired of watching legislation that limited their rights and prospects of prosperity be passed in their name. Just like in Europe, voters rewarded the party that learned the lessons of the financial crisis. That may have come as surprise to some, but it didn’t come as surprise to the people who voted. Like I said before reason transcends nationality and party, and reason is on the side of Republicans.

New State Taxes Forcing Employers to Reconsider Hiring
The United States should contract a few states heading into what should be a rough 2011 season. Baseball played around with the idea back in 2001, hoping to eliminate two small market teams like the Montreal Expos and the Florida Marlins in the hopes of shoring up the Leagues’ finances. “It makes no sense for Major League Baseball to be in markets that generate insufficient local revenues to justify the investment in the franchise,” Commissioner Bud Selig said. “This shows we’re committed to solving our problems.” The United States faces a similar problem. More than a few of our states are failing, in the words of Bud Selig, to generate sufficient revenues. During the economic boom years they spent taxpayer money at a dizzying rate. They gave more generous public sector pensions, they expanded the size of government, and they spent lavishly on existing programs. When the economy crashed, the states fiscal frivolity reared its ugly head. The unsustainable spending was finally uncovered. Now, states like California and Illinois are in deep debt, with no reasonable prospect for escape.

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Rather than come to grips with their problems, many states continued, and even expanded, their deficit spending habit during the recession. One of the main problems is state spending on unemployment insurance benefits. The argument here is not against the existence of benefits, it is against the notion that the state governments didn’t attempt to find and cut other spending to make the insurance program revenue neutral. These indebted states have had to borrow $41 billion from the federal government in an attempt to continue their unemployment insurance fund. Now they are turning to higher payroll taxes in an attempt to pay off their debt. As reported by the Wall Street Journal, “A National Employment Law Project analysis found 41 states increased unemployment-insurance payroll taxes this year by an average of nearly 33.9%. The largest was a 168.5%. And if states’ appear unwilling, the federal government is right behind them in the collection line. According to Sara Murray of the Wall Street Journal,

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In certain circumstances, Washington will increase its tax on companies in states that aren’t repaying loans from Washington. Employers in as many as 26 states will face tax increases of between $21 and $84 per employee per year if their state governments don’t repay Washington by November 2011. Employers in Michigan are already paying the added fee. A payroll tax is a tax that an employer is required to pay on behalf of an employee. Take Social Security as an example. A certain percentage of an employee’s paycheck is withheld to pay for Social Security. The employer also pays into Social Security for its workers, having to match the amount that is withheld from the employee. When deciding when to hire an employer must take into account the total cost of an additional employee. This includes wages, but it also includes things such as healthcare and payroll tax, which are viewed the same as wages through the eyes of an employer. The ultimate result then of higher payroll taxes is an increase in the cost of an employee. This in turn, discourages an employer from hiring additional workers. The sad irony of this situation is that in an attempt to help the unemployed by providing benefits, they are preventing employers from hiring. Such a situation could have been completely avoided had our states realized their unsustainable spending levels. Although they certainly could not have been expected to predict the depth and length of the current recession, many states were in debt long before the economic fall took place. Rather than the small, dynamic, and efficient government that is needed to confront the problem, states were big, clunky, and already so laden with debt that they could not afford the unemployment insurance necessary to help their citizens. Having proved themselves unable to balance their books, it’s time we take a page out of the MLB playbook and contract them. As Commissioner Selig said, “This [would] show we’re committed to solving our problems.” Okay, so this may not be a realistic option, but we can at least demand that in the future our state governments run a fiscally sustainable course. After all, we don’t have a state like the Yankees who can bail everyone else out.

Study: Higher Taxes Only Encourage Government to Spend More
A battle is currently raging in Washington. To address our budget deficit should we raise taxes or cut spending. It is assumed that these are two sides of the same coin. Raising one dollar in taxes is the equivalent of cutting one dollar of spending. But is that true?

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Although the math may seem clear, history tells us that the two actions produce two different results. The reason is that the government cannot contain itself. Any dollar it takes in burns a hole in its pocket, it just can’t wait to spend it. The problem is, the government can’t stop itself with that dollar. Instead, it takes your tax dollar and then spends $1.58. The result is ever-higher spending levels and unsustainable debt. Higher taxes only work to encourage it. I didn’t just pull the $1.58 number out of thin air. A 1987 study done by Ohio University economics Richard Vedder, Lowell Gallaway, and Christopher Frenze found that for every one dollar of additional tax revenue the government turns around and spends $1.58. The reason for the disconnect between revenues and spending is the result of a careful balance made by legislators. On the one hand Congressmen increase federal spending because of its “marginal political benefits” – the concept that voters like what Congress is buying. Any added spending must eventually be financed by taxation and borrowing which impose “marginal political costs” since voters don’t particularly enjoy paying higher taxes. Congress has been willing to cheat the balance, reaping the political reward for spending on preferred projects while delaying (or ignoring) the costs imposed via higher taxes. In 2007, Richard Vedder and Jonathan Leirer, updated the study. They found many of the same results, namely that the federal government continues to spend more than every new dollar it raises in taxes. The study also contained a very prophetic pronouncement about the current state of politics. They argued that, “Attempts to reduce the budget deficit will be futile until the “rules of the game” change in a manner that alters the political incentive structure, raising the political costs of deficits, lowering the political benefits of spending, lowering the political costs of taxation, or a combination of the three.” As the recent election results show, the rules of the game have changed. The political pendulum swung heavily towards conservative candidates who promised to put a stop to the spending habits of Washington and argued for a smaller role for the federal government. In other words, voters’ concern over the deficit (and its impact on the private sector) trumped voters’ desire for the products of government spending. Today, Richard Vedder is back with yet another update on his groundbreaking research. Using new variable and taking new historical information into account he finds that “over the entire post World War II era through 2009 each dollar of new tax revenue was associated with $1.17 of new spending. Politicians spend the money as fast as it comes in—and a little bit more.”

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Given the current debate over higher taxes versus lower spending as a means of curing our budget deficit, these results are more important than ever. They argue that the Democratic argument that tax increases be “put on the table” before they agree to cuts to entitlement programs is nothing but a “sucker play.” That’s because new tax revenues are almost invariably followed by spending increases, not entitlement cuts. So as we go forth into the debate over how to conquer our deficit we must go armed with the knowledge that higher taxes more often lead to higher spending and not deficit reduction. As the Nobel winning economist Milton Friedman argued, “The only effective way I think to hold [government spending] down, is to hold down the amount of income the government has. The way to do that is to cut taxes.” As the newest studies show, one way that certainly does not lead to holding down government spending is giving them more money to play with.

In Ireland, the Bailout Needs a Bailout
Austerity regimes and bailout programs are popping up all over Europe like a whack-a-mole from hell. Failed Keynesian policies are popping up left and right, and are getting whacked by market reality. First Greece nearly collapsed, and might soon collapse again, and then France and the UK enacted austerity measures that were greeted with protests and riots. Before now, Ireland had been giving its banks a bottomless bailout. Now, Ireland is the one who needs the bailout. Ireland has to secure its own bailout from the EU and IMF, a bailout that will make Greece’s bailout look like chump change in terms of GDP. The Irish bank bailouts did not come out of the blue. Many economists had been following the events of the Irish financial sector, holding their breath in fear of the costs of bailout after bailout. In March 2010, it was announced that Ireland’s three largest banks need to raise a combined "28.4 billion to meet new regulations. The Anglo Irish Bank alone needed "18.3 billion. So Ireland issued a “promissory note,” which is really nothing more than an I.O.U., worth "8.3 billion to the Anglo Irish Bank. That "8.3 billion was shortly increased to "18.9b. The rising costs did not stop there either. On September 30, the central bank found that the Anglo Irish Bank needed an additional "6.4 billion, the state-owned Irish Nationwide Building Society needed "5.4 billion, and more than "5.2 billion was needed by the Allied Irish Bank. Those bank bailouts were costly. Ireland had previously hoped to keep this year’s budget deficit around 12% of GDP. The Anglo Irish Bank and the Irish Nationwide Building Society government funded injections, however, increased the budget deficit to 32% of GDP. Total public debt was increased to 98.6% of GDP. Now Ireland’s government is the one having to look for someNovember Compendium! 77

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one to bail it out. Having a bottomless bailout saves no one, especially when your GDP is decreasing by 1.2% in just one quarter. Ireland is now seeking between "80-95 billion in loans from the IMF and EU. To understand just how enormous that is relative to the size of the country consider that the total population of Ireland is about 4.2 million. For perspective, that is roughly equivalent to the Phoenix metropolitan area in Arizona. If Divided amongst the population the Irish bailout is about "22,619 per citizen. Given the current exchange rate that’s the equivalent of about $36,000. We’re talking BIG. Then again, leaders from all involved parties have warned that the initial amount may not be big enough and have said the final amount is likely to be much higher. The final package could equal 60% of the size of Ireland’s entire gross domestic product. Before Ireland, Greece was the only developed, western nation who needed a bailout. Before Ireland happened, people could allay their fears by arguing that Greece was an anomaly. A fiscal wreck of a country that simply couldn’t get its fiscal house in order. The situation didn’t seem that bad viewed through this lens. After all, Greece’s economy was only 2.5% of the Eurozone’s total economy, the government and financial sectors were corrupt, and then pension system was grossly overburdened. Of course the reasons why Greece was the exception, not the rule, turned out to be the reasons why Greece was the rule, not the exception. Overextension in the realm of public pension funds and other entitlement programs are not isolated to Greek policy. Look at the protests and strikes that over 3.5 million people participated in France when the government, in an effort to keep the program solvent, announced a plan to increase the retirement age by two years. Or look at the 50,000 student rioters who took to the streets in London over tuition increases that are the result of austerity measures. Now the failure of injecting banks and businesses with capital to keep them functioning, without regard to the adverse effect on economic strength and competitiveness, has hit the shores of another country. The cost of Ireland’s problem looks like it is going to dwarf the Greek figure. The ball is not going to stop rolling there either. Portugal and Spain both look like they are going to be asking for a bailout before too long. The Portugal bailout, if it accounts for 60% of GDP like Irish bailout is going to, would require about "182.5 billion ($134 billion). Some estimates place the potential cost for a Spanish bailout at "500 billion ($680 billion). Chronic unemployment, an ineffective banking sector, and lack of economic competitiveness paired with bottomless bailouts and unsustainable entitlement programs are the symptoms of this economic plague. If Greece was not a wake-up call, and neither was the French strike or the London protests, then the lesson of Ireland must surely be. A few years ago no one would have predicted that Celtic Tiger would be dead. From 1995 to 2000, annual GDP growth in Ireland was between 6 and

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11%. That is amazing; to have a 6% growth rate in an “off year” is phenomenal. After the 2% blip of 2002, the growth rate until 2007 was around 5%. In slightly more than a decade, Irish GDP doubled. The 18% unemployment of the late 1980s shrank to 4.5% by 2007. With a low corporate income tax and other pro-business government policies, predicting the Irish debacle of today would have been farfetched. It all collapsed when the housing market bubble popped. In one fell swoop banks’ balance sheets were wiped out and the federal government swooped in to save them. All told they spent more than "45 billion to rescue the banks, leading to a staggering deficit levels. With their debt skyrocketing international investors downgraded their bond rating meaning that it was wildly more expensive for the government to borrow. Now they are begging for a bailout. American is not far from becoming the next mole from popping up in this sad global whack-amole game. To avoid it we must return to the core concepts that made us different from other nations – our fervent belief that the individual is the one ultimately responsible for himself. I’m not arguing that we should abandon everyone who falls through the cracks; I am saying that using the government to dictate economic performance is misguided. Our goal should be to move people out of poverty, not to make it easier for them to live in it, through fostering economic growth not by bailing out nearly defunct institutions. In the US, which decade saw the highest rate of growth for real, reproducible, tangible wealth per capita? It was the 1880s. The fact that everyone was able to prosper under the unfettered economic growth created by the industrialists, the same titans of industry defamed by critics as robber barons, should come as no surprise. Economic growth, maintained through individual risk and reward and free from excess intervention, is the economic program that is sustainable and truly benefits everyone. Excessive entitlement programs create an unsustainable burden and government intervention and regulation hinder economic growth and competiveness. That is why Ireland’s economy, so strong and enviable just a few years ago, is now sinking. You don’t bail a sinking ship out by dumping more buckets of water on it; you have to dump the buckets of water overboard. The Irish deficits and bailouts are tantamount to that. The Irish government thought by throwing more money at the problem it would go away. The only product of that is a bankrupt government and a parliament that is soon to be dissolved. With the costs of bailouts for companies like AIG, Fannie Mae, and Freddie Mac rapidly increasing, the US needs to stop bailing out these companies before we get whacked in the head by reality.

Americans Face Tough Question Over Our Financial Future

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Washington Post columnist Robert Samuelson recently asked an interesting question: “How much will we let programs for the elderly displace other government functions — national defense, education, transportation and many others – and raise tax levels that would, almost certainly, reduce economic growth.” On its face it appears to be an easy question. It is essentially asking whether we want to support one demographic group at the expense of all the others? In reality it is a much more nuanced problem. Older generations rightly feel entitled to a certain level of benefits after paying in to them all these years. They also carry significant heft at the ballot box, meaning politicians are careful not to upset them. Although the answer to such a question will certainly not come easily, it represents a good starting place for a debate that Americans must have. If nothing else, answering, or even debating the question, ends the “politics of avoidance” which Samuelson laments. While pondering the answer to Samuelson’s initial question I was forced to answer some of my own. Q: What does America value? America was founded based on a completely different set of principles than other western nations. Our belief in individual liberty and limited government would be the traditional answers. But at their core, almost all of the oft-cited American values, focus on the idea that the individual is responsible for himself. On the one hand that means that the central government should not be an oppressive force in your life, but on the other it means that it is primarily the responsibility of the individual to succeed. Q: Are these the values still dominant? Simply because we were founded on the idea of individual responsibility, it does not necessarily mean that we still hold this as a core belief. America has certainly changed. Have the minds of its citizens likewise changed? Do we still want the traditional American free enterprise system, which allows everyone to grasp success and the risk that some will not, or do we prefer a European-style social democracy with a more limited range of economic outcomes. The former choice encourages a small central government with few entitlement programs. The latter requires a bigger government, with higher taxes, to pay for a comprehensive welfare state.

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What we certainly cannot have is our current unsustainable path in which we want most things the government has to offer, we just don’t want the bill to pay for it. Q: If we prefer a free enterprise system are we willing to give up our sense of entitlements regarding entitlements? As Paul Ryan and David Brooks recently wrote, “While 70% of Americans told pollsters at the Pew Research Center in 2009 they agreed that “people are better off in a free market economy, even though there may be severe ups and downs from time to time,” large majorities favor keeping our social insurance programs intact.” We are being pulled in two separate directions. On the one hand it is clear that Americans by and large wish to preserve our heritage of limited government intervention in individual outcomes. On the other, it is clear that Americans, once they get their hands on the benefits of a particular entitlement program, are loath to let it go. Now the push is coming to the shove. We can no longer afford our current entitlement system without either making drastic modifications to it or severely raising tax rates. There is no middle ground. Regardless of the words of some soothsayers, our present system is collapsing under its own weight. We can no longer skate by, enjoying ever-higher benefit levels without attendant tax hikes. Q: Will Washington muster the political courage to address our spending? Changing the existing entitlement structure has been considered the third rail of politics. Those who desire to change Social Security or Medicaid have been swept aside by those accusing them of wanting to take away granny’s retirement. In fact, President Obama’s appointed deficit commission was labeled by some on the Left as the “Cat Food Commission” because any changes to entitlements would supposedly reduce our elderly to eating Fancy Feast. That is the difficulty reformers face. Will the political will of the population ever rise to the level that Washington must listen. Politicians are opportunistic creatures who, for the most part, will vote in a way that allows them to win. Will they have the courage to face their constituents and sell them on the idea that for future generations to have the same opportunities we had to make our entitlement programs sustainable? Which leads back to Samuelson’s question: Q: Will older generations agree to consider changes to our entitlement structure?

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If we continue on our current path, spending on programs created mainly to benefit older generations will double, while al other spending remains stagnant.

If tax revenues remain 18.2, this graph obviously becomes quickly unsustainable, especially when you consider that our net interest will soar upwards. Young adults do not have the political momentum to address this on their own. A broad coalition of voters must be willing to understand that sacrifices will be have to be made by everyone if anyone is to benefit from government programs. It is a difficult thing, to agree to concede something you feel you have earned so that someone else may benefit. I hope, for my generation’s sake that voters will remind Washington that they are willing to make that sacrifice.

Medicaid’s Unsustainable Costs Lead States to Consider Opting Out
Medicaid is like your crazy uncle at the Thanksgiving dinner table. He just eats, and eats, and eats, his waistline growing all the time, until finally you make him leave the table or the button on his pants pops off. The costs of Medicaid continue to grow out of control and now many states are threatening to leave the program rather than have it explode in their face. Governors from nearly 12 states and from both parties have started internal dialogues within their state about ways to limit the ever-growing cost of Medicaid in the face of enormous budget deficits. But while eliminating Medicaid is probably nothing more than an illustrative point highNovember Compendium! 82

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lighting dire budget constraints, the fact that it is even being considered raises some very sharp questions. To start off, Medicaid is the largest budgetary commitment in state budgets, and it is rapidly growing. While millions of people are dependent on it, Medicaid produces subpar results even when it is not compared to the results from private providers. Numerous studies have found that Medicaid recipients fare worse or no better than those who have no insurance at all. Not exactly the health outcomes you would expect from a program that takes up 1/5 of states’ budgets. That one-fifth of the budgetary pie will soon be growing. Under Obama’s health care plan, 16 million Americans are set to enter Medicaid programs by 2020. To understand just how many 16 million is, it is the rough equivalent of the added population of the 14 smallest states – West Virginia, Nebraska, Idaho, New Hampshire, Maine, Hawaii, Rhode Island, Montana, Delaware, South Dakota, Alaska, North Dakota, Vermont, and Wyoming. Add all of the population of those states together and that’s the number of people we’ll be dumping into Medicaid. Or better yet, that’s the number of people we’ll be adding to state’s budgets. With Medicaid’s financial viability already under stress just imagine how it will cope with 16 million more recipients. Such an enormous influx of new patients is dangerous. Even with today’s numbers, the level of care for patients receiving Medicaid is likely to be drastically slashed. To make up for budget shortfalls, states like Washington are proposing to eliminate prescription drug coverage, physical therapy and vision, dental, and hearing treatments for adults next year. Even with the Federal government supplementing, on average, 57% of Medicaid costs for each state, the burden is growing on states to fund a program that, essentially, is subpar. Expansion of coverage is not necessarily a good thing. For an example of why look at Tennessee’s expansion of Medicaid, nicknamed TennCare. Brian Blase of the Heritage Foundation found that Tennessee’s Medicaid enrollment swelled by half a million people, leading to a decline in the rate of the uninsured. But that positive was drastically outweighed by the negatives. TennCare doubled per-capita spending on patients as compared to the Medicaid program. Despite the increased spending it did not translate into better health outcomes. Quite the contrary, a study found that the mortality rate actually declined at a much slower rate than surrounding states that did not expand Medicaid. Upon scaling back the disastrous program then-Tennessee governor Phil Bredesen said the program was “a disaster,” and he would not “let TennCare bankrupt our state.” During the past few years, state budgets have made many stomachs drop. States have not been able to balance their budgets, and it does not look like a remedy is around the corner. Between 2010 and 2011, state budget shortfalls are expected to total $350 billion. Every state, except two,

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will have a budget shortfall in 2011. The numbers do not look much better for 2012. On top of that, state pensions for public service employees are underfunded by $3 trillion. Expanding Medicaid, especially at a time when states cannot balance their books, is going to force deep budget cuts in other programs. Every state, with the exception of Delaware, has some sort of a balanced-budget requirement. Without higher revenues, or an increase in borrowing, increasing budget allocation for one program requires budget cuts in another. The math is simple, increasing Medicaid spending, while having a $350 billion budget shortfall and a $3 trillion underfunding in pensions, means other imperative programs will be cut. Are these problems worth it for a program whose results are, at best, mixed? Democrats health care plan predicted the state backlash against higher spending. They wrote in a provision that allows the federal government to shoulder an increased share of Medicaid’s costs. For three years, starting in 2014, Obamacare promises three years of full federal funding to cover the benefit cost of expansion. After 2017, states are expected to pay a “progressively larger” share of Medicaid’s cost. Every year, starting in 2020, states will have to pay for 10% of benefits for new enrollees. What is going to happen in Nevada, Oregon, and Texas when those measures kick in? Those states are already expected to see a 50% increase in their Medicaid populations. The total benefit cost for states is likely to increase by $21 billion between 2014 and 2020. Once again we will find that the costs do not stop there. While benefit costs are covered for three years, administrative costs are not. The administrative burden is not going to be felt in 2014 when the law actually goes into effect, it will be felt before then. The administrative and bureaucratic expansion has to be in place before the influx of new Medicaid recipients. One study found that the administrative costs due to the health care expansion between 2014 and 2020 will equal $12 billion. Leary states are coming up with their own cost estimates. Texas concluded that Obama’s Medicaid expansion will increase the Medicaid population in Texas by 2 million people. That increase will cost Texas alone $27 billion over a decade. Florida predicts that Medicaid expansion in their state will cost an additional $5.2b between 2013 and 2019, and will increase by $1 billion year after every year after 2017. California found that the cost expansion for their state will grow by a few billion dollars every year. No wonder many governors are now considering backing out of the Medicaid program altogether. As Texas governor Rick Perry told the Wall Street Journal, “We feel very comfortable that we could come up with a more equitable, a more efficient, and obviously a more cost-effective way to deliver health care.” With the numbers already deemed unsustainable under the Democrats’ plan, I wouldn’t be surprised if other governors begin to feel the same way.

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Obama’s Pay Freeze is Just the Start of Government BeltTightening
Yesterday morning, President Obama made his first move towards addressing our deficit by calling for a two-year freeze on federal worker salaries. Some have called the move “symbolic,” a showing that Washington is willing to make sacrifices at a time when many Americans are being forced to do the same. As President Obama said, Small businesses and families are tightening their belts. Their government should, too. And that’s why . . . today I’m proposing a two-year pay freeze for all civilian federal workers. This would save $2 billion over the rest of this fiscal year and $28 billion in cumulative savings over the next five years. Rather than symbolic, I view the freeze as necessary. A symbol implies that the action has no inherent value other than as a token representation of President Obama’s belief that the government is willing to mirror the sacrifice of the private sector. President Obama’s deficit commission, which first recommended the freeze, didn’t find it merely symbolic. Quite the contrary the commission argued that, “During the Great Recession, most private sector employees have seen their wages frozen, and some have even watched wages decline. In contrast, federal workers have seen their wages increase due to automatic formulas in law that provide them with step-in-grade and cost-of-living adjustments.” More than a symbol, these cuts were necessary reductions to realign government salaries with the market for their services. And even then it is only a first step. According to recent analyses by USA Today, total compensation for federal government workers has risen 37 percent over the rate of inflation during the past decade while private worker compensation has risen 8.8 percent in the same timeframe. In fact President Obama’s proposed cuts don’t even live up to the three year freeze that was proposed by the President’s own deficit commission. More importantly, it fails to follow the commission’s recommendation for a partial hiring freeze that would cut the size of the federal workforce by 10 percent. The growth in the size of the federal government, just as much as the size of their paychecks, is a problem that the President should have addressed. According to research
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done by the Wall Street Journal, the federal workforce has grown by 17 percent since 2007 to its largest level since 1992 when the government shrunk following the end of the Cold War. Fortunately, yesterday was merely the beginning of a much longer conversation over the disastrous state of our nation’s finances. President Obama said himself that Going forward, we’re going to have to make some additional very tough decisions that this town has put off for a very long time. And that’s what this upcoming week is really about. My hope is that, starting today, we can begin a bipartisan conversation about our future, because we face challenges that will require [cooperation].” He’s absolutely right on all counts. Using the politics of avoidance Washington has neglected the difficult decisions that must be made to put our nation on a sustainable path. But that leads me to two questions. First, if the President truly understands the stakes why didn’t he follow through with the deficit commission’s recommendations in full. Second, if he truly hopes for a bipartisan conversation then why didn’t the White House use the announcement to reach across the aisle? Bipartisanship on this issue wouldn’t have been difficult. The GOP pushed the idea for a nonmilitary pay freeze in May of this year. Despite the obvious agreement, President Obama made no mention of the Republican origin of the freeze during his announcement. Instead, the White House blog took the opportunity to play typical blame-game politics with the issue. Writing for the White House, Jack Lew, was pointing the finger at anyone but the current administration for the financial hole our government now finds itself in. Lew said that “[b]ecause of the irresponsibility of the past decade, the President inherited a $1.3 trillion projected deficit” and “we need to turn our attention to addressing the massive deficits we inherited.” Apparently he’s willing to ignore the historic levels of spending and deficits of the Obama administration. Nevertheless, the two-year pay-freeze is a positive opening salvo in what is sure to be a hard fought debate over the size and role of government in our lives. Small victories must not distract us from the enormous task that lay ahead. The pay freeze is a start, but we must be careful to remember that it is just that – a start.

Too Big to Fail Becoming Too Big to Bail
The Irish are having another awful year. Not the Fighting Irish mind you, their year could better be described as mediocre, but hopeful. The future prospects of the nation of Ireland on the other hand are anything but hopeful. Having just announced an $113 billion bailout to rescue its banks, Ireland’s economy is still hovering on the brink of collapse. The luck of the Irish has apparently run out.
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They are not alone. Earlier this year the EU was forced to bail out Greece whose public indebtedness had grown to crisis levels and the government threatened to default. The debt contagion is spreading fast across the Eurozone. Spanish, Italian, and even German bonds yields have risen sharply, an indicator that investors are reluctant to hold them in the event that the Euro tumbles. With Ireland being the latest domino to fall, the European Union is now resigned to looking around and wondering who is next? Sadly, it doesn’t take much effort to find that Portugal will likely be next in line to come begging for a bailout. As the New York Times reported, “Investors have been alarmed by Portugal’s inability so far this year to stick to its pledge to cut its bloated deficit. In fact, in the first nine months of the year, the budget deficit of Portugal’s central government widened 2.3 percent from a year earlier to $12.7 billion.” The rising debt will also lead to an increase in spending that must be devoted to maintaining interest payments, which the European Commission has already warned will be the be the fastest-growing spending item and a major factor hindering improvements in the government balance in the coming years.” Among Portugal’s other problems are poor economic growth and a disastrous unemployment rate. The European Commission found that Portugal’s real GDP growth will actually be in the negatives – about -1 percent – this year before returning to sluggish growth in 2012. Likewise, its unemployment predictions are dire. The unemployment rate is expected to rise from 9.6 percent this year to 11.2 percent in 2012. With economic indicators headed in the wrong direction it could be a fast slide into bankruptcy unless drastic measures are taken. Massive government debt, poor GDP growth, and an unseemly employment rate – sound familiar? In response to its enormous deficit Portugal has put forth the beginnings of an austerity plan. Among the government’s proposals to reduce the deficit from 7.3 percent of GDP to 4.6 percent (by comparison the U.S. deficit was 10.6 percent of GDP in 2010):
• • • • •

Five percent cut in private sector pay Two percent increase in the national sales tax Selling off state-owned stakes in 32 companies Introduce a new tax on profits made in the stock market Raising the surcharge on companies whose annual profits exceed 2 million euros from 25 percent to 27.5 percent

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Create a new 45 percent tax bracket on incomes over 150,000 euros a year

This is our future if we do not preemptively work to get our deficit in line. Western governments are falling like dominoes, the result of unsustainable government spending and ever-more burdensome social welfare programs. The national debt is not just a number. It represents very real dollars that our investors would like to be paid back. We must not let our nationalistic pride blind us from the fact that we are not immune from the same fate. Thus far our status as the world’s reserve currency and our place as an economic power have shielded us from bondholder worry. But with our balance sheet bleeding red ink far into the future, how patient will the holders of our debt be? Unlike Greece, Ireland and Portugal, we shouldn’t wait to find out. In a gesture of good faith to our investors and an act of necessity to our citizens our government, we must begin to make the painful choices necessary to get our debt under control. As one economic researcher noted about Spain, “it is possible that too big to fail becomes too big to bail.” With the largest economy on earth, he might as well have been talking about us.

Global Tax System Threatening American Competitiveness
One of the things missing from the deficit debate is a plan to improve our economic growth. The sole message of the various commissions, it seems, is that we must cut spending and increase taxes to improve our economic situation. It seems that everyone is overlooking a crucial third factor that could make any austerity package a much easier pill to swallow – growth. Higher tax rates are not the only way to increase government revenues, economic growth achieves the same end without the harmful economic impacts of taking a greater percentage of money out of people’s pockets. The goal of reducing the government’s shortfall by $1.4 trillion would be able to be halved to $700 billion if our GDP grew by an additional .5 percent each year. Private economic growth seems to give us the quickest, most tangible results in our quest for financial stability. That is why the current US tax system, the global tax system, is holding back our economic growth. As of now, US companies not only pay other nation’s taxes on their foreign earnings, but must also pay U.S. federal, state, and local taxes if and when the money is brought back to the United States. To avoid this double taxation, US firms choose to either find loopholes to avoid paying US corporate taxes or simply don’t repatriate their money back to our shores.

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Such a problem is why we are one of the few nations left using a global system of taxation. In an effort to draw more corporations, other nations have switched to a territorial system in which governments only tax income earned inside their borders. Of course the thought of losing tax revenue makes liberals throw up their arms in disgust, but we are quickly falling behind in the worldwide marketplace. Moreover, increasing our global competitiveness could lead to huge returns in higher corporate profits, more investment being made by American businesses, and additional jobs moving to our shores. The benefits of switching to a territorial model with a lower corporate rate are clear to see. Take Ireland for instance. From 1999 to 2002, Ireland had an effective tax rate of 8 percent. By 2002, pretax profits for US multinational firms in Ireland had doubled to $26 billion. When Denmark reduced its corporate tax from 23.9% to 7.6%, US profits rose not by the 16.3% differential between the two rates, but rose instead by 200 percent! The Belgians dropped their tax rate from 26.6% to 12.5%. The result was US profits in Belgium subsequently increased by 84 percent. Imagine what our economic climate would look like if we had a territorial tax system. In such a system companies would be free to bring their profits stateside, where our research and eductational systems give us distinct advantages, without having to worry about an additional tax of up to 35 percent. Besides giving American businesses the opportunity to bring their international profits back to the US, a territorial tax system enhances our companies’ competitiveness on a global scale. No

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matter what isolationalist or protectionalist schemes politicians devise in a misguided attempt to keep jobs from leaving our shores, globalism is on the rise and here to stay. To successfully compete and prosper, international companies need to have free flowing capital. As one of the last bastions of an outmoded tax system we are punishing businesses from operating here and encouraging them to create complicated international divisions that hinder productivity. Finally, the territorial system is a harbinger of economic growth. Take, for instance, Great Britain. Britain’s high corporate tax rate and worldwide tax system is pushing companies out. To gain a lower tax bill, McDonalds and Google transferred their European operations from London to Switzerland. Because of higher taxes, Dell relocated their European offices, and the office’s 1,900 jobs, to Poland from Ireland. Dell had been the Irish’s largest exporter and accounted for 5 percent of Ireland’s GDP. As much as we may want corporations to care about workers on our shores, they ultimately must answer to their bottom line. The smart ones will maximize their profits, and thus global wealth, by flocking to areas where they can be the most competitive. It’s pure common sense. The American economy does not need more bailouts, more government regulation, more commissions, more hearings or more speeches. The American economy needs incentive to grow, and the only incentive we can give businesses is a reduced government yoke. Productivity is penalized in the global tax system. Companies that have put the time and work into growing beyond our borders are being taxed twice. That means fewer new factories, offices, and jobs here. As President Calvin Coolidge once said, “the business of America is business.” It’s time we step up and show it.

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