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16 December 2004

Paying for Social Security

The privatization of Social Security may be thought of as a way to discipline the federal government by removing a large portion of payroll tax revenues from its budget. The resistance by Democrats to this move is grounded on their faith in the reliability of the government as a provider of old age pensions. However, financial markets may not allow the government to deliver on that promise if deficit spending and trade imbalances continue to distort the U.S. economy and devalue the dollar.

Offering wage earners and entrepreneurs the option to devote their Social Security payments to privately managed funds can be a practical alternative for many of them only if those annuities are protected against negligence or fraud. In some measure, this will require precisely the level of regulation that free marketers deplore. It displays a frustration with the spend thriftiness of elected officials that conservative politicians have been reluctant to admit openly.

If a sea-change has indeed happened in American politics, ending the inevitability of liberalism, then Democrats may have to face the fact that they may not soon regain control of the Congress or the Administration. In that case, it may be wiser to entrust social security revenues to the management of private advisors and to dispense with reliance on the government to act responsibly. Democrats must focus their attention not on defeating privatization; they need to insist on guiding that privatization with institutionalized integrity.

There will be a large cost to this transition – some estimate a need for the Treasury to borrow $2 trillion in order to finance it. That will certainly bring a need for fiscal discipline in order to make capital costs affordable. In the end, it seems to be a back-door way to make politicians act the way individuals are expected to – living within their means.

14 December 2004

Flat Tax Only Sharpens the Divide

On the Wall Street Journal’s December 13, 2004, OpEd page, Mr. Summerlin misses one of the most important reasons for Blue State residents (and liberals elsewhere) to resent what is done by the government with the money they disproportionately pay in taxes. The issue is that graduated income taxes are wastefully spent on the products of business enterprises who have gained dominance over the decision-making process in our government. Expensive public relations budgets are the biggest item in our officials’ re-election campaigns. That is how certain business enterprises’ financial health demands the survival of their biggest customer, the federal government.

Unfortunately, continued residence by liberals in the Blue States may portend a decision of many of them to flee the country rather moving to Red States in order to reduce their tax burdens. It has been reported that emigration to Canada has increased in recent years. Political and cultural affinity trumps affordable cost of living. The flat tax puts these alternatives in sharp contrast. It may be less expensive for wealthy taxpayers to pay in direct proportion to the level of income, but it is considered by most Blue Staters to be unfair.

Gaming the System

Recent reports of the $9.5 billion secret satellite project that has been included in the nation’s intelligence budget has run up against opposition from members of Congress, like Senator Jay Rockefeller, who believe it has been oversold by those who favor electronic over human spy methods. It cannot be denied that the more you know, the potentially safer you are. However, it does come down to a matter of cost effectiveness. Could the $9.5 billion be better spent on foreign language-speaking operatives, rather than on space cameras that improve the resolution of what can be seen from space in clear daylight.

The most direct benefit of this $9.5 billion program goes to the makers of the systems – those companies that manufacture, launch, operate and maintain the equipment. These companies and their executives, boards, and employees are also large contributors to the political campaigns of Congressmen whose votes are needed to appropriate these funds.

Gary Winnick, the former CEO of Global Crossing Ltd., has learned a lesson from this. He has just been relieved of the threat of SEC security charges and fines. As was pointed out in the Wall Street Journal on December 13, 2004, he “has been an active political donor, spreading his wealth on both sides of the aisle.” The suppliers of intelligence satellites know that spending their cash to help prolong the political careers of elected officials. Mr. Winnick has learned that lesson well. He has at least reduced Congressional pressure on the SEC to pursue him for alleged disclosure violations by judiciously contributing to the expensive re-election campaigns of officials, regardless of their Party or overall political orientation, who are responsible for regulatory oversight.

11 December 2004

You Go to War with What You've Got

Secretary Rumsfeld’s response to a soldier’s question in Kuwait on December 8 indicated a lack of confidence by administration strategists in George Bush’s reelection prospects. Yes, the Bush administration didn’t select the timing for the invasion of Iraq – it was forced by Bush’s impending reelection campaign, which he could have lost. Therefore, the U.S. was forced to invade Iraq before the administration, which was determined to oust Saddam, was in jeopardy of being replaced by the Democrats.

Here was a confluence of events that made the invasion of Iraq so urgent that the slow process of UN inspections and continued sanctions could not be countenanced. Now that George Bush has another four years to govern, his Defense strategists will spend much of their remaining time in office retroactively justifying the invasion by slowly combating the resistance our invasion has created. Unfortunately, the Congress’s and our media’s sanctimonious glorification of our troops, who have been sadly exploited, makes it unpatriotic to point to the stupidity of the Bush Administration’s Iraq policy.

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