Get the Politicians Out of the Economy: Recipe for Sound Economic Growth

• The liberals in Congress have responded to the American people's anger over energy prices by trying to pass fundamentally dishonest bills which raise taxes and at the same time limit energy production while pretending to increase it. These dishonest efforts would actually make it permanently illegal to drill for oil and natural gas in most of the areas offshore.  Instead of letting the ban on offshore oil drilling end naturally on October 1, the liberals in Congress are trying to enact a new, permanent ban on offshore development.  These dishonest "no drill bills" offer no hope of solving the underlying challenge of energy for a country which is shipping $700 billion overseas every year. And notice you now see foreign, sovereign funds with your money coming back to buy your banks and your companies because of our truly destructive energy policy.
  
• In the name of economic security the Congress passed a Sarbanes-Oxley law which is driving companies from public scrutiny into private ownership, driving new companies out of New York and into London for financing and slowing down dramatically the development of new companies. . Let me be very clear, Sarbanes Oxley has failed. It failed to warn about Fannie Mae. It failed to warn about Freddie Mac. It failed to warn about Bear Stearns. It failed to warn about Lehman Brothers. It failed to warn about AIG. And yet, while being a total failure in every big case, it adds $3 million dollars a year to the cost of a startup company having to hire accountants and take care of paperwork when they actually should be focused on growing, hiring people, and being productive. The result has been in the second quarter of this year, we had zero new public offerings by new companies, and in the third quarter we had one. We used to have thirty or forty every quarter. That's how bad Sarbanes Oxley is weakening this economy.
  
• In the name of national security Congress adopted a visa law which cripples America's ability to attract successful people, crippled our international tourism business, and weakened our ability to attract first class students in math and science.
  
• Congress insists on education policies which prop up failed bureaucracies, trap children in institutions which destroy their future -- and in some neighborhoods making prison much more likely than college. These failed policies guarantee the continuing decay of America in both economic and national security competition with China and India.
  
• Americans still put up with a failing healthcare system. They still pay too much for too little quality, too little choice, and too little convenience. Congress has thus far failed to improve safety by investing in electronic health records, failed to crack down on fraud, and failed to find a way through tax credits to make sure everyone can have health insurance.
  
• In the name of limiting legal immigration while ignoring the millions of illegal immigrants in America, the Congress refuses to adopt policies to increase the number of smart, educated and successful people who can come to America to work. This refusal leads to high value jobs being exported to, India, China, Canada, and elsewhere while low paying illegal jobs grow in the United States.
  
• For too long, Congress has failed to stop the practice of using surplus Social Security funds for other purposes, including pork barrel spending.  This continued raid on Social Security makes it more and more difficult to achieve real reform for Social Security.
  
• Congress compounds our long term weakness in economic competition by sustaining the world's second highest corporate tax rate (three times higher than Ireland's), sustaining a legal system which is the most economically destructive on the planet, and taxing capital gains. All this while the world's best competitors encourage savings and investment with low corporate tax rates and zero taxes on capital gains.
  

Faced with the economic mess they have made, most Congressional politicians then call for protecting the very jobs they are killing by adopting economically unsustainable but politically attractive demagoguery.

The Federal Reserve has forgotten that its first job is to protect the dollar. In its search for a pain free here and now it has flooded the world with dollars which has set the stage for a return to the 1970s model of stagflation in which the combination of high taxes and high inflation cripple economic growth and weaken our economic future.

The Treasury has forgotten that its first job is to protect the taxpayer and reinforce the Federal Reserve in protecting the dollar. Now we have a Treasury which is capriciously deciding which firm to help and which firm to let die. In the process it is piling up huge liabilities for the taxpayer, potentially increasing the long term debt of the American taxpayer by what may amount to a nearly 50% increase.

This process of debt accumulation started with the government intervention in the case of the failing Bear Stearns at a potential cost to taxpayers of $30 billion, followed by a weekend "saving" Freddie Mac and Fannie Mae at an estimated cost of $200 billion.

Then this past week we saw the decision to allow Lehman Brothers to go bankrupt followed by the decision that AIG needed to be rescued, subjecting the taxpayer to a potential risk of an additional $85 billion.

We cannot have capitalism on the way up and socialism on the way down. We cannot have a welfare state for Wall Street.

You know, that was not all.  This interventionism is so capricious, just yesterday we learned that the taxpayer could be responsible for $700 billion in potential bad debt. We don't know what the rules are. We don't know what the structure is. This is all going to be decided in secret by a handful of congressmen and the Secretary of the Treasury with no American knowing what's being decided, and yet it could shape this country for the next 20 years.

In addition, to show you how much the rule of law has decayed, we were told that 799 companies will be protected by stopping the ability to sell short on their stock-that is to gamble that they're going to get weaker. Why 799? Why not 797? Why not 801? Who's on the list to be protected by the government, and who isn't on the list to be protected, and who made that decision?

This is not the rule of law. This is not what we thought America was supposed to be about. This is very dangerous government by politicians, lobbyists, and bureaucrats, who are making decisions in secret without the country knowing what the ground rules are.

As a principled conservative it is even more sobering to see the amount of economic power being centralized in Washington with these interventions. Deals are being struck behind closed doors with little or no transparency. Things are happening at the intersection of politics and finance that we, the American people, know nothing about except the potential price tag we will pay. These many new federal responsibilities will politicize finances at giant institutions and will guarantee massive increases in lobbying.

Lobbyists are a consequence of big government not a cause of it. The more money centered in government the more value there will be in hiring a lobbyist. The more lobbyists are hired the more politics will be dominated by the political contributions of the lobbyists and their employers. The more power the lobbyists and their employers amass over the politicians the more politics will define the economy. It will become more profitable to influence a politician than to invent a product. If the market rejects you or your ideas fail to compete, the help of your lobbyist may be all you need. Your lobbyist may be able to get government to protect you from your own failure.

The failure of politicians to solve the systemic and fundamental economic problems has led them to paper over these failures with your money. Using your money inevitably increases the power and size of Washington bureaucracy. In the long run, centralized bureaucratic planning will inevitably make the United States less competitive, less creative, and less capable.

If we do not stop the current lobbyist driven, politician enhancing, and bureaucracy empowering trend, America will be poorer, weaker, and less capable for a long time to come.

In an amazing display of historic ignorance, economic destructiveness, and ideologically driven dishonesty, Washington politicians are in the process of combining the worst of the 1970s bad economic policies with the worst of Detroit's economic and educational decay.

We are in grave danger of turning all of America into the kind of declining economy and bureaucratic mess which Detroit has become over the last 40 years.

It is essential that we face the facts and return to the fundamentals.

To paraphrase then Governor Ronald Reagan in February 1975 at the first Conservative Political Action Committee (CPAC) conference (which then Naval Officer John McCain went to as the guest of Governor Reagan), the time has come to outline a policy of bold colors with no pale pastels.

THE BIPARTISAN POLITICAL-LOBBYIST MESS

There is a bipartisan political-lobbyist mess, and a key to understanding where we are is to understand that the old order in both political parties is complicit in making this mess.

The lobbyist-contributions-politicians-bureaucrats system has been at the heart of Fannie Mae and Freddy Mac's survival. The amount of money given to Democrats has been far far greater than the amount given to Republicans.

On the other hand, to the extent Republicans have been complicit in everything from Sarbanes-Oxley to massive overspending on political pork, they have  made this a bipartisan mess.

DESPITE THE MESS OUR UNDERLYING POTENTIAL IS ENORMOUS

Despite the mess our underlying potential is enormous. Despite the mistakes of the last few weeks and the sense of panic on Wall Street and in Washington, the potential of America is still tremendous.

The work ethic is still strong.

Creativity and entrepreneurship still outpace any other country in the world.

America is still the largest manufacturing country by a substantial margin, and much bigger than China in manufacturing despite all the publicity and hype.

America has more total energy than any other country in the world.  We have 27% of the world's coal, three times as much oil in shale oil as Saudi Arabia, and far more solar power than Russia. We have a new book called Drill Here, Drill Now, Pay Less that makes this startling case, as does our new movie, which will be at Solutions Day next Saturday, We Have The Power.

American exports have grown faster than our housing has declined, which is part of the reason why the economy is stronger than 'experts' thought it would be. In fact, the economy grew at a 3.3% annual rate in the last quarter. Some may not believe that America continues to prevail, but despite its politicians and its bureaucrats, it does.

Washington is panicked and Wall Street is sick but today the potential of the American economy is still enormous if our politicians, lobbyists, and bureaucrats do not artificially cripple us, which they are rapidly in danger of doing.

THE FUNDAMENTAL CHOICE: 

A POLICY OF SOUND FUNDAMENTAL GROWTH

VERSUS A POLICY OF LOBBYING, BUREAUCRACY, INFLATION AND DEBT

We now face a fundamental choice of returning to the fundamentally sound American economy and American work ethic and making Washington and Wall Street more like America OR passing laws which reshape America to be more like Washington and Wall Street.

The choice should be simple. It is Washington and Wall Street that is sick not America.

The United States has had three consecutive economic bubbles burst in less than a decade.

A Federal Reserve policy of artificially low interest rates provided the cash for a high tech bubble which burst in 2000. Then the Fed created enough cheap money to launch the largest housing bubble in American history and it began to burst in 2006. The decaying housing market then exposed the pathetically stupid and short sighted risk taking of millionaires and billionaires who had cleverly "outsmarted" economic reality by developing and selling dishonest financial securities promoted as secure investments, but with no substance and no safety. The result has been the worst financial meltdown since the Great Depression.

While the three financial bubbles have alarmed America there is an even more alarming long term decay underway. Our bureaucratically unionized schools don't work and we are losing ground to China and India. You can watch Robert  Compton's new movie  2 Million Minutes or go to 2mminutes.com to see how big this crisis is.  Our regulatory environment has crippled us from productive activity. Every recent oil and gas exploration lease in Alaska has been stopped by leftwing lawsuits--every single one. Our litigation industry has enriched trial lawyers while weakening the American economy. Our energy policy has produced the high prices and scarcity its leftwing advocates wanted until the American people got mad about it.  Our health system continues to grow in cost and decline in acceptability.

As the policies of decay and denial build their economic costs the pain they are creating leads to an explosion of interventionist politicians, whose actions threaten the economic future of the American people both individually and as a country. In this context, we must also consider cabinet officers and federal reserve chairmen as politicians.

We are now at a crossroads between a policy of returning to the fundamentals and doing what is necessary even if there are huge political opponents or doing what is wrong to appease the news media and the lobbyists even if those destructive acts will create more costs, more decay and more weakness in the future.

It is vital that the next seven weeks be a clear contest between a coalition committed to returning to the fundamentals which President Reagan and Prime Minister Thatcher used to build 20 years of economic success and a coalition committed to the big lobbying, big bureaucracy, high tax, unionized trial lawyer dominated future of decay.

This choice is made more complicated because many of the current Bush Administration policies are simply wrong and cannot be defended by fundamental principles of sound economic growth.

A REAGAN-THATCHER POLICY OF ECONOMIC GROWTH THROUGH FUNDAMENTAL REFORMS

What we need is to return to a Reagan-Thatcher policy of economic growth through fundamental reforms. Faced with bad policies in the late 1970s both President Reagan and Prime Minister Thatcher rejected the political establishment's policies and advocated a bold return to the fundamental principles of a market economy.

It is time for that choice to be offered the American people again.

Here are some key principles from the Reagan-Thatcher model of solid growth, increased personal opportunity, and stronger countries.

1. First, the Federal Reserve should return to protecting the dollar against inflation. A sound dollar would bring down the cost of energy and provide a basis for real economic growth measured in a real currency.

2. Second, the Federal Government should return to a fiscal policy of controlled spending. Both Thatcher and Reagan believed in limited government. Both advocated fiscal discipline to enable the lowest possible interest rates so the private sector could grow.

3. Third, institutions that are too big to fail have turned to be too big to manage. It is vital to get Freddy Mac, Fannie Mae and AIG away from the Washington politicians, lobbyists and bureaucrats. A method of orderly receivership and sound return to market disciplines is essential. A policy of capitalism for the successful and socialism for the failures is unsustainable. A policy of welfare for the Wall Street rich will sicken the entire political system and cripple the economy. Fannie Mae and Freddie Mac clearly should be broken up into smaller companies because they are clearly far too big to manage and far too dangerous and over time they should be weaned from their government endorsements and they should cease to be government sponsored enterprises with future loans made only with market security.

4. Fourth, the institutions in receivership should be barred from hiring lobbyists or encouraging political contributions. It is intolerable to have those who are soaking the taxpayers use the taxpayers own money to manipulate the system to get even more money out of the taxpayers. .

5. Fifth, we should insist on new transparency for financial systems so people in the future will know when cunning and clever people are manipulating reality in the pursuit of ill-gotten wealth.

6. Sixth, we should replace the snapshot, instantaneous measures of the current mark-to-market system, which has created the worst of all worlds. Because it is instantaneous in changing values, on the way down, it makes the deflation dramatically worse, and it bankrupts companies that otherwise might survive. And on the way up, it increases the amount of liquidity beyond reality, and allows companies to be overleveraged. What we need is a rolling three year average mark-to-market system, and in the interim, we may need to suspend it for six months to a year, to allow the system to get right, because people don't yet understand, that the adoption of these accounting rules is a major factor in the liquidity crisis which is leading companies to go bankrupt, and it is pretty destructive to have artificial accounting rules ruin companies that would have otherwise survived under previous rules.

7. Seventh, we should adopt a tax code which encourages investment, savings and job and productivity growth within the world market. Start with the Irish corporate tax rate, which is 12 %, eliminate the capital gains tax so we can match China and Singapore, which have no capital gains tax,  restore strength to the markets by eliminating the capital gains taxes rather than by increasing the power of bureaucrats, lobbyists, and politicians.

8. Eighth, repeal Sarbanes-Oxley. It has clearly failed. It didn't get the job done, and yet, it adds enormous costs to small businesses, it is driving companies to go private. Virtually everyone I've talked with who is actually in business has said it is amazingly destructive, and the right answer is we need real  transparency and real accountability, but since Sarbanes-Oxlyey has failed, it should be repealed, and we should start over with a fundamentally different and more modern system .

9. Nine, adopt an 'all sources, all of the above" American energy policy which combines drilling for oil and gas, oil shale, clean coal, biofuels, flexfuel cars, wind, solar, hydrogen and nuclear power into a deliberate strategy of creating the most abundant energy economy in the world. Return to the American economy at least $500 billion of the $700 billion a year we currently send overseas for energy. The result would be an explosion of new jobs and new prosperity. Foster a building boom in St Louis, Cincinnati and Detroit rather than in Dubai and other countries which are currently getting our money so they can come back and buy our companies.

10. Ten, recognize the central role math and science will play in economics and national security in the 21st century and adopt a science driven research and development budget. Replace the current anti-investment, anti-growth Budget Act with a new 21st Century Budget Act for Investment. Increase in science investment including research, development and education to the level science opportunities make desirable, not the level some political budget bureaucrat defines.

11. Eleven, put children first and replace "No Child Left Behind" which has focused on improving change resistant unionized bureaucratic failures with "Every American Gets Ahead" which would put children before bureaucracies and use technology, incentives and competition to give every American of every age a chance to learn what they need when they need it.

12. Twelve, extend the 21st Century Budget Act for Investment to include new approaches to rebuilding our infrastructure so our economy can regain its advantage as a continent wide system of travel and transportation that can compete with any other country in the world.

13. Thirteen, create a space based air traffic control system which increases the air travel in the Northeast by 40% with no delays and cuts the airline use of aviation fuel by 10% thus improving the environment,  increasing jobs, increasing economic efficiency and increasing traveler satisfaction simultaneously.

14. Fourteen, replace the current deadlocked and failed efforts at health reform with two major initiatives and these come from the Center for Health Transformation. First, create a health based health reform which identifies every best practice in the country and incentivizes federal health spending to migrate the weak practices to best practices. The result will be a huge savings in lives and a massive savings in money (maybe as much as $160 billion a year by 2012).

Second, create a National Defense Electronic Health System with every American in a paperless modern system by December 2012 (that is seven months longer than it took America to win World War Two). Change the Budget Act to count savings from fraud reduction and better practices to both pay for the electronic health system and to use the surplus savings to create a tax credit for every uninsured American to buy their own health insurance.

15. Fifteen, reform the litigation system so it is no more expensive or destructive than our global competitors.

16. Sixteen, pass a substantial increase in H1b visas so high quality, well educated workers can help America become a wealthier and more successful place.

17. Seventeen, control the border for national security reasons and create a guest worker identity program and a serious enforcement process to restore legality to the American economy.

18. Eighteen, pass a 21st Century Social Security system giving every young American the opportunity to profit from the rebuilding of the American economy as we return to the fundamentals and become once again the most successful economy in the world.

These are the kind of fundamental programs President Reagan and Prime Minister Thatcher used to rebuild the American and British economy in the 1980s after a terrible economy of inflation and unemployment and energy crisis in the 1970s.

Why don't we skip the failed policies that created a bad decade and go straight to the successful policies that created a great decade?

WHAT'S AT STAKE: 

A CHOICE BETWEEN TWO FUTURES FOR AMERICA

What's at stake is two very different futures for America built around two opposing value systems advocated by two coalitions of power.

Down one road is a bureaucratic, insider-dominated system of litigation, regulation, and taxation  with government dominance, with slow growth, expensive and scarce energy, and the eventual replacement of the United States by China and India as the world's most advanced and prosperous nations.

Down the other road is a dynamic American economy producing its own energy, independent of dictators, using science and technology to create an exciting future, and continuing its role as the most prosperous and technologically advanced country in the world.

Down this latter road too is the America we recognize, the America we want to preserve. An America that  demonstrates and lives by the most important insight ever provided  by the study of  the science of economics -- that economic activity, like all human action, relies in the end on moral agency -- the moral agency of human freedom, the human freedom God enjoins for all His creatures.

And that this freedom of individuals to go as far and as high as their talents can take them - this is the freedom that is the real source of any wealth and economic progress, a freedom in which the success of one benefits all. Causing a rising tide that lifts all boats is the work of encouraging individual achievement and excellence while discouraging the collectivist schemes and contrivances of opportunistic politicians.

Because politicians and government can only take wealth they can never create it.

Staying true to freedom, then, can create a tide of economic prosperity but also provide what all human prosperity ultimately depends upon - the kind of faith in the future that sees current difficulties not so much as a crisis but an opportunity - an opportunity to affirm the American spirit, to speak for hope, to look always to tomorrow and remain true to our founders call.

And that call - their call to every generation of Americans - is to keep our land "a light unto the nations."

This is the choice before us.  Which America we want, and which America we choose.

In the next few weeks, by your words, by your actions, by the calls you make to your elected officials, by the work you do, by your participation, by your letters to the editor, by your involvement in calling into talk radio, you have a chance to say you want America to get back on the path that works: the rule of law, the responsibility that those who tried to get very rich and didn't make it, have to somehow go through a process of change, but that you the taxpayer do not owe them your money to bail out their problems, and that we do not want Washington, with its bureaucrats, its politicians, and its lobbyists, to become the center of the American economy because that will limit our children's future.

We want once again to return to the rule of law, to have a system of low taxes and great opportunity and to have an opportunity to change the institutions that are failing to create even greater chance for our children and our grandchildren to live in prosperity and safety.

Thank you and I look forward to seeing you next Saturday at American Solutions and again you can find out by going to AmericanSolutions.com all about your opportunities to participate in our second annual Solutions Day.