FJM Blog

By Ken Blackwell

Barack Obama took a lot of criticism from John McCain and others for promising to meet with Iran’s ruling Mullahs without preconditions. When he was contending with Hillary Clinton for the Democratic nomination last year, Obama’s promise to change our relationship with Tehran and extend an open hand was subjected to sharply critical analysis by members of both parties.

But he prevailed. Neither Hillary nor McCain seemed capable of explaining to Americans why it was bad for Obama to offer an olive branch to the men our own State Department described as the world’s leading exporters of terrorism.

That was last year. Now, with Americans voting for hope and change, we can see the results daily. Just look at the Obama administration’s Iran policy: It changes almost every week.

Serving as Obama’s loyal Secretary of State, Hillary Clinton in April called for “crippling sanctions” against Iran if they did not halt their drive for a nuclear weapon.

But wait, here comes another change. In June, President Obama told a Muslim audience in Cairo that he was sorry for the 1953 overthrow of the elected government of Iran. He virtually admitted U.S. involvement in the coup that overthrew the leftist Mossadegh regime there. (Why jihadist Mullahs would be sorry to see a Marxist, secular government of their country overthrown is another question. And besides, it was 56 years ago, long before Obama was born.)

The President also said in Cairo that Iran had “a right to the peaceful pursuit of nuclear power.” But Iran’s program evidently is fully capable of producing nukes. That’s just for starters. Then, there’s the curious phenomenon of speaking to Arab Muslims — most of them Sunnis-about Iranian Non-Arabs, all of them Shi’ites — and expecting your Cairo listeners to be put at ease by your words.

That was June. After several days of Obama administration foot-dragging on the Iran’s clearly fraudulent elections-when France and most of the other nations Obama usually wants us to defer to-had come out foursquare for the student demonstrators, Hillary Clinton was finally authorized to say she was “appalled” by the Iranian ruling clique’s crackdown on pro-democracy demonstrators in the streets. This was “unacceptable,” Madame Secretary said.

Recently, Hillary journeyed to Thailand for an Asian security conference. There, she raised eyebrows if not hopes by saying America would extend its nuclear umbrella to Gulf States that felt threatened when Iran develops a nuclear bomb.

Then quicker than you could say “stupid Cambridge cop,” Hillary began to walk back her “when” statement. The London Times charitably reported that Mrs. Clinton’s Bangkok statement “appeared” to suggest the U.S. is resigned to Tehran getting the bomb. Appearances in this case were not deceiving.

Now, the Obama administration is virtually parachuting its top foreign policy hands into Jerusalem to reassure Israelis. The Israelis are rightly alarmed by Obama’s brand of hope and change.

Mideast Envoy George Mitchell, Defense Secretary Robert Gates, National Security Advisor James Jones, and Presidential representative Dennis Ross are all descending on the Jewish state with reassurances. You know that Israel seriously needs reassurance and you can tell how serious this matter is: Obama did not send Joe Biden.

Now, Hillary Clinton is saying Tehran’s race for the bomb is “futile.” That it is totally “unacceptable.”

More than a hundred years ago, there appeared a Mahdi — the Expected One — in the Sudan. The Mahdi led an army of Dervishes — militant zealots known for their ability to whirl themselves into a trance of religious ecstasy. The Mahdi Army wiped out the British in Khartoum in 1885. Finally, the Mahdi Army was put down in 1898 at the Battle of Omdurman. That’s the last great cavalry charge of the British Army — the one in which the young subaltern, Winston Churchill took part.

Periodic flare-ups of Muslim fanaticism have threatened the Western world. It takes patience and firmness to respond to them. Islamic radicalism is not new.

What is new is an American foreign policy that seems, with all its twists and turns, more like a Whirling Dervish than like that sure and steady hand that Ronald Reagan applied to the tiller of the ship of state.

We should all hope that when the dizzying changes in Obama administration’s Iran policy finally settle down, they will be ones that will lead to peace through strength. At present, however, these inconsistent and inconstant Obama policies toward Iran serve only to discourage Americans, alarm Israelis, and worry other U.S. allies in the region.

Ken Blackwell is a former US Ambassador to the United Nations Human Rights Commission and a senior fellow at the Family Research Council.

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By Armstrong Williams

The United States needs a new income tax amendment to the Constitution in order to impose fiscal discipline on the Congress and the President.  The amendment would impose a proportional tax on all taxpayers to finance all future government programs.  Presently politicians buy votes with costly programs that do not directly cost a majority of voting citizens any money.  Politicians tell 80% of the voters in the bottom income quintiles that they will not have to pay for these programs.  They tell the voters that they will finance e the cost of these programs by taxing the richest 2% of the voters who earn more than $250,000.  Politicians mislead American taxpayers into thinking that they can get something for nothing.

In the current political dialogue, President Obama promised not to raise taxes on American families making less than $250,000 per year.  He pledged to let the Bush tax cuts expire on the “rich” making more than $250,000 per year.  This expiration will increase the highest marginal rate from 36% to 39.6% in 2011.  However, the prospect of higher taxes does not stop there.  The health care bill before Congress proposes income tax rates of up to 45%, and an 8% payroll tax on businesses that do not provide health insurance.  These increased taxes are part of a package to completely overhaul the nation’s health care system where 90% of Americans are covered and 84% are satisfied with their coverage.  Would the dialogue be different if all Americans had to pay for this plan?

There is abundant commentary on the negative impact of highly progressive taxes on the economy. However it is worth repeating its most salient points to emphasize its negative impact on the economy.  When the government tries to soak the rich with higher taxes to pay for new programs, the middle and working classes inevitably get wet.  The rich are ingenious in avoiding being soaked by higher taxes.  Their accountants and tax lawyers work overtime figuring out ways to reduce actual taxes.  However, even more importantly, the rich change their economic behavior as a result of higher taxes.

Rich professionals work fewer hours.  You do not have to be rich to understand this.  Why should a lawyer, doctor or investment banker work extra hours when more than half of his income goes to the government? (Yes, more than half if he lives in a high tax state like New York or California.)  He might prefer to make enough to support his golf addiction and spend more time playing golf.  These are among our most productive citizens deciding to work less and create less value for society.

Rich business owners and investors take fewer investment risks in the US because the after tax return on investment is reduced.  They also transfer more capital abroad where the after tax return is higher.  A large portion of the income of the rich is generated from profits of small and medium sized businesses and from investments.  In a high tax environment, these businesses will find some of their more marginal ventures aren’t worth the risk or the effort.  Business owners will contract these marginal operations, move them overseas or shut them down.

As a result of these rational responses to higher tax rates, the middle and working classes inevitably get soaked.  The spray starts with jobs.  US businesses provide fewer jobs because the rich do not invest in their US based businesses. As a result of lower after tax income, the rich have less money to spend on goods and services provided by middle income and working Americans. For example, the house keeper and the gardener may have to find new jobs.  There is less money spent at restaurants, clothing stores and the arts.  The spray usually ends up soaking the working and middle classes with taxes to pay for deficits.  These deficits are created because higher taxes on the rich provided less tax revenue than projected to cover higher government budgets.

Arguably, the most insidious feature of highly progressive tax rates lies in the moral hazard of encouraging government programs where the costs do not justify the benefits.  When a voter does not have to pay for an expensive government program, he has little reason to examine the costs of the program.  He may get a small benefit from the program, but if it cost him nothing, he does not have to assess whether the costs outweigh the benefits.   On the other hand, if the voter contributes to the costs of a government program through additional taxes, he is more likely to force his elected representative to justify the costs imposed on him by the new program.

If there were an income tax amendment that required all voters to be taxed on new programs in proportion to their income, these voters would force their elected representatives to closely examine the costs and benefits of all new programs.  There would be no free ride.  Even if the new tax amendment permitted some degree of progressivity, there would be more accountability and fiscal responsibility imposed on Congress and the President.

There are a large number of potentially beneficial government social programs including universal health care, infrastructure projects, environmental projects and education programs that many Americans would not oppose if they do not have to contribute to the cost.   These programs are very expensive, and they should be subject to a cost benefit analysis by politicians and taxpayers.  Undoubtedly, fewer Americans would support these programs if they had to bear the costs.

Under the present tax system, a liberal Congress and President can avoid the tough cost benefit analysis and voter scrutiny by shifting the costs of these programs to the rich.  Paraphrasing Margaret Thatcher, the problem with soaking the rich to pay for social programs is that pretty soon you run out of other people’s money. The rich may not mind paying a share of these programs if the benefits outweigh the costs, but it is neither fair nor reasonable to expect them to pay the entire cost so the politicians can buy the votes of non taxpaying voters.

www.armstrongwilliams.com

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By Ken Blackwell

Bill Kristol may have been trying to make mischief earlier this year when he suggested that Barack Obama may dump Joe Biden as Vice President in 2012 in favor of HHS Secretary Kathleen Sebelius. However, Joe Biden’s latest kerfuffle raises questions about whether he’ll even make it that far.

Republicans in my view failed last fall to point out Biden’s train wreck of a record. They allowed the American people to be told that Joe Biden has foreign policy credentials. They never pointed out that Joe Biden spent 26 years in the U.S. Senate and that his fellow Democrats never considered him for Majority Leader. Over the past few weeks, we’ve all learned why.

Biden recently stepped all over his boss’s lines about Russia. Barack Obama and Hillary Clinton—however clumsily—have been trying to “reset” our relationship with Russia. Hillary even went so far as to give the Russian Foreign Minister a Staples-made red button with the Russian word for “reset” regrettably misspelled.

Obama has just returned from a stumbling start in Moscow. There, he dissed Russia’s real boss, Vladimir Putin, and cozied up to Putin’s puppet, Dmitiri Medvedev, getting tangled up in the process.

Now, Biden has tripped over his own shoelaces. He recently gave an interview on U.S.-Russian relations in which he brags that the U.S. is in the catbird seat while Russia is in decline.

Biden said: “[The Russians] have a shrinking population base, they have a withering economy, they have a banking sector and structure that is not likely to be able to withstand the next 15 years, they’re in a situation where the world is changing before them and they’re clinging to something in the past that is not sustainable.”

Russia does have a shrinking population, attributable in no small part to the average of nine abortions endured by Russian women of child-bearing age.

Apart from that condition, Biden might have been describing the U.S. under his and Obama’s administration. And they’re working hard to make America’s population shrink.

Consider this: The health care takeover both Obama and Biden back will make abortions free. More than that, they are showering population control outfits like Planned Parenthood with billions in federal funds.

If “shrinking population” is something that is bringing Russia down, why do Obama and Biden want to import it to the U.S.? Justice Ruth Bader Ginsburg has already told us why liberals want to fund abortions—it’s so we can get rid of “populations we don’t want top many of.” Perhaps we should be asking the Joe Biden what he thinks of Ginsburg’s statement and why he wants his government takeover of health care to offer free abortions—just like Russia’s. Or maybe we can just press Joe’s “reset” button.

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By Harry R. Jackson, Jr.

It is amazing that biggest news story for nearly 10 days has been the arrest of a Harvard professor for disorderly conduct at his own house in Cambridge. Overshadowing the health care debate, national security and every other national concern - the story simply will not go away. It’s got all the elements of a “good television drama,” except there’s no sex or violence.

Why so much attention for such a mundane issue? The president’s involvement is obviously the chief element that has fueled the controversy. The fact that the president’s remarks showed a lack of judgment allowed his enemies to begin to circle like sharks. There is no question that partisan politics of our day loves the smell of blood in the water.

The president has deftly attempted to mitigate his personal blunder by a series of ingenious steps that will probably muffle the sound of the personal controversy of policeman-versus-professor at the center of the storm. Having the parties meet this month for a beer at the White House will rectify the president’s problems.

But there are other factors at work in this story that make it interesting to Americans. Think about it this way - by the time of the August meeting with the president, this story will have risen above the notoriety of the Rodney King arrest in LA.

For me, the Gates story has served as a sociological diagnostic tool. Like an X-ray, it has revealed problems that exist beneath the surface. More specifically, it demonstrates that the issues of race and class are still hot topics in the nation. Before I share my assessment of what we can learn from this problem and a prescription to help heal us with our preoccupation with race and class, let me enumerate the other lessons we should have learned from this real life drama.

First of all, it is obvious that the president overstepped his boundaries in calling the Cambridge policeman “stupid.” As the leader of all the people, he should not have become so partisan or emotionally involved with his comments about his friend, Dr. Gates. Secondly, it is also obvious that the Cambridge police sergeant, a racial profiling trainer, overacted in his response to the world famous professor. There is somehow another subtle overstepping of appropriate boundaries, when a professor is arrested in front of his own house. Thirdly, as I looked at the police report, I could not help but think that the professor spoke in a very haughty, condescending manner to the police officer. Ironically, the professor’s hubris may well have been worse than any racial stereotype that he felt the officer had invoked.

As a Harvard Business School graduate with a daughter that has just finished two degrees at Harvard’s School of Education, I would be the first to say that there is a long history of both race and class problems in Boston. I remember hearing of a black student in the late 70s who was savagely beaten and thrown on a subway train that took him back into a “black” part of town. He had committed the unpardonable sin of missing his subway stop and riding into “white” South Boston.

In addition, there is a definitive “us-versus-them” feeling concerning Harvard in Cambridge and the surrounding area. The institution is either loved or hated. It is a class issue. The nation has most recently seen this type of prejudice in the case of the Duke Lacrosse players, who were accused of rape.

As we identify our problems, I trust that we will move beyond merely talking about some of our key social dysfunctions. Don’t get me wrong - talk can be a great first step to personal transformation. None of us will ever understand others unless we learn to listen and empathize. Without a dialogue that raises awareness, many of us will stay trapped in a thought world based on stereotypes and assumptions.

All of us have our own racial and class histories, yet we can learn much by listening to others. For example, an elder in my church, who happens to be white, had his brother murdered in the seventies by a drive by shooter. The shooter was a black man who just wanted to “shoot someone white.” The murder caused my friend’s dad to stumble into the abyss of racial hatred and grief for twenty years until he died of cancer. The incident scarred the psyche of their entire family and all of there friends. Too often racial problems are expressed in a one sided manner - painting blacks and other minorities as the only legitimate victims of the problem. Whites often feel wrongly accused, while repeatedly blacks feel justified in harboring unforgiveness and bitterness.

Today my church elder and his wife have adopted and are raising several black children. His family is a model of Christian love and racial reconciliation. In talking with him, I can believe that Martin Luther King’s vision for America will actually come to pass some day. This gentleman has taught many men how to lead their families and support their wives and children. A dialogue with this church elder and successful businessman would help many people start down the path to personal transformation and community change.

The deceptive aspect of simply talking about race and class problems can become a cheap substitute for substantive action. For many of us, it takes so much energy to address our feelings and articulate them that we forget that this is just the beginning of a process. I am hoping that, as a nation, we will complete the process that dialogue and discussion begin - and embrace personal development. Truthful, transparent interaction can bring a fresh commitment to living up to our ideals and challenging the status quo. Let’s be those people who follow through!

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By Herman Cain

During President Obama’s primetime press conference last Wednesday, he made the usual promises about Obamacare, which have no resemblance to what Congress is working on. The president continues to promise more choices, better health care, fewer costs and less government intervention. The “Health Care De-form” legislation working its way through Congress is just the opposite.

Rather than the lapdog mainstream media doing its job and challenging the president on his assumptions and assertions, they play “run and fetch” with whatever the president says. Since they didn’t do their jobs, here are a few real questions for starters.

Mr. President, since government mandates have never produced the desired results in the history of this country, why do you believe they will work this time?

When the government mandated a salary and wage freeze during World War II, businesses still had to compete for the best people in the workforce. As a result, businesses started offering health insurance benefits as an employment incentive and the practice has intensified over time. So much so, many politicians now proclaim that health care is a “right”.

Mr. President, is food a similar “right”? (No response)

Mr. President, since persistent problems have been reported about Medicare, Medicaid and veterans’ health care, why do you believe that this time the government bureaucracy will perform much better than ever before?

I can’t imagine that he really believes that, but he has to keep saying it because that’s what the “sheeple” want to hear, and it provides cover for what the Democrats in Congress are working on to get us on the road to health care rationing.

Mr. President, if the real objective is to provide health insurance for the “uninsured” in this country, then why not allow people the opportunity to pay a small fee to participate in Medicare? In fact, why not offer free Medicare to those that are really, really poor?

According to my calculations the costs would be only a fraction of $1.5 trillion if you use the real number of 8 million chronically uninsured people instead of the misleading 46 million. Alternatively, why not provide a “health insurance voucher” for those who are chronically uninsured?

Mr. President, have you considered changing the law to allow association health plans, along with allowing health insurance premiums to be tax deductible regardless of who paid for them?

History has shown that free market forces are better than government mandates to curb the rapid rise in costs.

At that point, President Obama would pull a “Clinton”. In 1994, when I asked President Bill Clinton a question during a televised town hall meeting he did not want to answer, he said, “Send me your information and I will get back to you, next question.”

I’m still waiting.

Mr. President, since no country with government-controlled health care has been able to avoid health care rationing to control costs, what evidence do you have that suggests we will be able to do what no other country has been able to do?

Oops! The president’s staff might call security on that one.

If the last question of the night about a “racial” incident in Boston involving a friend of the president was not a plant, then it was a brilliant accidental distraction to throw to the media. “Run and fetch” worked again, because that was the main story by many news outlets the next day.

Here’s my last question: Mr. President, do you really know what’s in the “Health Care De-form” legislation?

Sorry, we are out of time.

© 2009 North Star Writers Group. May not be republished without permission.

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By Star Parker

“America, America, God shed His grace on thee.”

Many demoralized souls felt over recent months that this famous appeal in “America the Beautiful” had been falling on deaf ears.

But we’ve had a miracle. The socialized medicine freight train, chugging down the track with seeming insurmountable inevitability, has been, for the moment, derailed.

And, miraculously, the derailment has occurred because of values as well as economics.

Conservative Democrats have parted company with their liberal colleagues because the health care legislation in process will bust our federal budget and deliver new federal abortion funding.

Subsidized health care delivered through a proposed government insurance plan would inevitably mean abortion funding in the standard benefits package. The only way around this would be explicit language to prohibit it.

Attempts by Republicans in three House committees to insert such language were defeated, despite a handful of conservative Democrats joining them.

Now a broad coalition of pro-life organizations has initiated a campaign to fight any health care legislation permitting new government abortion funding.

President Obama has called this an attempt to “micromanage” health care benefits. Planned Parenthood has echoed these sentiments.

Is the concern of these pro-life groups legitimate? You bet it is.

Pro-abortion forces have been forever calling abortion health care. Planned Parenthood, the nation’s largest abortion provider, defines its business as providing “reproductive health care.”

Or consider our president’s thinking.

Then Senator Obama stated his disagreement with the Supreme Court decision banning partial birth abortion because it “departs from previous precedents safeguarding the health of pregnant women.”

Partial birth abortion is a procedure in which a doctor kills an infant near birth by smashing its skull and sucking out its brains. The Supreme Court acted in 2007, thank God, to make this illegal. The decision permits the procedure if the life of the mother is danger.

Yet this is unacceptable to our president. He wants vaguely defined health considerations, beyond the question of the life of the mother, to permit what is essentially murder.

For pro-aborts, murder, if the victim is an unborn child at any stage of development, is health care.

So, yes, we can be sure that, without specific prohibiting language, legislation that directs new federal funding to individuals for health care will cover abortions.

There is particular irony that Obama and others championing health care reform insist that it’s unrelated to abortion concerns.

We hear a lot of talk about eliminating waste and having more preventative health care. But the most powerful health care initiative we could get is the last thing they will propose: Traditional family values. The same values undermined by the liberal abortion regime and moral relativism they promote.

A wide array of studies shows married individuals physically and mentally healthier than singles.

Among the 47 million uninsured that we hear so much about, two thirds are unmarried.

And, according to a recent study on the uninsured published by the Employment Policies Institute, “lack of health insurance is not likely to be the major factor causing higher mortality rates among the uninsured.” The higher mortality rates tie more closely to behavior that leads to poverty, such as poor education and dysfunctional lifestyles.

Let’s capitalize on the miracle that has occurred with a truth initiative about our health care crisis.

New government bean counters, programs, taxes, spending, and subsidies are not the answer.

For those currently on private plans, we need less, not more government. More competition and health savings accounts.

For the uninsured, break the cycle of poverty with school choice and rebuilding families in poor communities.

Health care is not about bureaucrats but about individual human behavior. We should be talking about a culture of life and the traditional values that sustain it.

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By Ken Blackwell

Recently, Secretary of State Hillary Clinton was described by liberal blogress Tina Brown as wearing a burqa—a foreign policy burqa fashioned for her by President Obama. That was a jarring thought. Then, the Secretary proceeded to India, where she continued this administration’s dangerous policy of apologizing everywhere for past U.S. policies. I called it her “Saari” tour.

Still in Asia, she moved on to Thailand for an international security conference. Madame Secretary talked about an umbrella: “We want Iran to calculate what I think is a fair assessment: that if the US extends a defense umbrella over the region, if we do even more to support the military capacity of those in the Gulf, it is unlikely Iran will be any stronger or safer,” Clinton said.

Secretary Clinton made a terrible gaffe in Thailand when she said this: “[The Iranians] won’t be able to intimidate and dominate as they apparently believe they can once they have a nuclear weapon.” Once they have a nuclear weapon. This is an incredible climb-down. For decades it has been the policy of the U.S. and our NATO allies that Iran must not have a nuclear weapon. Now, Mrs. Clinton seems to be publicly resigned to the idea that Iran will have a nuclear weapon.

The last major world figure to substitute his “umbrella” for sound defense policy was Neville Chamberlain—at Munich. Mrs. Clinton is describing a “defense umbrella” that she and President Obama think will somehow calm jittery allies in the Persian Gulf. The idea seems to be that just as the U.S. extended its nuclear umbrella over Western Europe so successfully for 50 years, the Gulf states can rest assured that America will be there to protect them—when the Iranians develop their nuclear weapons.

There’s a fundamental—even radical—flaw in this umbrella line of thinking. The Soviets could be deterred by the sure knowledge that the U.S. had the power to utterly destroy them. As Khrushchev said to Mao Zedong when the two communist dictators met: “The U.S. may be a ‘paper tiger’ as you call it, but that paper tiger has nuclear teeth!”

The Iranian mullahs have shown no such rationality. They do not care if Iran is destroyed so long as Israel is destroyed too. They are rapidly moving to the point where their Russian-built nuclear reactor will be functioning. If you can build a nuclear reactor, you can build a nuclear weapon.

Who says an Iranian nuclear weapon has to be launched by missile? Why couldn’t the Iranians slip it into Israel in a truck? Or detonate it aboard a small boat off Haifa?

The fundamental flaw in Obama administration policy comes from the top—from Barack Obama’s failed understanding of the nature of the adversary we face in Tehran. President Obama told his Muslim listeners in Cairo last month:

And any nation – including Iran – should have the right to access peaceful nuclear power if it complies with its responsibilities under the nuclear Non-Proliferation Treaty. That commitment is at the core of the Treaty, and it must be kept for all who fully abide by it. And I am hopeful that all countries in the region can share in this goal.

By conceding that Iran has a right to develop nuclear power, Obama conceded that the regime our own State Department has called the world’s Number One supporter of terror has a “right” to go nuclear.

He further conceded that they are a regime he seeks to have better relations with. He did little to aid the Iranian students in Tehran and around the country who rose up against the murderous mullahs. He claimed it would be “meddling.”

Now, Israel is working against the clock. Can any nation stand by while a regime that has pledged to wipe it out, that has financed and armed terrorist groups like Hizbollah and Hamas, races to get nuclear weapons?

It might be interesting to comment on the personalities of this new administration. And it’s certainly fun to watch two rivals like Hillary and Barack Obama maneuvering for personal advantage in the making and enunciation of U.S. foreign policy.

But this is serious business. The life of Israel is at stake, and perhaps our own. We may soon find that burqas, saaris, and umbrellas are poor substitutes for a policy of peace through strength. Let’s all pray that America awakens to the peril in time.

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By Armstrong Williams

When the stimulus packaged was passed by Congress in February, President Obama assured Americans that this huge unfunded spending proposal was necessary to keep unemployment from rising and20would restore growth to the recessionary economy.  On July 11, President Obama said the stimulus package “worked as intended…” “The recovery plan was not designed to work over four months. It is designed to work over two years (my emphasis)…” Unfortunately this is not how the stimulus20package was sold to the American people.  In his January 24th radio address the President said the purpose of the stimulus plan is “to immediately (my emphasis) jumpstart job creation as well as long-term economic growth.”  Immediately is not two years.  In fairness to Obama, he also told the American people that “this is not just a short-term program to boost employment. It’s one that will invest in our most important priorities like energy and education; health care and a new infrastructure.”   In other words, the real purpose of the stimulus package was to substantially increase government spending using economic stimulus and job recovery as a smoke screen to sell the American people.  Unfortunately, at the time, mainstream media was too intoxicated with Obama mania to point out the real purpose of the stimulus package to the American20people.

It is instructive to review several of the administration’s policies to understand why economic growth and job recovery have stalled.  In the unlikely event the administration changes its priorities and puts “immediate” job recovery and economic growth before big government, this review may also suggest a path.

First, government is not known for quick action and efficient spending of taxpayer money.  It is not a surprise that only 10 t o 15% of the stimulus package has been spent thus far.  The bulk will be spent after 2009.  Bureaucracy and procedures add time and costs to any government spending program.  To make matters worse, much of the stimulus proceeds went to state and local governments.  This adds another layer of government delay and inefficiency.  These governments are spending much of the proceeds to plug deficits generated by their improvident spending habits.  This is not new stimulus spending, but paying for unfunded bloated state budgets. The shovel ready infrastructure projects that President Obama promised would put Americans back to work take too long to stimulate the economy in the short term.

The quickest way for the government to pump stimulus money into the economy is to distribute it directly to taxpayers through lower taxes and direct grants. Unfortunately, the administration and Congress largely rejected returning money to the taxpayers. They prefer to leave stimulus spending decisions in the hands of politicians and bureaucrats rather than productive American taxpayers.

Second, the overhang created by record government deficits is threatening the economy with the prospect of higher taxes and inflation. The bloated deficit of $1.8 trillion created by the stimulus package and the existing budget is unprecedented in a peace time economy. The government deficit is expected to be 13% of GDP in 2009. The next largest peace time deficit was 5.9% in 1983.  At the end of 2008, the national debt was 70% of GDP.  At the end of Obama’s current term it is estimated to be 100% of GDP.

There are three ways to fund this deficit; higher taxes, borrowing or monetizing the deficit- a PC way of saying inflation.  Higher taxes hurt the recovery because it takes spendable funds out of the private economy. Borrowing the astronomical sums required by the US government may not be a viable option.  Many foreign lenders, including China, Brazil and India, have indicated that they no longer have an appetite for additional US debt.  This means that the government will have to rely on domestic debt to a greater extent than the recent past.  This will crowd out private sector borrowing necessary to recover from a recession and create new jobs. In order to kindle a recovery with lower interest rates, expect=2 0the FED to monetize the debt.  This will ultimately lead to inflation.  The dangers of inflation to the economy speak for themselves.

Third, if “Cap and Trade” is passed by the US Senate, expect higher energy prices.  As recently as 2008, most Americans felt the negative impact of high oil costs on their budgets and remember its negative impact on the American economy.  It is inconceivable that a year later Congress and the President want to impose increased energy costs on the American people in the middle of a recession.  According to an MIT study of a 2007 version of the Cap and Trade bill, Cap and Trade will cost the average American family $3,100. Even if that estimate is high, taking any money out of the pockets of working or unemployed Americans at this time is unconscionable and unnecessarily retards economic recovery.

Furthermore without participation of emerging market countries, Cap and Trade will have a disastrous impact on the US economy and job creation.   China, India and most other emerging nations have said they do not plan to participate in capping carbon emissions.  Therefore, expect US companies to transfer the manufacture of energy intensive products overseas to low cost energy countries, and expect US jobs to follow.

Fourth, the Federal government has disrupted the “creative destruction” process of the recession by keeping failed businesses afloat.  GM, Chrysler, AIG, Citibank, Bank of America and other institutions are now effectively owned and controlled by the US government.  The government has created a “moral hazard” with it’s “too big to fail” policy.  Aside from the direct costs to the taxpayer, the government is undermining the efficiency of American capitalism by keeping failing companies afloat.

Based on this review, the recommend course of action to get the economy back on track is straight forward.  First, repeal the stimulus package that has not yet been spent.  If the government must enact a fiscal stimulus program, enact a permanent tax cut directed at both consumers and businesses.  Second, reduce the deficit by cutting government spending.  Start with reductions in health care and pension benefits to Congress and the civil service.  Everybody outside of government in America makes a substantial contribution to their health care and pensions costs. Almost every business in America has gone through the pain of becoming lean in order to survive this economy.  Washington should lead the way by becoming lean with the rest of America.  Third, forget about health care reform and cap and trade until the economy recovers.  America cannot afford them at this time. Fourth, get out of the corporate turnaround business.  Sell government interests in bailed out companies and pledge not to contribute another nickel of taxpayer money to corporate bailouts.

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Tags: Uncategorized by Dr. Eric Wallace
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