November 6, 2002
Dear Mr. President,
Congratulations on a stunning victory, one that is almost without precedent in the last 100 years by gaining seats in both houses during an off-year election. Your aggressive campaigning, Karl Rove’s strategies, and Bill Frist’s hard work are to be commended. In fact, the numbers don’t tell the whole story. The Democrats only managed to hold on to the New Jersey seat by cheating and the Republicans only managed to lose the Arkansas seat by, ahem, another kind of cheating. The Democrats’ big “win” last night was the narrow victory in the lesser-of-two-evils race for governor of California. The clear losers are Bill Clinton and Terry McCauliffe, who with predictable Clintonian ego and bravado decided to spend their resources on a personal vendetta, embarrassing you in Florida, rather than focusing on issues or allocating those resources where they could have been more effective. The other losers are all those Senate Democrats, with Daschle foremost, who had hopes of running against you in ’04. Surely now it will be a governor or your old friend Al who will have that distinction now. And of course, Dick Gephardt will say goodbye to his presidential aspirations and his leadership position in the house. The Democrats are at each other throats and the party is in turmoil.
What’s most stunning about this victory, however, is the message it sent. There is no doubt that your coattails, strengthened by your leadership after September 11, 2001, played a major role. Yet when polled, most Americans put the economy ahead of national security in terms of importance. The economy is still languid, and recession still plagues parts of the country—and Bill Clinton was right at least about this one thing: it’s the economy stupid. This was to be the Democrats’ ace in the whole. With a down economy and pervasive corporate corruption scandals, victory over the Presidential party—especially a party traditionally associated with big business—should have been at hand. Why was it not so? Many Democratic sympathizers in the media (if you will forgive the redundancy) lament that the Democrats didn’t go after the Republicans as hard as they should on the issues. But this is not credible as begs the fundamental question: what do the Democrats have to go after the Republicans with? In terms of scandal and corruption, the seeds of most of these problems were planted under Clinton—and after all, scandal is so Clintonian. And, unfortunately, both parties are equally guilty of close ties with the various offenders.
But most importantly, Democrats fundamentally do not have an ideological solution to a down economy. They are still the party of tax and spend, even though it is clear, now even to the American people, that this is now way to revive an economy. Their only recourse is to scare people about the risks of deficit spending and to deride tax cuts. But it was precisely this formula that Reagan used to banish stagflation and enable the parade of economic growth in the ‘90s that Clinton pretended to have lead. Democrats have no plan for reviving the economy and Americans understand that.
With this victory comes pressure: there are no more excuses of an obstructionist Senate. The Republicans, therefore, must revive the economy and soon in order to be successful in the next election. Here’s how to do it: the federal government must put the economy first, and the government second (the Democrats often use the “fiscal responsibility” argument to advocate the opposite.) So, Mr. President, I urge you to listen to the people and deliver the results that will propel you to victory in 2004. Here are ten steps to take:
1) Reform the tax code. Taxes should be used to fund the government, period. Instead, politicians figured out how to use taxes to micromanage almost every aspect of human life and created a huge tax code that is virtual habit-trail for taxpayers to run around in like gerbils. It is massively, scandalously complex as a result, costing huge amounts of money to administer and giving those that would cheat plenty of opportunities to do so. There are many proposals about how to do it, but what is most important is that it be done.
2) More and permanent tax cuts. Tax cuts are important not only for leaving more money in the hands of individuals where they can be put to more efficient use than with government, but also in how they figure into future value calculations. I have no idea where estate taxes or income taxes will be in 10 years based on the convoluted structure of your tax cuts and the politics surrounding it (e.g. Democrats have already discussed repealing the planned for rate cuts.) Make the rate cuts immediate and the estate tax cuts permanent. Also, the capital gains tax should be reduced and taxes on dividends should be eliminated. There is another compelling reason to cut taxes: it is best way to control spending. Politicians are like teenagers: the only way to control their spending is to cut their allowance.
3) Spend less. We are in a deficit situation because the federal government spent like drunken sailors over the past 5 years. First, it was the surplus that allowed the politicians to spend like crazy, buying favors from special interests while the getting was good, spending money as if it would never go away. But of course it did go away, and the government, as with many companies, was confronted with the fact that excessive spending turns into deficits when revenues fall. But while the private sector responds by cutting expenses, the trend under your watch Mr. President has been the opposite for the federal government. With a national security crisis, and without the check and balance of an opposition party that resists federal spending (as Clinton had), you have managed to expand the size of the federal government at even a greater clip than your predecessor. Please stop. Read on for ideas on how to curb spending...
4) Re-embrace free trade. You are a free trader, we know, but you have not acted like one. Your steel tariffs and farm subsidies may have been politically necessary but they came at a great cost. First, they cost you in credibility at home and abroad. Protectionism is inconsistent with your free-market ideas. Second, and more importantly, tariffs HURT the country imposing the tariff, not just the foreign countries subject to them. Tariffs reduce the choice that consumers have and they increase the costs of protected goods. It is essential that businesses be allowed to fail in this country—for that is the only way they can be allowed to succeed. Japan is in a 10-year recession because they won’t let companies fail. The politics of “preserving” industries is tempting, and the political and financial rewards are not insignificant in the short run, but you can be a long-term thinker. Please put your trade promotion authority to good use.
5) Reform education. Your education bill was a political victory—for the first time in memory Americans when polled say they trust Republicans as much as Democrats on the issue of education—but is was a policy failure. Education needs less central control, not more. This is not a difficult issue: education is failing in this country because it is a monopoly controlled in great part by the teacher’s union—whose primary concern is themselves, not our kids. No industry can thrive, innovate, and improve without competition, and this is true with our most important industry—education. Parents should be able to take their kids out of failing schools and put them in competitors who promise to do a better job. As with industry, schools need to be allowed to fail in order for there to be real change. The nation favors choice, but the political forces opposing it are very strong. You now have the power to challenge them. Choice does not necessarily mean vouchers. Charter schools are an important step and public schools can be made to compete with each other. But choice, of some fashion, is vital.
6) Tort reform now! The United States is experiencing nothing short of a major crisis with its legal system. The cost imposed on society by greedy trial lawyers is immense and affects all areas of society—education and medicine not the least. The frivolous suits against fast-food restaurants and on behalf of asbestos “victims” who were never sick would be comical if the costs on society were not so great. This doesn’t just effect “business,” of course. Businesses have to get their money from either their customers, employees or investors—all of whom are having tough times right now. Politically there is little to lose here: the trial lawyers are already so deeply in bed with Democrats that it’s hard to imagine them doing much more to hurt Republicans. Even George McGovern and Alan Simpson agree: “A healthy system of law should make people comfortable doing what's right, and nervous doing what's wrong. Today, law makes people nervous in doing practically anything.”
7) Reform social security and health care. You started the process of reforming social security and then halted once the economy went sour. Many predict social security reform will continue to be tabled. This would be a mistake. Take heart from Liddy Dole’s victory and the fact that, again, most Americans want social security reform. Granted the anti-reform lobby is powerful, but their primary concern is that social security be preserved. Despite the fear mongering of the Democrats, who are ideologically opposed to social security reform because they favor a large state, social security is only in jeopardy if it is NOT reformed. Private accounts, even if only a small part of the program, would go a long way to transforming social security from a regressive tax and an entitlement to empower people to take individual responsibility for their own retirement, with the help of the government. A similar problem exists in health care, where people do not, by and large, pay for nor make the important decisions regarding their own health care. Rather we have a system where people, in essence, pay for other people’s health care while still other people make decisions about how that money is spent. If the government is to play an effective role in healthcare, consider medical savings accounts—401(k)s, if you will, for healthcare.
8) Deregulate telecommunications. Telecommunications were regulated, to a certain extent justifiably, when telephone service, like the railroads of old, was a technical monopoly. This monopoly doesn’t exist today as there are multiple communications networks (telephone, cable, terrestrial and satellite wireless) criss-crossing the country. As a result, telecommunications regulation today is no longer about protecting consumers from monopoly power but about protecting entrenched telecom and entertainment companies from competition. Those that want to take money out of politics (once they’ve neutered the politicians ability to grant favors to lawyers, teachers, and the retired and reformed the tax code) would be wise to go after the telecommunications lobbies next. Telecom companies spend huge amounts of money to cajole the federal government to regulate their competitors more then they are regulated themselves. Cable and long distance companies go after RBOCs and RBOCs fight back. The solution is clear: get out of the business of regulating telecommunications altogether. (If our RBOC increases our phone rates, we’ll start using our cell phones instead.) This includes freeing up spectrum. Today the government feels that it alone, rather than the market, knows best how to use this precious natural resource, but it has made disastrous, politically motivated decisions. As an example, TV broadcasters “convinced” (i.e. bribed) politicians that massive amounts of radio spectrum must to be preserved for them to broadcast HDTV. But not only do people not want HDTV, they certainly don’t want HDTV over the airwaves (about 90% of us use cable or satellite to get our TV signal). Instead of this spectrum being free to be used for cellular telephone service, or whatever other service the market and entrepreneurs could concoct, it has been wasted. The government, a large, centrally run, politically-controlled bureaucracy is not equipped to make proper decisions about technology. Let the market decide how to use radio spectrum.
9) Just Say No to Hollywood. Telecom companies aren’t the only ones spending gobs of money to encourage the federal government to intervene on their behalf—the entertainment industry is paranoid about having to change their business model and is investing heavily to forestall that from happening. Hollywood’s rhetoric, of course, is that it wants protection from piracy. Fair enough, but we have plenty of laws against theft and fraud in this country. Don’t be fooled: technology has created all sorts of new ways content can be distributed and enjoyed and so, in order to shield themselves from competition, the entertainment industry is intent on getting the power, through federal fiat, to dictate technology standards. This would retard technological innovation and slow innovation—all to protect an ossified cartel from having to change to adapt to consumers’ evolving needs. Fritz Hollings was the worse offender, so it is heartening to see him lose his chairmanship.
10) Resist quick-fix schemes. Politicians are expected have all the answers and to be able to solve all problems with “plans” and legislation. Certainly there are problems today with corporate governance, accounting practices, and investment banking and research. But there are a myriad of solutions as well and the market should have the ability to test and experiment to find the best result—and of course one solution may not fit all—rather than having the government step in to dictate a one-size-fits-all, centrally planned fix. Should accounting and consulting be split? Should companies rotate accountant every 5 years? Should banking and research be split? Should companies use more outside directors? Perhaps these are solutions, but perhaps not for all and perhaps there are better ones. The market should be allowed to go through the free discovery process to find out. Remember, it was the market, not the federal government, that first spotted the problems at Enron. The best thing you could do is to remove the regulations and taxes that distort behavior. Eliminating the tax on dividends would shift the emphasis from stock price to profits. Allowing insider trading would provide the market with an early warning system of company failure and would allow management changes in failing companies. Let the market heal its wounds.
Now that we have outlined an ambitious plan for economic revival let us acknowledge a reality that Ronald Reagan also knew all too well: you can’t do it all. The house and senate are still closely divided and Democratic incoherence can’t be counted on to continue indefinitely, so you will have to pick your battles. But we believe that what will matter most is results, not politics. Nothing breeds success like success. Follow your instincts and remember these words from Reagan, in his seminal “A Time for Choosing” speech in 1964: “A government can't control the economy without controlling people. And they know when a government sets out to do that, it must use force and coercion to achieve its purpose. They also knew, those Founding Fathers, that outside of its legitimate functions, government does nothing as well or as economically as the private sector of the economy.”
Here’s wishing you clarity and courage,
The Editors of R21