It Is Time to Privatize Unemployment Insurance

I believe that President Bush's attempt to privatize Social Security (picture)would have created a nation of investors, would have left people far better off at retirement than the current system, and would have led to enormous growth for the economy as a whole. But the media and liberals argued that the policy was simply "too radical" and succeeded to undermine the support necessary to make it become law.

Bush should have started with something far easier to implement -- the privatization of Unemployment Insurance. This would be easier for several reasons:

* The number of people who will ever need unemployment insurance is considerably less than those who will need Social Security. Therefore it is "safer" to implement in this arena, than in something like Social Security. In other words, it would be perceived as a "minor experiment," rather than a radical shift in policy.

* This policy could have substantial flexibility in plan design, allowing individuals to store up money for the purpose of creating a business at the event of unemployment. This is something many would find attractive and would easily build support.

* Because we have enjoyed a few decades of low unemployment, and short periods of unemployment when they happen, rates would be very attractive compared to the arbitrary government taxes, and move a large number of Americans to support it.

* With a huge number of Baby Boomers approaching retirement age (and many being vulnerable to being laid off), yet not having adequate savings, they would love to have a "tool" like this to protect them. This would create a huge amount of support and momentum.

The benefits of this policy would be numerous:

* People would be able to design plans to meet their specific needs.

* People would have an incentive to get back to work quicker (or to create a business), in order to keep their rates low. Over usage would lead to higher rates, similar to the way other insurance is determined. The benefits to the economy would be obvious.

* It would contribute to a growing economy as revenues moved to private enterprise, both in premiums (which insurance companies would use for investments) and in the creation of new businesses because of the policy designs.

With the vast majority of Americans employed and many of them preferring to easily create a business if they lost their job, there should be plenty of support for a policy such as this. Furthermore, it could be a great wedge issue for the President to take support from the Democrats. This isn't a policy that should have to wait for a Republican President AND Congress. Rather, it is an issue Bush should pursue today and make it a referendum issue for 2008.

Saturday Morning Talking Heads

I typically watch Fox News every Saturday for their block of "Cost of Freedom" programs and I clearly see why it is the most watched two hours in business talk. Although I don't always agree with all the participants, they are very entertaining and many provide the best thought in business and the economy in the media.

A few observations from this week's programs:

* Social Security tax increases are still tax increases on job creation. We continually hear that Social Security is in a crisis and the answer to such always seems to be to raise taxes. If increases of taxes on income hurt the economy, so will Social Security taxes. In both cases it makes it difficult for the business owner to hire employees. Let's fix Social Security, but let's do it without hurting the economy.

* Let Wal Mart go into banking. The retail giant is interested in creating retail banking options at very low costs to consumers, and critics are concerned about their ability to do such. One commentator actually said "they don't know how to do it, so they won't do it well." Give me a break, as if Wal Mart won't hire the best people they can find to protect their assets and their customers. Wal Mart won't compete against the vast majority of banks, but make it possible to attract customers who have never had accounts, pumping huge amounts of money into the economy to be leveraged in a way it could never be done in a cookie jar, like many of these potential customers are doing now. If it is legal and Wal Mart wants to do it, I bet they will figure out how to do it well.

* Taxes on wealth creation must remain minimal in order to compete in a global economy. This may have been the smartest thing I have heard all day. How has Ireland, India, China, and other historically weak economies turned things around in recent years (two of these becoming economic powerhouses)? It isn't merely cheap labor, which India and China has had for years, but a tax system that puts the burden increasingly on consumption and a way from wealth creation (the source of jobs). If the US wants to compete on the international scene, they need to reduce or eliminate as many taxes on wealth creation as possible. Now more than ever they should consider eliminating income tax and replacing it with a consumption tax.

* How Tax Cuts Increases Revenue. Ben Stein is known by many as a TV and even movie personality (remember the history teacher in Ferris Bueller's Day Off?), but he is also quite brilliant when it comes to understanding the economy. One area he has come up short on, in my opinion, is understanding the power of the tax cuts in eliminating the deficit. On the news today he said that the increase in revenue the government has seen has been due to "business cycles" improving, which naturally generate higher revenues and not due to cutting taxes. Yet, I have also heard him state that the economy responded favorably to tax cuts and created a positive economic cycle. In other words, Stein has created a sequence of events in his mind but fails to see the bridge between the positive business cycle and higher revenues. That bridge was the tax cuts.

Some of these issues deserve, and will receive, more attention later, but I wanted to get them down as soon as possible. There is some excellent intellectual capital when it comes to business information available, one simply needs to know where to find it.

National Center for Policy Analysis is Idea Central

One of my favorite organizations for years has been the National Center for Policy Analysis. I often find myself too busy to spend time reading their articles or visiting their website, but every time I do they never disappoint. It seems everything I read of theirs provides a "eureka" moment and my understanding of the subject I am studying increases dramatically.

Recently I spent some time on their site and read an insightful article by the organization's Chairman, former Governor Pete du Pont (R-DE). du Pont (photo) was my choice for President in 1988 as the brilliant leader told people the truth about the problems the nation faced and the necessary policies to change the status quo. He told farmers in Iowa that subsidies was actually hurting agriculture both in the US and around the world and he told seniors that Social Security needed to be reformed in order for future generations to be able to benefit. He always told the hard truths, which may be why his candidacy didn't catch on. Even to this day I would gladly get on a Pete du Pont bandwagon.

In his recent article in Opinion Journal (from the Wall Street Journal), the former Governor pointed out that, if they thought things were bad under the Republicans in Congress, wait until the Democrats pursue their policy objectives. The following is a quick summary of two of their goals:

* Social Security. In ten years, Social Security will be paying out more than it is brining in, which will find the system in a crisis beyond rhetoric. We should obviously do something about it today. The Republicans wanted to look at options that empowered individuals to become investors in the economy by being able to have their "contributions" turn into real investments through private initiatives; resulting in an expanding economy, serious return on the money put into the system, and numerous other positive effectives. The Democrats are talking tax increases which will hurt job development when businesses are forced to match Social Secutiry tax and raising the age, which will discriminate against minorities who already suffer from the current system. The Democrats, in essence, desire more of the same policies that have failed for years.

* Tax Increases. The Republicans are opposed to such and point to long term economic expansion and low unemployment as examples of how the recent tax cuts have worked. Not only have they contributed to economic growth, they have led to revenue increases by spurring on taxable economic activity. While the Democrats want to exact huge largesse from every small economic action through excessive taxation, Republicans take a Wal-Mart approach, by making a little off of so much more activity. If the Democrats really want to reduce the deficit, they would never touch the tax cuts. They declare that taxes must go up, no matter how much harm they do. It isn't because of efficiency, but envy; because the Democrats simply seem to despise econonomic freedom.

The former Governor goes on to examine spending increases, protectionism, and more showing a clear difference between the two parties. Because of the President's veto pen and their slim majority in Congress, it is unlikely that the Democrats will be successful in their policy objectives (except for the possibility of reversing the tax cuts and minimum wage increases), but what they will provide through their policy initiatives is a great road map of what the future will be if the Democrats ever win a governing majority and a sobering warning to everyone who would consider such an option.

The National Center is one of the greatest resources of ideas in the public policy market today and I'm glad that it is out there helping to successfully wage a war of ideas.

Giving Clinton His Due

Most Presidents accomplish very little in the legacy department during their tenure. Policy changes are relatively common and usually changed again by someone else. Presidents are fortune to leave one major legacy and it usually requires two terms. Reagan left a few, which is why he is held in such high regards by others. He changed the debate on taxes from one of the patriotic position paying as much as possible without complaining to holding the government accountable by demanding they tax less. Further, he profoundly convinced people that tax increases not only hurt the economy, but often fail to actually increase revenues. On the foreign policy front, Reagan developed the concept of "peace through strength," convinced the Soviets of the rise of the strategic defense initiative (AKA "Star Wars") and largely ended the Cold War without a shot being fired. Before Reagan, "Mutual Assured Destruction" (MAD) was considered the wise position of strength. Reagan believed and convinced enough Americans that the acronym was a good name for this philosophy.

The first President Bush left virtually no long term legacy. Hampered by a single term (largely, in my opinion, for failing to keep his promise not to raise taxes), Bush was largely lucky to leave with minimal damage reputation wise.

The current President Bush has developed a policy of preemptive defense (e.g., in Iraq), but the jury is out on whether on not that will create a legacy. A legacy is noted by how it effects future policy, not just current governing. Also, he has made an articulate argument for Social Security reform that certainly had the potential of leaving a positive legacy. But right now that is a dream. Bush II, as legacy maker, is in question.

What about President Clinton? Any regular listener of my radio show or anyone who has read my articles or books know how I feel about Clinton. He was an embarrassment on several fronts. There is, however, one area I must give him his due and that is welform reform. A policy for which we are celebrating a 10th anniversary. I believe we can call it a legacy because it is still in tact and Congress is entertaining on how to build on it. When welform reform was pursued in 1996 it had three objectives: to reduce dependency on welfare and foster employment, to slow down and reduce child poverty, and to reduce out of weklock births and promote marriage. It clearly succeeded in all three fronts.

The following are a few facts:

• Following the passage of this bill in 1996, welfare caseloads declined in earnest and has fallen 56 percent since then.
• There has been a hundred percent increase in employment among young single mothers age 18 to 24 since passage of this bill.
• Between 1995 and 2003, overall unwed childbearing has increased very slowly, only 2.4 percentage points, a fourth of the pre-reform rate of increase of 7.7 percent annually (and at over 40 percent when the bill passed into law).

This bill has succeeded and the legacy continues to expand as Congress considers tackling other means tested programs besides AFDC, which was centerpiece in the 1996 act. I encourage everyone to review some of the events and papers surrounding the ten year anniversary of this important law by visiting the Heritage Foundation's site commemorating it. I also encourage people to contact their Member of Congress and encourage them to take further action towards ending welfare as we know it.

For the many cynics out there (I know, I'm often one of them) who believe Clinton was forced to pass this legislation by a Republican Congress, I disagree. In the early 1980s when I was a student at Abilene Christian University, I remember reading about a young governor who offered hope to conservatives who thought the Democratic Party was entirely liberal. This governor actually supported a pro-life position and spoke widely about "ending welfare as we know it" and "replacing welfare with workfare." That governor was Bill Clinton and he wasn't a "Johnny come lately" on the welfare issue. And although he clearly lost his conservative leanings in some (if not most) issues, he didn't on that one, and the results have been nothing short of profound. And what he has left in this one important area is a legacy we should build on.

I also believe it took a Clinton. More than likely if there had been a Republican President, the proposal would have been shot down as cold hearted, even with a Republican majority. It was the right bill, for the right Congress and, most importantly, the right President, at the right time.