Time To Show Our Mettle!

Our mettle? What does that mean and why do we need to show it? It means strength of character. But just as appropriate is the list of synonyms – courage, bravery, determination, spirit, guts, grit, nerve, pluck, resolve, valor, and vigor – also work as well. This is the beginning of a new year… a new decade even. So what is the problem that requires our courage? Could it be the result of last year? Or the last decade? Read Professor Richard Freer’s article on the subject to see what it all means.

By Robert E. Freer, Jr., President of The Free Enterprise Foundation

"Our greatest glory is not in never failing, but in rising up every time we fail.”Ralph Waldo Emerson

What a mess to begin the year! We have added almost 4 trillion dollars to our national debt with further obligations on the near horizon, are still hemorrhaging jobs at a rate of 85,000 a month with no sign that the Administration understands what is necessary to create anything but temporary government workers. We remain locked in a War in Afghanistan which is only one battlefield of what is becoming a worldwide asymmetrical jihad by an enemy steeped in the middle ages determined to use today’s technology and murder suicide to take us all back there with them.

While neglecting the full utilization of our own domestic or closer foreign sources, we continue to depend on sources of critical national materials from those who are not our friends. We have failed to fully implement actions known and achievable for the conversion of our commercial transportation fleet to natural gas, devote the needed resources to fast intercity rail transportation that at least on the coasts could make a big difference; are not supporting the creation of a modern alternative to the current electric grid to handle the needs of the 21st century. Nor are we making progress fast enough on the problem of national educational reform discussed in my column two weeks ago.

About a third of us think we ought to live in some sort of communal society where that third determines for us the mandated outcome for an increasingly aggressive agenda of personal decisions. Their one sized fits all approach forces a national consensus on a host of issues where no consensus exists. Solutions that support our diversity are available if the “educated class” would re- calibrate their thinking into terms more in keeping with our national character.

There are a lot of nice services we could ask our government to provide if we were rolling in cash. I might still be opposed if they created an unhealthy dependence on government, but at least we couldn’t be accused of being spendthrifts and running our country into bankruptcy. Today our national debt is at 98.5 percent of our annual domestic product. This is certainly not a time to add even a dime to our collective debt.

What does that mean to you and me? Back in 2007 before we more than doubled the National Debt, government’s projected share of national production (GNP) would have to exceed 30 percent to meet its entitlement burden, thus threatening national growth and employment. Increasingly each of us would be working to meet the government’s obligations for entitlements rather than building for our future.

Deficit spending won’t work to pay this amount of debt, let alone what we have obligated ourselves to in the interim and are about to enact. These huge entitlements will sink us! Despite my own children’s population explosion, the demographic changes are permanent. As debt grows exponentially, it will threaten our viability as a functioning state. In 2007 the percentage of the national debt in the hands of the public grew to 37% and will grow to 46% under a best case assumption by The Congressional Budget Office just to meet the entitlements on the books in 2007. The Stimulus and Health care Reform will double what was on our books in 2005, and you can do the math in your head as to your share of the outcome. The real bad news is that an increasing portion of that debt is foreign owned. How long will they indulge our thirst for credit?

We also are not saving. Our national rate of savings has steadily decreased since the early 90s, and it just turned positive as a result of the scare thrown into us by the worst recession in 70 years. This behavior amounts to a nation consuming itself like there is no tomorrow. Paul Krugman waxes that it is all OK; we will grow ourselves out of this recession and the horrible gross national economy figures that spell our doom. Smart as he is, the public is smarter. They really don’t buy what either party is selling, and real change is coming.

Democrats are delusional and Republicans have been unreliable. That is a prescription for volatility. The likelihood is that particularly for Republicans, hand picked party candidates will be rejected in favor of populist candidates at the polls this spring and summer. In Washington, current officeholders will be unproductive as they keep one eye on the folks back home and drag their feet on anything looking aggressively progressive in Washington.

The Republican Caucus in the House is quietly working on a new Contract With America in an attempt to replicate the success of 1994, and Democrats are leaning heavily on the unions, “pharma” and trial lawyers to assure that key Democratic voting blocks turn up in this off year to save their preferred place at the table in a Democratic controlled Washington.

My own “Contract with America” would include promising to take a failed health care initiative and reforming those portions that can be saved to require the insurance companies to take all comers, compete nationally, rate on a broad communal basis, and provide for tax assisted health savings accounts with significantly increased annual ceilings. Decisions regarding provision of care should be left to the patient and physician. I have previously written regarding true medical care improvements in education, patient records and would add to that a serious effort to involve doctors and patients in tackling the tough issues surrounding end of life care. Even with its inherent emotional difficulty, it provides great opportunity for savings that may enhance the care of those who are at this point in their life’s journey.

The Stimulus was grossly mishandled and became nothing more that a grab bag of earmarks that provided, at best, only temporary relief and a bloated federal bureaucracy that must ultimately be reduced to return the driving force of our economy to the private sector. This Administration is hard wired to reject the time proven policies of tax incentives and low rates that will effectively jump start our still moribund economy and employment along with it.

The public seldom gets a fair shake when “stimulus” is proposed. Political insiders and bloated bureaucracy gain at the expense of the productive economy. Stimulus programs that do succeed are those that target a significant national goal engaging many parts of the economy and leave the national infrastructure materially enhanced. There was talk in January 2009 that this would be the case this time. It didn’t happen. Our bridges and highways are still crumbling. Our electric grid still needs major enhancement to handle the demands of the future.

On our crowded coasts high speed rail equal to that found in Asia and Europe would be a major enhancement to commerce. The significant amounts thrown around last spring should have been restricted to these and similar projects that would themselves bootstrap us into the development of the workforce required to being competitive in the years ahead.

Taxation needs major reform. By now, we all know that the top 1 percent of taxpayers pay 40. 4 percent of all income taxes paid while earning 22.8 of income taxed and that the top 5 percent pay in excess of 55 percent. When you realize that these same individuals are the principal sources of the more than 300 billion in measured annual charity, fairness would suggest that at least they not be taxed more. Of greater damage to our union, however, is the fact that the bottom 50 percent of taxpayers pay less than 3 percent of all taxes paid. The IRS is a bloated bureaucracy with 115,000 employees. Outside our military it is our largest federal workforce.

We need to chuck the tax code and start over. The goal should be a tax system which has minimal room for error, captures a major portion of the invisible economy, encourages capital formation and is perceived by all to be fair while producing revenue sufficient to the normal needs of the government. As to what are normal needs, I started out a few years ago saying that the federal government should not receive more than 15 percent of GDP on an annualized basis but given our current obligations that must remain but a goal. Currently 20 percent would pinch but perhaps is doable. I am not going to choose between a National Consumption Tax and a Flat Tax, but leave that to Congress to decide. I have way exceeded my normal word limit so must leave you here but may cover other aspects in future essays. _._

Copyright © 2010 by Robert E. Freer, Jr. All rights reserved

About the author: Robert E. Freer, Jr., is president of the Free Enterprise Foundation. He is also a professor at The Citadel and was selected in 2005 to be their first John S. Grinalds Leader in Residence and in 2009 to be their first BB&T Visiting Professor in Ethics and Free Enterprise Leadership. A regular contributor to the Mercury, Prof. Freer may be reached at Robert.freer@citadel.edu. If you would like him to appear before your group or organization to speak on any of the subjects about which he writes, please contact him at The Citadel. Copies of his earlier columns may be found at The Free Enterprise Foundation

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