Saturday, May 23, 2009

Transformational Agenda for the Right

Jon Henke asks:

What Right-of-center policies are good policy, transformational, popular, viable and sustainable?
This is not just a good question, this perhaps THE question to ask to figure out the future of the conservative movement. Some have concluded that the path to the future is paved with giving up or watering down small-Government principles, but on the contrary Big Government conservatism is an oxymoron. To the contrary:
In this 'free-agent' economy, where you outsource everything but your core competence, we can have smaller and smarter Government. Good Government is Government that sticks to its core competence, which is the protection of our rights, our lives and our property from predators, criminals, and enemies. Anything outside that core competence invites Governmental corruption, incompetence, rent-seeking and waste; it repeats the failures of socialism and causes economic dislocations. Every need or desire in the culture or economy, can and should be filled by the actions of free people in the market-oriented, open and free economy and culture.
We can and we must have a 21st century vision of society and our nation built around the conservative principles that we believe in. If we cannot envision it, then we are destined to fight a futile defensive struggle against the encroachments of the other side.
That vision of a society includes a different view of the relationship of Government and the people than proffered by liberals, leftists and socialists. It encompasses these tenets: Government (i.e. the state) exists to serve the people, and what Government does should be directed by the people ("of the people, by the people, for the people"). Government is best when it is closest to the people; that is self-government is best, then local Government, etc. Government plays a limited role, i.e., it should not try to do for people what they can do for themselves.

Here's a further take on Republican core principles:
The GOP is the party of liberty, limited government, judges who rule on law and not make them, law and order, traditional values and family values, free enterprise, equality of opportunity, strong national defense, Federalism and Government as close to the people as possible, support for the truly needy, Constitutional rights and individual responsibility.
The problem conservatives grapple with is - can we marry those high-minded principles to today's policy challanges and create correct and winning policy prescriptions?

The question arises of how to provision for 'social goods', which we might define as those things we would like to see happen in a society but which often don't happen in a natural economy. (Sometimes they do, which begs the question of whether the 'social good' requires Government provision. Coase's Theorem applies here.) The dynamic we usually see is that the Democrats become the "Santa Clause" party, raising the taxpayers for a social good provision ("more govt-subsidized healthcare! Subsidies for solar panels! paid college for all!") while Republicans (usually) say "no" or "how about less". Note that 'support for the truly needy' is a part of the fabric of Republican core values. It's a losing proposition so long as the focus is on the desirability of the social good and "how much can we afford" rather than an honest look at whether the Government program actually does the job.

We need a different mindset that goes beyond the "more or less" dynamic. That stifling two-dimensional tug-of-war is policy-wise desert that ignores most of the real challenge in these areas; further, it is politically disadvantageous to the party of "no", since the social goods are in most cases filling really needs and wants.

To break that mold, we need to also rethink what "Government" means and realize that "Government" can include self-Government. We need to, rather than fight the 'social need' or discount it, embrace the ability of society outside the state to provide these needs in many cases, either as economic goods or via benevolent charity. We further need to evaluate and think about every government program in terms of these aspects:
  1. Program's scope, strategic intent and vision - what is the purpose of the program? Does it fits Government's role? Is it Constitutional?
  2. Strategy and Goals - Is it at the right/wrong level? E.g. Federal program that could be state level? Government one-size-fits-all strategy vs a market-oriented strategy (e.g. Medicare model vs Food Stamp model)?
  3. Effectiveness - does it work? Does it have unintended consequences? (e.g. bilingual education harms educational outcomes long-term for students)
  4. Efficiency - is it cost-effective? Can it be done for less?
  5. Accountability - what metrics for costs and benefits are they? Do we have transparency in the project or program? How do we avoid waste, fraud, corruption and abuse, or are they a part of the program?
The above 5 factors lead to a host of questions that helps to dissect what is really wrong with most Government programs. Instead of just fighting for less Government, we need to motivate and justify more effective, more accountable, more efficient Government that will do more good for less cost. How? By having higher standards for Government programs, shedding what doesn't work and exists for not good reasons. The two main themes that represent vectors of opportunity here are choice and accountability. Pushing accountability via transparency is good in its own right, and it further leads to gathering the kind of feedback and information that helps drive further reforms and justifies conservative critiques of ineffective or wasteful Government spending.

When it comes to Government program strategy, the outdated socialist model can and should be superceded by the choice model and agenda:
We can move away from one-size-fits-all Government, to a system where there is maximum choice for all ... where you use the marketplace to be more flexible for people in different situations. The key word to describe this agenda is choice: Education choice, Social Security choice, healthcare choice, medicare choice.
I argue in 15% Solution for a dramatic new approach to tax reform, starting with two core points. First, the price and cost of Government are two different things; the cost of Government is what it spends, and the price of Government is the tax system. While we should advocate for a tax system whose price is as low as possible to cover the cost of Government, I say:
Without a long-term overarching goal of lessened burden of Government, tax reform is doomed to be ineffective, as the cost of Government pushes tax rates up.
I would add that politically, that is what has happened as well. Tax reform is a self-limiting solution so long as Government spending is out of control; the price of Government can never be reformed to below the cost of Government. I assert 5 principles for fundamental tax reform:
1. The Federal Government Costs too much, spends too much and taxes too much. Tax reform should include tax and spending reductions.
2. We need a simpler, flatter, lower rate tax system.
3. We need to shift taxes to tax production less and consumption more.
4. We need to fix entitlements through choice.
5. We need legislative and constitutional protections for taxpayers to limit tax hikes, spending hikes and runaway deficits.
This agenda is called the 15% Solution because the goal asserted is to get Federal Government spending to be no more than 15% of GDP. Further, this lower Government spending burden allows lower tax rates - 15% or less in most areas. I would add one more interpretation of the "15% solution" concept: We can consider the fact that our welfare system give provision to 15% of the people as 'needy'; we have a health insurance system that, without Government subsidy and intervention, would provide for 85% of the people. 15% represents that degree of "social insurance" necessary and sufficient to provide a safety net. A "15% solution" is a solution that is neither "on your own" zero Government nor one-size-fits-all socialism, but is 85% self-funding/free-market oriented and is 15% Government-welfare-state-provided. In short, it quantifies and describes with some precision to what degree we want Government to intervene - to help those who cannot help themselves, and to leave free to make their own choices those who can help themselves.

Just as the Reagan tax cuts grew out of the bracket creep of the 1970s and the welfare reform bill grew out of the failures of 1960s liberalism and the welfare system of the era, much of the conservative agenda for the coming decades will have a seedbed in the failures of the very liberal Obama domestic agenda. The 'four horseman of the Obama apocalypse' are:
  1. Massive Federal deficits and massive increases in overall Federal spending
  2. A move towards socialized healthcare with a Government-run public health insurance program that goes back to the Medicaid model (but expands it)
  3. Costly (taxes and electricity-cost-increasing) cap-and-trade, taxation and regulation of CO2.
  4. Government bailouts, handouts, new regulations, and meddling in auto companies, banks, financial institutions, and alternative energy. This is updated 'industrial policy'.
A conservative agenda could and must respond to all four points and to the rest of the Obama and Democrat agenda. There is enough Governmental encroachment that may happen in the next two years to keep conservatives' hands full for another 20 years, undoing the damage that is being done today.

Beyond the specific challenges of the Obama/Democrat agenda, the world is facing these critical issues driven by mega-trends:
  1. Globalization - Economic globalization is the number one driver of economic dislocation, raising the challenge of creating sustainable economic advantage and prosperity for the U.S. in the 21st century. We cannot sustain economic advantage if we lack education and structural economic advantages in a world of near-instant technological diffusion.
  2. Demographics - The looming entitlement funding crisis, as both Social Security and Medicare face aging demographics that will balloon support costs. This crisis is a result of another tectonic social shift, the pending demographic decline of European and other advanced countries, and below-replacement-rate fertility for non-immigrant Americans.
  3. Energy and environment - Energy shifts are being forced by several trends: Fossil fuel peaking has led to the end of cheap oil and further scarcity will create economic winners and losers; the US will be an economic loser due to our huge oil import bill. The UN's IPCC and the global environmental movement is driving the perceived (although in my view overstated) risk of warming due to man's generation of CO2; this creates another driver for change in energy use. If indeed the risk of global warming is overstated, while the risk of oil dependence is not, then it behooves us to support policies that "kill two birds with one stone" that get us off foreign oil, while opposing policies that divert attention and costs on the exclusive focus on CO2 generation mitigation.
So we see three types of drivers - global trends that require policy response, oppositional policies that require correction, and our core values that drive policy frameworks. Taken together, these create the transformational agenda items. How do we compete more effectively? Better education, business environment/regulation, and tax and trade policies are key elements. How do we achieve better education? Highlighting a framework of choice and accountability is the way to go.

Here are some specific ideas that tie these elements together:
  1. 15% Solution: A goal of having a Federal Govt take 15% of GDP, and until that time have the Federal Govt go on a 'diet' where it grows no faster than inflation plus population. (The 15% solution)
  2. 15% Solution: Transforming and reforming the Tax System to a simpler, flatter, fairer system by eliminating the income tax for 85% of American families (only those above around $100,000 pay income tax), reducing the payroll tax rate, setting a max rate on all taxation of 15-25%, and moving from taxing production to taxing consumption. The new tax system proposed would look something like this:
    • 15% - personal income ($100,000 exemption level for family of 4, so only top 15% pay); corporate income; cap gains;
    • 15% - import tariff; energy excise taxes
    • 5% - BTT/VAT/Federal sales tax
  3. While we are at it, don't forget Full expensing of all capital equipment.
  4. Taypayer's Bill of Rights: Replace the 16th amendment with a constitutional limit on tax rates, putting in a constitutional maximum of say 25%. Similar limit of 7.5-10% on BTT/VAT could be put into the amendment; have a 3/5ths or 2/3rds vote in both Houses of Congress required for tax increases; likewise have spending limitation and tax limitation Congressional rules and supporting Amendments; line-item veto and balanced budget amendments and Congressional rules. In all cases, the Amendments could be proposed, but could be put in place as Congressional rules if the votes are insufficient for actual Constitutional amendments, as done with Gramm-Rudman and "pay-go" budget rules.
  5. Choice Agenda: Educational choice - Federal level educational choice program - take 80% of the Dept of Ed funds - $64 billion - and turn it into an $800-$1000 direct voucher per student (or could be termed as a refundable tax credit), to be used for public, charter, private or home school instructional materials support (books and technology). This program would be enough to get books and computers in every classroom in America while increasing choice and parental direction in education.
  6. Choice Agenda: Educational choice - State level - take state aid and make it also a direct grant to students. That amount (eg in Texas it might be about $3000/student) would be available for public, charter, private or for qualified homeschool expenses.
  7. Choice Agenda: Universal Savings Accounts - "USA Saves" - This simplifies the plethora of tax-advantaged programs by making a simple and portable "USA" that covers the current Coverdell IRA, IRA, Roth IRA, HSA, etc. A simple pre-tax and tax-advantaged account for all qualified expenses, including healthcare and education, would be a key component of the 'choice agenda' for education, healthcare and retirement.
  8. Choice Agenda: Healthcare choice - This includes the Shadegg proposal to allow people to choose insurance from any state. We need to reduce mandates on health insurance and deregulate.
  9. Choice Agenda: Social Security choice. Combine with the "USA Saves" idea to allow portion of payroll tax to go into a USA. This would drastically increase the appeal of the approach.
  10. Pro-science education: A "STEM" (Science, Technology, Engineering, Math) agenda for higher-education support. Move the higher-education support subsidies and programs to favor degrees in the STEM area. That is, students in those areas would be favored. Have a goal that 60% of Federal aid to students goes to students in these areas; have higher Pell grants for students in STEM.
  11. Energy - An 'all of the above' energy approach with a goal of energy independence or near-independence; that is pro-nuclear, pro-domestic drilling, pro-natural gas, pro-plug-in-electric-hybrids, pro-renewables. Move to an energy complex that reduces reliance on fossil fuels and ofreign energy through technology.
  12. Simple idea to deflect CO2 regulation: Have a "1998 Rule" whereby the 3-year average of global temperatures need to be 0.3C ABOVE the 1998 levels before any of the draconian regulations in Waxman-Markey or other cap-and-trade regimes are enacted. End/oppose CO2 regulation, which is counterproductive and based on flawed claims about the climate.
  13. Immigration - As a party, come out in favor of legal immigration, opposed to illegal immigration and with a united front on the topic; this means that the whole party needs to oppose amnesty for illegal aliens, so the elites have to move to find common ground with the grassroots. One way to do this is to call for an end to chain migration and focus of immigration on employment-based 'best-and-brightest'. A simple 'accountability' aspect of immigration is to push to get a clear accounting and understanding of the actual costs of social services to illegal aliens and to legal immigrants for all social programs, including education, healthcare, etc. We should also end sanctuary city policies and let states move forward to address illegal immigration.
  14. Term limits - Good ideas never go out of style.
These items have both Federal-level and state-level components, but the themes of choice and transparency/accountability are common. This Pledge to Texas pledge has a 10-point program and plan. In addition to planks related to keeping taxes and spending in check - Cut Property Taxes until they are eliminated; Cut, Simplify and Reform business taxes; Limit the growth of government - it has three key planks that arent' just "do less" but are "do better" promises:
•Lower electric rates and Clean the environment
Texans can have more affordable and cleaner electric power by expanding nuclear, clean coal, wind, and biomass capacity. Texas must improve and expand its transmission infrastructure; fast-track permitting of new power facilities; and, invest in technology that utilizes Texas’ natural resources to clean the environment. To improve energy efficiency and reduce electric bills, we must ensure that System Benefit Fund revenues are dedicated to help families with their electric bills and used to make energy efficiency technologies such as smart meters more affordable.

•Make Texas a Leader in Public Education
World-class colleges and universities and a better educated population are critical for the future prosperity of our state. Texas should double the number of its nationally-recognized research universities; strengthen academic programs at community colleges so that more community college credits are transferable to universities; and, encourage adult education and promote other postsecondary educational opportunities at career colleges and schools for those who want to seek gainful employment.

•Make Health Care more affordable for families
Help Texas families access affordable health insurance by reducing costs through investment in electronic health records; requiring health plans, physicians, and hospitals to make cost and quality information available to the public; increasing the availability of low-cost, mandate-free insurance; and, offering optional health savings accounts to all public employees and high-deductible low-cost health plans to college students.
This last item takes us back to the essential element in healthcare reform - choice and accountability. The proposals are to make available information for informed decisions, and to allow more options and choice in what health insurance is provided.

Taken as a whole, this agenda takes on the fundamental issues of our time - globalization, changing demographics, and energy and environment challenges - with a choice/accountability-focussed and market/freedom-friendly framework. This is indeed a 'transformational agenda' of reform-minded conservatism.

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