The Grifting Wing v. The Governing Wing

While the Tea Party is busy lining their pockets, the rest of the Republicans are actually trying to get things done.

By Steve LaTourette
Politico
August 3, 2014

Vocabulary.com defines a grifter as: A grifter is a con artist—someone who swindles people out of money through fraud. If there’s one type of person you don’t want to trust, it’s a grifter: Someone who cheats someone out of money.

Historically, grifters have taken many shapes. They were the snake-oil salesmen who rolled into town promising a magical, cure-all elixir at a price. The grifter was long gone by the time people discovered the magical elixir was no more magical than water. They were the sideshow con men offering fantastic prizes in games that were rigged so that no one could actually win them. They were the Ponzi scheme operators who got rich promising fantastically high investment returns but returning nothing for those sorry investors at the bottom of the pyramid.

Over the last few years we have seen the rise of a new grifter—the political grifter. And the most important battle being waged today isn’t the one about which party controls the House or the Senate, it’s about who controls the Republican Party: the grifting wing or the governing wing.

Today’s political grifters are a lot like the grifters of old—lining their pockets with the hard-earned money of working men and women be promising things in return that they know they can’t deliver.

Political grifting is a lucrative business. Groups like the Club for Growth, FreedomWorks and the Tea Party Patriots are run by men and women who have made millions by playing on the fears and anger about the dysfunction in Washington. My former House colleague Chris Chocola is pocketing a half-million dollars a year heading the Club for Growth; same for Matt Kibbe heading up FreedomWorks (and I don’t think Kibbe’s salary includes the infamous craft beer bar that FreedomWorks donors ended up paying for). The Tea Party Patriots pay their head, Jenny Beth Martin, almost as much. These people have lined their pockets by promising that if you send them money, they will send men and women to Washington who can “fix it.” Of course, in the ultimate con, the always extreme and often amateurish candidates these groups back either end up losing to Democrats or they come to Washington and actually make the process even more dysfunctional.

Just look at what happened this past week, when hard-right House members with extensive ties to these outside groups, egged on by Texas Sen. Ted Cruz, snarled up a sensible effort to pass a bill that would at least begin to address the crisis of undocumented children at the U.S.-Mexico border. It was an embarrassing display of congressional dysfunction, and it showed that the grifting wing has learned nothing from last fall’s shutdown fiasco.

The grifting wing of the party promises that you can have ideological purity—that you don’t have to compromise—and, of course, all you have to do is send them money to make it happen. The governing wing of the Republican Party knows that’s a damn lie. Our Founding Fathers set up a system of government that by its very nature excludes the possibility of one party or one ideological wing of one party getting everything it wants. Ted Cruz, who quotes the founders almost every chance he gets, ought to know this.

Even Ronald Reagan—who won in two of the biggest landslides in American history—was forced to compromise. It was President Reagan who cut deals with Democrats to extend the solvency of Social Security and put the federal budget on a sounder footing. It was Reagan who famously said that someone who votes with him 80 percent of the time is a friend and an ally. Reagan’s record and rhetoric stands in marked contrast to the grifting win of the party today, even as the grifters invoke his memory in their disingenuous appeals.

The governing wing of the Republican Party understands that compromise is not the root of all evil in Washington—indeed, it is the essential ingredient in moving forward any set of conservative policies like those that Reagan fought for.

While the grifters hold a great deal of sway over the Republican Party for now, they are not the majority—not by a long shot. As with any good Ponzi scheme, there are relatively few grifters; the challenge is exposing their scam.

Exposing the grifters is exactly what is happening in the Republican Party today. Groups like the organization that I head, groups like the Chamber of Commerce, business groups and traditional Republican organizations are working to run the political snake-oil salesman out of town—or at least out of our party.

This isn’t about ideology. The Republican Party is a conservative party. This fight is about whether we will govern or continue to let the grifters profit off of the dysfunction in Washington.

Our beef isn’t with the rank and file Tea Party members, either. We understand their justifiable frustration with Washington. Our beef is with the grifters who run the organizations in Washington that are fleecing these hardworking men and women.

We face serious challenges in this country today. America is piling up mountains of debt that threaten the long-term solvency of our country. Our economy continues to struggle to create enough jobs to keep pace with population growth. We have a broken, overly complicated tax code. We face serious, dangerous threats abroad from old enemies and new ones. If the Republican Party is going to be a part of finding solutions to these challenges—and I know it can be—then it is time for grassroots Republicans to say no to the grifters and yes to governing again.

The good news is that it appears that the grifters are running short on time. Unlike in previous election cycles, in primary after primary— from Ohio to Idaho to Kentucky to Mississippi—rank-and-file Republicans haven’t bought what the grifters are selling.

If we are to have a shot at winning the White House in 2016 and actually implementing conservative policies – rather than just fundraising off of talking about them—then this is a trend that must continue. It’s time to run the grifters out of our town.

Read more: http://www.politico.com/magazine/story/2014/08/tea-party-grifters-109675_Page2.html#ixzz39SqqoLMc

Steve LaTourette is a former member of the U.S. House of Representatives representing Ohio’s 14th district who now heads the Main Street Partnership.

http://www.politico.com/magazine/story/2014/08/tea-party-grifters-109675.html#ixzz39NzHDw4j

Governments Grab for the Web

By L Gordon Grovitz

Wall Street Journal

April 29, 2014

The Obama administration still doesn't seem to understand the whirlwind it reaped with its decision to give up stewardship of the open Internet. The first Internet governance conference since that surprise March announcement was held last week. The State Department issued a statement before the conference urging everyone to avoid the issue: "We would discourage meeting participants from debating the reach or limitations of state sovereignty in Internet policy."

But deciding who gets to govern the Internet was precisely why many attendees from 80 countries came to last week's NetMundial conference in Brazil.

The host country's leftist president, Dilma Rousseff, opened the conference by declaring: "The participation of governments should occur with equality so that no country has more weight than others." The Russian representative objected to "the control of one government," calling for the United Nations to decide "international norms and other standards on Internet governance." Last week Vladimir Putin called the Internet a "CIA project" and said "we must purposefully fight for our interests."

Authoritarian regimes want to control the Internet to preserve their power. "National sovereignty should rule Internet policy and governance," the Chinese representative said. "Each government should build its own infrastructure, undertake its own governance and enforce its own laws." The Saudi Arabian delegate said: "International public policy in regard to the Internet is the right of governments and that public policy should be developed by all governments on an equal footing."

Even nominal supporters of the existing multi-stakeholder model embraced the end of Internet self-governance. The delegate from India declared a greater role for the world's governments "an imperative that can't be ignored." Neelie Kroes of the European Commission said: "The Internet is now a global resource demanding global governance."

Philip Corwin, a U.S. lawyer who represents Internet companies, noted that 27 of the first 30 speakers at NetMundial were from governments or U.N. agencies—at a "meeting supposedly conceived to strengthen the private-sector-led multi-stakeholder, consensus-based policy-making model."

The conference produced a "consensus" document that asserts: "The respective roles and responsibilities of stakeholders should be interpreted in a flexible manner with reference to the issue under discussion." Carl Bildt, Sweden's foreign minister, offered this translation: "Governments are more equal than other stakeholders when it comes to policy."

The Internet ran smoothly for 25 years because the U.S. ensured that the Internet Corporation for Assigned Names and Numbers, known as Icann, operated without government interference. Authoritarian regimes can censor the Internet in their own countries and jail their bloggers, but until now had no way to get control over the root zone filenames and addresses of the global Internet. Handing over control could allow them to undermine the open Internet globally, including Americans' access to U.S. websites.

Some open-Internet advocacy groups realize it is light-handed U.S. control that has allowed what political theorists would call the "ordered liberty" of Internet self-governance. "Part of the strength of the Internet over the last couple of decades has been that the technical aspects have not had direct political or government interference," Thomas Hughes of the human-rights group Article 19 told the BBC.

Michael Daniel, special assistant to President Obama, declared without apparent irony that "from the U.S. perspective, NetMundial was a huge success." But it's no accomplishment when countries that have long sought power over the Internet embrace the U.S. invitation for them to seize it.

The NetMundial conference was politicized from the start. It was held in Brazil as a favor to President Rousseff after she objected when news broke that the National Security Agency had listened in on her communications. But Sweden's Mr. Bildt pointed out at the conference that "the issue of surveillance in no way relates to the issues of the governance of the net." He added: "I'm stressing this point because sometimes the debate on surveillance is used as an argument to change the governance of the net."

Under bipartisan pressure in Washington, the Obama administration was forced to backtrack during congressional hearings earlier this month. Officials testified they won't necessarily stick to their original September 2015 date for giving up protection of the Internet. Officials said the issue could be pushed to 2019 and thus decided by the next president. Many in Congress want an up-or-down vote on ending U.S. control of the Internet, knowing lawmakers would reject the idea.

President Obama should revoke the plan to abandon the open Internet. The ugly spectacle of countries jockeying to control the Internet is a timely reminder of why the U.S. should never give them the chance.

How Adam Smith Revived America's Oil Patch

By Joel Kurtzman


Wall Street Journal

June 20, 2013

The debut of a new truck engine rarely attracts much attention. But this spring Cummins Inc. CMI -1.17% released two new truck engines worthy of notice: They are designed to run on natural gas, not diesel. Natural gas is abundant, domestically produced, cleaner and cheaper than oil-derived diesel. It could help set America free of foreign oil.

The natural-gas-powered ISL G and ISX 12 engines are the latest sign of the country's fundamental shift in energy resources and infrastructure. Cummins built its engines without a penny of government support—a reminder that free markets can solve problems that politicians argued about for decades but failed to fix.

Natural-gas reserves are plentiful but not always easy to recover. It took an individual entrepreneur, Texan George P. Mitchell, to perfect the technology of hydraulic fracturing beginning in the 1990s that has made so much more of the gas available. And fracking, it turns out, also can be used to recover oil from formations that could not previously be tapped.

Fracking technology is responsible for last year's 14% increase in oil production to 8.9 million barrels per day, the largest increase ever, and a massive, five-year increase in natural gas production, to 28 billion cubic feet a day from five billion in 2008. The increased supplies of both also are responsible for a drop in oil imports and declines in carbon-dioxide emissions to 1993 levels.

I have no idea what Mr. Mitchell's motivations were, but I'm confident that profits were at or near the top of the list. By serving his own interests, as Adam Smith put it more than 200 years ago, he served the interests of society.

The impetus for fracking cannot be found in four decades of presidential speeches about energy independence, or in any acts of Congress. Instead, it arose from economically painful spikes in oil prices engineered beginning in the 1970s by the OPEC cartel. High prices did what they always do—they set off a hunt both for substitutes and for more supplies to take advantage of high prices.

Fracking technology addresses both issues by increasing supplies of oil and of its cleaner, cheaper substitute, natural gas. These two forces—the search for substitutes and the rush to cash in on high prices—will change the nation's economy profoundly.

Another crucial factor contributed to the energy revolution. Plentiful oil and natural-gas reserves exist around the world, but the U.S. is far ahead of every other country in bringing those resources out of the ground and onto the market. The reason? America is one of the few countries where an individual or company can own the resources that lie beneath the ground.

Almost everywhere else—including even the United Kingdom—the rights to minerals of all kinds, including oil and natural gas, are claimed by the government. Unless the government wants you to drill, you might as well put your tools away. As a consequence, there is much less incentive to innovate. Why bother if you can't own what you produce, or you can't profit except at a bureaucrat's sufferance?

Today, because fracking is producing oil and natural gas at record levels, others are joining Cummins in getting into the act. Companies like T. Boone Pickens's Clean Energy Fuels are laying out a network of natural-gas filling stations on major U.S. highways so that trucks, using new engines, can fuel up. New pipelines, such as the one Spectra Energy proposes to connect New York and New Jersey, are in the works, in addition to the 16,000 miles of interstate natural-gas pipelines built over the past decade.

Most energy analysts, as well as big oil companies like Exxon, expect that the U.S. will become a net energy exporter between 2020 and 2030. When that happens, the $400 billion that Americans are on target to send overseas this year to pay for oil imports will shrink, perhaps to zero. A $400 billion swing from negative to neutral, or even to positive, in the energy trade balance is something no one would have predicted even a few years ago.

Letting markets do their work sometimes requires an act of faith. The temptation that many people have, especially in government, is to give those forces a shove in one direction or the other. But when people are allowed to use market signals to determine where and how to mobilize their creativity, resources, energy and effort, amazing things can happen. Abundant energy for the foreseeable future is one spectacular example.

Mr. Kurtzman is the executive director of the Milken Institute's Senior Fellows Program.

Why the Old Jobs Aren't Coming Back

By: Michael spence

The Wall Street Journal

June 24, 2011

Many have expressed shock at the recent U.S. employment data. But 9.1% unemployment shouldn't be a surprise. To address the jobs challenge, we must stop pretending that this is only a difficult cyclical recovery. The root of the problem is structural.

During the two decades before the crisis of 2008-09, the U.S. economy added 27 million jobs, primarily in government, health care, construction, retail and hospitality. This employment growth was almost all in the "nontradable" side of the economy—sectors generating goods and services that must be consumed where they are produced. But several factors will depress these sectors. Government budget woes, a likely leveling-out of the dramatic growth in health-care consumption, and a permanent reduction in domestic consumption as asset prices reset downward and debt-financed purchases are reduced, will all have effects in the short-to-medium term.

The "tradable" side of the economy (which includes exportable goods and services) has its own set of issues. While finance, consulting, computer design and managing complex international businesses all fueled job growth for 20 years, these gains were matched by declines in the manufacturing jobs held by the middle class. The very things that propped up our tradable sectors through the export market—high growth rates in emerging economies and a more educated consumer class in those countries—have challenged middle-class U.S. employees on the job front. Emerging markets are now increasingly moving up the value chain with improved skills, and it's likely that higher-paying jobs—including design and even product development—will move abroad in ever greater numbers.

Multinational companies have benefited from these global supply-chain opportunities and from growing emerging-economy markets, but the effects for the U.S. have been mixed. Growth may be coming back slowly, but it is not bringing jobs with it.

A stimulus package that temporarily restores elements of precrisis demand is unlikely to generate the escape velocity needed to get out of the jobs hole. Nontradable job growth can't mask the declines in the tradable sector any more. The structural problem demands a structural answer.

Rebuilding the employment engine requires shifts in policy and process. On the policy side, we must expand the scope of the tradable sector. A short list of steps would include investments in infrastructure and education reform that emphasizes teaching productive skills, for example in advanced manufacturing sectors. Tax reform should aim for simplification and the elimination of biases against domestic investment for our multinational firms. It should also aim to help raise savings rates so we can finance our own investment. A value-added tax with an exemption for exports would enhance competitiveness. An energy policy focused on efficiency and security would create opportunities for investment and growth.

In terms of process, business, government and labor must identify what each has to offer and needs to help expand the tradable sector. What will it take to keep more jobs in the U.S.? We might have to accept a period of lower income growth in order to restore competitiveness.

A useful model is Germany, which limited wage and salary growth as part of a restructuring in the period 2000-05, allowing it to compete more effectively in exports and the tradable sector than other advanced countries.

In addition, a broad public-private investment in advanced manufacturing and in energy- efficiency technologies can advance relatively high-income, capital-intensive job creation. Government co-investment can lower the private sector's cost and expand the employability of domestic citizens in the tradable sector.

These structural solutions won't work, of course, without a plan to restore fiscal balance. A sovereign-debt crisis will abort any recovery. Right now, however, the policy discussion oscillates between balancing the budget and supporting a fragile economic recovery—mixed with puzzlement that employment figures are disobeying the rules of a normal cyclical recovery. Having a credible five-year fiscal plan would help avoid an excessively rapid withdrawal of government expenditure and investment from the demand side of the economy.

Can business, government, educators and labor come together to tackle the structural employment challenge head-on? Some will say that in the present political and fiscal climate, this is highly unlikely. They may be right. But it is a choice, a collective choice. We can invest in future growth and employment of an inclusive kind, or not. If we do, it will take significant shared sacrifice.

Mr. Spence, a 2001 Nobel laureate in economics, is the author of "The Next Convergence: The Future of Economic Growth in a Multispeed World," out last month from Farrar, Straus and Giroux.

The Building Blocks of a GOP Agenda

BY: Daniel Henninger

The Wall Street Journal

May 26, 2011

Leading governors and members of Congress know them: entitlement reform, fiscal restoration and lightly taxed long-term economic growth.

The "smart money" says Barack Obama is cruising to re-election because of Republican disarray. Pick up a paper, visit a blog, turn on the TV or radio, and reports of Republican misadventure will engulf you:

Mitch Daniels just said no. Newt Gingrich says too much. On Tuesday, voters in New York's normally Republican congressional district 26, near Buffalo and Rochester, "shocked" the political world by electing a Democrat. The smart money now says NY-26 means that if the Republicans run on Paul Ryan's Medicare reform proposal, they risk losing the presidency.

The smart money is often stupid.

Standing against the tornadoes of political spin isn't easy. But if the Republicans will step back from these storms, they'll see that the GOP prospect is in better shape than they think. A clear and defensible agenda for 2012 is being assembled outside the presidential campaigns.

One Republican analyst of the GOP's NY-26 defeat said the takeaway is: "2010 is over." This is the opposite of the truth. That 2010 vote was the American public screaming at their elected officials to stop the country from hurtling toward fiscal and economic calamity.

They're still screaming. A Washington Post poll out yesterday buttressed this core concern: Voters across the spectrum say their prime worry is what happens if Congress expands American indebtedness beyond $14.3 trillion. In their wisdom, the people suspect what will happen won't be good. Their vote in 2010 was the basis for a genuine Republican reform movement.

Normally when the presidential entrepreneurs take over our politics, the parties recede. This means the parties end up yoked to whatever random, variable ideas their nominee patches together. The smoke-filled room has been replaced by hot-air trial balloons.

Something new is happening this time. Since 2009, the Republican Party's best members have been constructing the building blocks of an agenda distinct from what Barack Obama represents.

The most significant figure in this process is not Paul Ryan but Chris Christie, New Jersey's charismatic governor.

Before Chris Christie, nearly every Republican would bend to the conventional wisdom of doing deals with the public unions, raising taxes, and rolling debt obligations into the future. Chris Christie blew the whistle on this nonsolution. He gave the Republicans the courage to say the most basic truth in American politics: We are going broke. Chris Christie made the sources of fighting fiscal ruin popular, even cool.

Along with Mr. Christie, Govs. Bob McDonnell of Virginia, John Kasich of Ohio and Scott Walker of Wisconsin have made fiscal restoration the cornerstone of the new Republican Party. Mitch Daniels's appeal was that he was a member of this new movement.

Fiscal rectitude, of course, can be its own form of conventional wisdom, expressed by raising taxes to "balance" the budget. Last month, another significant Republican derided the tax-and-balance solution. The man who called this "root canal economics" is the Speaker of the House. This too is new.

When it came to pass that John Boehner would assume the speakership, one would have thought the party was inheriting Millard Fillmore. Instead, Mr. Boehner has been using his office to lift another building block atop the GOP's restored fiscal foundation—the primacy of the private sector.

A speech Mr. Boehner gave last month to the Economic Club of New York was an important defining statement. Mr. Boehner ran straight at what is probably the most unshakable conventional wisdom in politics: "The big myth of the current budget debate is the notion that in order to balance the budget, we have to raise taxes. The truth is we will never balance the budget and rid our children of debt unless we cut spending and have real economic growth. And we will never have real economic growth if we raise taxes on those in America who create jobs." No speaker has so categorically repudiated using taxes to bail out Washington.

To Paul Ryan fell the job of reshaping the heaviest stone of all—entitlements. For saying the entitlement status quo is fake and false, Mr. Ryan has earned ridicule from the current president and derision from Republican pragmatists who say he's destroying the party by attempting Medicare reform.

But without entitlement reform, these other GOP building blocks—fiscal restoration and lightly taxed long-term economic growth—are unstable. Notwithstanding the results in suburban Buffalo, an electorate that understands the danger of $14.3 trillion in debt surely can be made to understand by November 2012 the risk of many trillions more in future entitlement obligations.

The campaigns of Mitt Romney, Newt Gingrich and Jon Huntsman no doubt will still try to fashion a campaign from whole cloth. Tim Pawlenty, the former Minnesota governor, looks for now to be closest to building out from the structure of economic reform that the Republican governors, the House speaker and the Wisconsin congressman have been creating for their party.

This is still presidential politics. Some people will never vote for any of this, and the person atop the ticket matters. But Republicans despondent about an election 18 months off need to see they are not fighting the incumbent with nothing. A coherent opposition exists, one that fits with an electorate justifiably anxious about the future of what was once the world's most prosperous private economy.

A Growth Agenda for the New Congress

By Arthur Laffer
The Wall Street Journal
November 12, 2010

Since its cyclical zenith in December 2007, U.S. economic production has been on its worst trajectory since the Great Depression. Massive stimulus spending and unprecedented monetary easing haven't helped, and yet the Obama administration and the Federal Reserve still cling to the book of Keynes. It's an approach ill-suited to solving the growth problem that the United States has today.

The solution can be found in the price theory section of any economics textbook. It's basic supply and demand. Employment is low because the incentives for workers to work are too small, and the incentives not to work too high. Workers' net wages are down, so the supply of labor is limited. Meanwhile, demand for labor is also down since employers consider the costs of employing new workers—wages, health care and more—to be greater today than the benefits.

Firms choose whether to hire based on the total cost of employing workers, including all federal, state and local income taxes; all payroll, sales and property taxes; regulatory costs; record-keeping costs; the costs of maintaining health and safety standards; and the costs of insurance for health care, class action lawsuits, and workers compensation. In addition, gross wages are often inflated by the power of unions and legislative restrictions such as "buy American" provisions and the minimum wage. Gross wages also include all future benefits to workers in the form of retirement plans.

For a worker to be attractive, that worker must be productive enough to cover all those costs plus leave room for some profit and the costs of running an enterprise. Being in business isn't easy, and today not enough workers qualify to be hired.

But workers don't focus on how much it costs a firm to employ them. Workers care about how much they receive and can spend after taxes. For them, the question is how the wages they'd receive for working compare to what they'd receive (from the government) if they didn't work, plus the value of their leisure from not working.

The problem is that the government has driven a massive wedge between the wages paid by firms and the wages received by workers. To make work and employment attractive again, this government wedge has to shrink. This can happen over the next two years, even with a Democratic majority in the Senate and President Obama in the White House, through the following measures:

1) The full extension of the Bush tax cuts. The Republican-controlled House of Representatives can write legislation extending all the tax cuts in perpetuity. Of particular importance for employment is keeping the highest personal income tax rate at 35%, the capital gains tax rate at 15% and the dividend tax rate at 15%, while eliminating the estate tax permanently. If the Senate blocks this legislation or Mr. Obama refuses to sign it, House Republicans should hold firm and let voters decide in 2012. (My guess is that he'll sign it or have his veto overridden.)

2) The full repeal of ObamaCare, which allows individuals to pay only five cents for each dollar of health care. Who do you think pays the other 95 cents? As former Sen. Phil Gramm notes, if he had to pay only five cents for each dollar of groceries he bought, he would eat really well—and so would his dog. No single bill is more antithetical to growth than ObamaCare.

Repeal could take the form of Michele Bachmann's Legislative Repeal Act, and if it is blocked in the Senate or by a veto Republicans should continue bringing it up every six months. Come 2012 the public will have a clear view of what congressional candidates stand for. The end game for U.S. prosperity is the election in 2012.

3) The cancellation of all spending that punishes those who produce and rewards those who don't. This is really the distinction between demand-side economics and supply-side economics. Stimulus spending and quantitative easing don't make it more rewarding to work an extra hour. If the government pays people not to work and taxes people who do work, is it really so difficult to see why employment is so low?

So the government should sell its stakes in public companies acquired via TARP, sell government-run enterprises that lose money (e.g., Amtrak and the Postal Service), end farm subsidies that pay people not to farm, cancel the rest of the stimulus and return all spending programs to their pre-stimulus levels. Congress should also continually examine spending in Afghanistan and Iraq. And it should return the duration of unemployment benefits to the standard 26 weeks, from the current 99 weeks.

4) The enactment of stalled free trade agreements with South Korea, Colombia and Panama.

These changes would spur recovery, but they are just the start. Elected officials should offer longer-term measures that voters can judge in 2012, when 33 senators—including 21 Democrats, two independents who caucus with the Democrats, and 10 Republicans—as well as the entire House and President Obama are up for re-election.

Beyond 2012, the ideal growth agenda would include:

1) A true flat tax, a la Jerry Brown's proposal in 1992. Congress should replace all federal taxes (except sin taxes) with two flat-rate taxes, one on personal income and one on net business sales. The personal income tax would be on all forms of income: wage income, dividends, inheritance (as proposed by Democratic Rep. Jared Polis), and all capital gains. This tax code would remove loopholes and almost all deductions, and the static revenue rate would be around 11.5%.

2) Price stability. Congress should revise the Federal Reserve's mandate, making it serve only the goal of price stability (and not also full employment). In addition, the Fed should follow a monetary rule, targeting either the quantity of money or the price level. There can be no prosperity without price stability.

3) Passage of a balanced budget amendment, without raising taxes. This would prevent government from being able to balance its budget by unbalancing the budgets of its citizens. And it would force politicians to make difficult decisions about what spending is worthwhile, just like the rest of us.

4) Finally, saving the best for last, the mother of all supply-side reforms is incentive pay for politicians (which the comedian Jackie Mason called "putting the politicians on commission"). Politicians must be held personally responsible for their actions. In business, firms align the incentives of decision makers with the incentives of shareholders to ensure that they take the best course of action. Washington must begin doing the same by creating an incentive structure that pays elected officials according to factors such as stock market performance and economic growth.

Mr. Laffer is the chairman of Laffer Associates and co-author of "Return to Prosperity: How America Can Regain Its Economic Superpower Status" (Threshold, 2010).

Housing Woes Bring a New Cry: Let the Market Fall

By David Streitfeld
New York Times
September 5, 2010

The unexpectedly deep plunge in home sales this summer is likely to force the Obama administration to choose between future homeowners and current ones, a predicament officials had been eager to avoid.

Over the last 18 months, the administration has rolled out just about every program it could think of to prop up the ailing housing market, using tax credits, mortgage modification programs, low interest rates, government-backed loans and other assistance intended to keep values up and delinquent borrowers out of foreclosure. The goal was to stabilize the market until a resurgent economy created new households that demanded places to live.

As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.

When prices are lower, these experts argue, buyers will pour in, creating the elusive stability the government has spent billions upon billions trying to achieve.

“Housing needs to go back to reasonable levels,” said Anthony B. Sanders, a professor of real estate finance at George Mason University. “If we keep trying to stimulate the market, that’s the definition of insanity.”

The further the market descends, however, the more miserable one group — important both politically and economically — will be: the tens of millions of homeowners who have already seen their home values drop an average of 30 percent.

The poorer these owners feel, the less likely they will indulge in the sort of consumer spending the economy needs to recover. If they see an identical house down the street going for half what they owe, the temptation to default might be irresistible. That could make the market’s current malaise seem minor.
Caught in the middle is an administration that gambled on a recovery that is not happening.

“The administration made a bet that a rising economy would solve the housing problem and now they are out of chips,” said Howard Glaser, a former Clinton administration housing official with close ties to policy makers in the administration. “They are deeply worried and don’t really know what to do.”
That was clear last week, when the secretary of housing and urban development, Shaun donovan, appeared to side with current homeowners, telling CNN the administration would “go everywhere we can” to make sure the slumping market recovers.

Mr. Donovan even opened the door to another housing tax credit like the one that expired last spring, which paid first-time buyers as much as $8,000 and buyers who were moving up $6,500. The cost to taxpayers was in the neighborhood of $30 billion, much of which went to people who would have bought anyway.

Administration press officers quickly backpedaled from Mr. Donovan’s comment, saying a revived credit was either highly unlikely or flat-out impossible. Mr. Donovan declined to be interviewed for this article. In a statement, a White House spokeswoman responded to questions about possible new stimulus measures by pointing to those already in the works.

“In the weeks ahead, we will focus on successfully getting off the ground programs we have recently announced,” the spokeswoman, Amy Brundage, said.
Among those initiatives are $3 billion to keep the unemployed from losing their homes and a refinancing program that will try to cut the mortgage balances of owners who owe more than their property is worth. A previous program with similar goals had limited success.

If last year’s tax credit was supposed to be a bridge over a rough patch, it ended with a glimpse of the abyss. The average home now takes more than a year to sell. Add in the homes that are foreclosed but not yet for sale and the total is greater still.

Builders are in even worse shape. Sales of new homes are lower than in the depths of the recession of the early 1980s, when mortgage rates were double what they are now, unemployment was pervasive and the gloom was at least as thick.

The deteriorating circumstances have given a new voice to the “do nothing” chorus, whose members think the era of trying to buy stability while hoping the market will catch fire — called “extend and pretend” or “delay and pray” — has run its course.

“We have had enough artificial support and need to let the free market do its thing,” said the housing analyst Ivy Zelman.

Michael L. Moskowitz, president of Equity Now, a direct mortgage lender that operates in New York and seven other states, also advocates letting the market fall. “Prices are still artificially high,” he said. “The government is discriminating against the renters who are able to buy at $200,000 but can’t at $250,000.”

A small decline in home prices might not make too much of a difference to a slack economy. But an unchecked drop of 10 percent or more might prove entirely discouraging to the millions of owners just hanging on, especially those who bought in the last few years under the impression that a turnaround had already begun.

The government is on the hook for many of these mortgages, another reason policy makers have been aggressively seeking stability. What helped support the market last year could now cause it to crumble.

Since 2006, the Federal Housing Administration has insured millions of low down payment loans. During the first two years, officials concede, the credit quality of the borrowers was too low.

With little at stake and a queasy economy, buyers bailed: nearly 12 percent were delinquent after a year. Last fall, F.H.A. cash reserves fell below the Congressionally mandated minimum, and the agency had to shore up its finances.

Government-backed loans in 2009 went to buyers with higher credit scores. Yet the percentage of first-year defaults was still 5 percent, according to data from the research firm CoreLogic.

“These are at-risk buyers,” said Sam Khater, a CoreLogic economist. “They have very little equity, and that’s the largest predictor of default.”

This is the risk policy makers face. “If home prices begin to fall again with any serious velocity, borrowers may stay away in such numbers that the market never recovers,” said Mr. Glaser, a consultant whose clients include the National Association of Realtors.

Those sorts of worries have a few people from the world of finance suggesting that the administration should do much more, not less.

Willaim H. Gross, managing director at Pimco, a giant manager of bond funds, has proposed the government refinance at lower rates millions of mortgages it owns or insures. Such a bold action, Mr. Gross said in a recent speech, would “provide a crucial stimulus of $50 to $60 billion in consumption,” as well as increase housing prices.

The idea has gained little traction. Instead, there is a sense that, even with much more modest notions, government intervention is not the answer. The National Association of Realtors, the driving force behind the credit last year, is not calling for a new round of stimulus.

Some members of the National Association of Home Builders say a new credit of $25,000 would raise demand but their chances of getting this through Congress are nonexistent.

“Our members are saying that if we can’t get a very large tax credit — one that really brings people off the bench — why use our political capital at all?” said David Crowe, the chief economist for the home builders.

That might give the Obama administration permission to take the risk of doing nothing.