Tuesday, May 29, 2012: Episode VII - Education

Episode VII - Education: In 1979, President Jimmy Carter created the Federal Department of Education. He did it to make the quality of education in this country better. This year, that department will have an administrative budget of $69 billion. That does not include the roughly $19 billion in federal dollars we will spend on education entitlements like Pell Grants and student loans.

The question is simple: Is American education better now than it was in 1979? Has spending trillions of federal dollars over the last 33 years led to America's students consistently receiving a superior level of education?

The answer is painfully obvious. NO! So, why are we still trying to do what has failed for over 30 years expecting to achieve positive results?!

Sorry. I'll calm down now. I have included education in this “Fix It” series on how to jump start two new decades of American hegemony, growth and prosperity because, like infrastructure, a strong education system is a prerequisite to growth and prosperity. So then, what is the state of education in America? In order to analyze our system, we have to break education into two distinct categories which are in very different places right now: K-12 education and higher education.

We already have the finest higher education system in the world, bar none. This is so for a number of reasons. Amongst them is that we have many private, public and for-profit colleges competing with one another in the marketplace. There is relatively little government interference in this category, which is a significant part of its success. Unfortunately, President Obama recently indicated that he would like the government to regulate what a unit of higher education is and how much it can cost. This is the President's road map to screw up a part of America that is actually working. Unbelievable!

Higher education is too expensive. But, that is not because the government has not interfered enough. It is because it has interfered too much. Over the last 30 years, the inflation rate on higher education tuition has been greater than any other part of the economy. Health care is second. The increases in both dwarf the inflation rate for energy or housing or food. And, do you notice something in common with higher ed and health care? Both have a lot of government subsidies. The increases in college tuition have largely corresponded with the increases in federal assistance. When I was an undergrad at UCLA in the mid-1970s, my tuition (I remember well) was $625.50 per year. Today, in-state tuition at UCLA is $12,686 per year. That means it has increased more than 20 times over that time period. Gas and housing have also gone up over that period, but not by 2000%. And, that is in spite of increases in California tax rates since then.  Now, all this being said, the state of higher education could be much worse. But, if we are concerned about the cost, we should be looking at whether federal subsidies have caused higher tuitions, rather than helped reduced them.

Unfortunately, our K-12 system is in a different place. We do NOT have the finest primary and secondary education system in the world. And, we do NOT have many private, public and for-profit K-12 schools competing in the marketplace. There are roughly 98,700 public schools in the United States. There are about 33,700 private ones. The details of fixing K-12 education are way beyond the scope of this series. But, there's one thing I know: We can't fix 98,700 schools from Washington, DC. We can't even fix California schools from Sacramento. Parents, teachers and administrators closer to the problem should have more freedom and flexibility to respond to their own unique needs.

So, get rid of the Department of Education. Save half the money the department currently costs and give the other half directly to the states and local school districts. However, most importantly, give them the flexibility to create competition and fix their problems. They will do it.

Tuesday, May 22, 2012: Episode VI - Infrastructure

Episode VI - Infrastructure: I mentioned in Episode V that infrastructure is important to secure and grow manufacturing. In fact, it is essential. You must be able to transmit energy, move goods and services, and have access to water and internet and all kinds of things in order to have an efficient manufacturing process. Regardless of what you are producing, infrastructure is key. And, at the risk of adding to the overusage of this trite phrase, our infrastructure is crumbling. One needs only to drive one's car in Washington, DC or Los Angeles, California (as I do frequently) to feel that infrastructure crumbling beneath your tires. Our support systems in DC, LA, or wherever you live are in bad shape because the priorities for federal spending have shifted over the last 50 years. Social programs now eat up the bulk of government spending at the federal, state, and local levels. The cost of these social programs crowds out what used to be spent on infrastructure. In some cases, taxes or fees that were sold as "user fees" to pay for infrastructure have been diverted for social programs or used to try to maintain exorbitant government employee pensions. My home state of California has practically made this an art form. In other cases, funds generated by "user fees" are declining while the need for them has risen. The best example of this is the federal gas tax. As cars become more fuel efficient, revenues from this tax (collected in cents per gallon rather than a percentage of the price) are dropping on an absolute basis. However, as revenues shrink, the total number of miles being driven on our roads is actually rising - as is the cost of repairing, building and maintaining those roads.

I would love to tell you that we can divert tax revenue away from social programs, but we need to reduce the overall costs of those programs just to get the deficit down. And, when we say "infrastructure", we normally think of roads and bridges and sewers and such that need improvement or refurbishment. But in the 21st century, "infrastructure" may need to include some things we haven't even built yet, like a coast-to-coast wireless broadband system. How do we pay for all of this? I fear that it is politically and practically impossible to fund infrastructure out of general tax revenues any longer. So what to do?

We will need to continue to rely on user fees to help restore our infrastructure to its original splendor. The gas tax is one form of a user fee, as are parts of your water and electric bills. But, even these have their limitations. Some have been diverted, as I mentioned, and I doubt that many of you are chomping at the bit to see increased gas taxes. Furthermore, both the federal government and state governments have borrowed too much and have little borrowing capacity left.

So, I believe the solution is to utilize a structure in the tax code known as "Master Limited Partnerships"(MLP) to get private sector money to fund public infrastructure. There is not enough room here for me to get into the technical details of how the tax aspects of this work. I am also not interested in further highlighting my tax-geekness. But, suffice it to say that private capital can build a road (or bridge or electric transmission line or dam or whatever) and get favorable tax treatment for so doing. And, the MLP would be paid for by a user fee somewhere in the chain. This could be a toll on a toll road or an increment on an electric bill. When the MLP is paid off, the public then owns the road.

I wish that it was possible do this some other way. However, I fear that if we don’t implement this solution, we will just wait and wait to pay for repairs out of general tax revenues and our infrastructure will further deteriorate due to inaction. Plus, user fees are extremely equitable, of course. And, using private sector money means we can do this with no new government taxes, deficit or debt. Very importantly, the MLPs will ensure through contract that the user fees collected will not be diverted. And, the growth that would be generated directly by a surge in our infrastructure capabilities would be astounding. Part of that surge would be felt directly by means of repairs and new construction. But, most of the effects would be indirect as other businesses use the new infrastructure to facilitate risk taking and growth.

This could be pretty cool actually.

Thursday, May 17, 2012 - Episode V - Housing, Manufacturing

Episode V: For those of you who perhaps are new "subscribers" to this "Report from my Laptop to Yours", I have been writing a series on the things I think we need to do in order to bring about a new, extended period of substantial growth that offers prosperity to our people, refreshes our culture and preserves and extends our hegemony in world affairs.  This is Episode V. (You see how I cleverly use roman numerals in order to add a degree of erudition to these writings. My close proximity to the ways of Hollywood has not been completely without influence.) If you missed the first four Episodes, you can find them on my website HERE.

Now on to Episode 5.....I mean V. Regular readers of this missive will know that restoring growth to the housing market is one of my major priorities in Congress. This is not because I'm a housing guy. I'm not really. I'm a car guy. But, the fact is that the car business and the housing business have some similarities. Both are high cost items that consumers almost always need a loan to purchase. But more importantly, they are huge parts of the economy. We never go into recession without first experiencing a slump in cars and housing. As recent proof, think about the collapse of both of these markets in late 2008. But, we also never have had a robust recovery without cars and housing leading us out. The car business is actually doing pretty well, thanks to a lot of new exciting product and the simple fact that cars eventually wear out. But, housing is still stuck in neutral. Our recovery will never be strong until housing recovers. This is not just me talking. Fed Chairman Bernanke and many other noted economists have said this on numerous occasions.

The problem with housing is housing finance. Fannie Mae and Freddie Mac, which I will refer to as the GSEs, have failed. Yet, they, along with the FHA, are the bulk of the only housing finance system that is currently in place. 97% of all home loans in the U.S. are now made or guaranteed by these entities. A recent Fed study looked at people who both traditionally (over the last 40 years or so) have been able to get a 30-year home mortgage and who consistently made those payments. Despite the fact that history says they almost all will pay it back, the study found that 30% of these people cannot qualify for a home loan today. That's because we have a system under which a single federal agency is deciding who gets a loan and who doesn't. No competition. No real market at work. No new system to replace the zombie system that is still walking while dead.

To solve this problem, Congressman Gary Peters (D-MI) and I have introduced HR 1859, The Housing Finance Reform Act. It is beyond the scope of this report to get into the details of the bill. You can find those in a previous report I did HERE and on my website HERE.  Suffice it to say that the bill winds down Fannie and Freddie over 5 years, returns FHA to its traditional role of the lender of last resort, and creates a new system of housing finance. This system is built upon multiple private entities competing in the marketplace with the ability to purchase a government guarantee in order to ensure the continuation of the 30-year mortgage. In principle, the guarantee is similar to how FDIC insurance works for your bank account. Our bill would also ensure that a lot of private capital is put at risk ahead of any taxpayer exposure in order to avoid a repeat of 2008. Housing will not recover without fixing housing finance and the economy will not recover without housing. We must work together towards solutions like this.

Manufacturing: In Episode III, I gave you my views on energy policy and described the tenets of a policy I would endorse. The idea of having a national energy policy has been the subject of much discussion in Washington for years and is certainly not a news flash. The conversation is usually based on how to secure domestically-produced, cheap, clean energy. However, what is not often discussed is the idea of having a national manufacturing policy. We need one. The idea here would be to secure American manufacturing and American manufacturing jobs.

So, why should we do this? As great as our technology and information industries are and will continue to be, we should not be a country that doesn't build anything. In one sense, this is a major national security risk. We do not want to be dependent on some other country for planes, trains, automobiles and any number of other things in the event of war, economic crisis or major natural disaster. Secondly, it is a source of diversification for our increasingly information-based economy. And third, but definitely not last, manufacturing is a source of a lot of good middle class jobs for people with physical skill sets. Personally, I am a bit mechanically inept. I literally regularly mess up the rather pedestrian task of replacing a light bulb. If you don't believe me, just ask the captivating Mrs. Campbell who often performs such tasks at home for fear that I will burn the house down or hurt myself. Fortunately, God gave me a few other talents. But, I have tremendous respect for those to whom God gave the mechanical talents which frankly mystify me. We need jobs for people who build things, not just for people who think things.

And, in our hyper-globalized world, other countries have policies designed to attract and retain manufacturing. We should not go into that gun fight with a knife. We need our own policy. So what does that policy look like? It should have a number of parts. We should have rapid tax deductibility of equipment used in manufacturing policies, as well as for the buildings in which that equipment is used. We have to improve infrastructure for the movement of parts and inventory (this will be part of the subject of Episode VI). We should make changes to our extremely uncompetitive litigation system so that people can build things without half the cost of the product tied up in liability insurance. As discussed, we need to implement policies that facilitate cheap and reliable energy. And, we should restore manufacturing trade schools to a respected place in our education system in order to educate a new workforce in a skill with direct application to a manufacturing job. We also need sensible labor laws that afford manufacturers and workers flexibility. That, by the way, is the opposite of what the extremely anti-growth NLRB (National Labor Relations Board) is doing. It’s hard for me to count how many jobs that miserable board is costing Americans right now. And finally, we need tax systems that do not punish companies that do business internationally while locating their manufacturing here. Today, we do punish them and force what could otherwise be American jobs overseas.

We are not going to build plastic toys in America anymore, nor should we. Through advanced manufacturing, however, there are a lot of complex processes that we execute better and often cheaper than anyone else. We have the best, most skilled and most trustworthy labor force on earth. And yes, they are paid more and I want them to be paid more. But, they are also more productive, which more than offsets the higher wages. We also represent the world's largest market. If you really look at why manufacturing locates overseas, it is not because of wages. It is tax policy, labor rules, environmental regulation, litigation risk or infrastructure limitations that cause the problem. We can fix all of that. Now, please understand, I do not want China's environmental rules or labor laws or litigation system. Far from it. They are all awful. But, we can protect our workers, our environment and our consumers much more sensibly than we do today, and can do so without scaring away jobs and manufacturing technologies.

Drive fast and live free.

Monday, April 30, 2012 - Fix It: Episode IV

Fix It - Episode IV: Health Care is an important topic. Not just because of the obvious fact that we all need it and it directly relates to the continuity and quality of human life. But, also because it represents a major segment of our economy. And, the economic impact doesn't just extend to medical care providers. It also affects employers, through whom most Americans obtain their health insurance if they are under 65 years of age, and the economy at large.

It will be no surprise to readers of this missive that I think ObamaCare is an unmitigated disaster. But, even if you think it was a good thing, the problems surrounding its implementation have injected even more government-created uncertainty into a major element of the economy. Uncertainty retards growth because it freezes capital, labor and decision makers. The uncertainty here is not just a result of the pending Supreme Court decision. It began long before that as it quickly became apparent that major elements of ObamaCare just don't work. Even the White House has admitted this. Even more problematic, the provisions that the White House has already agreed not to implement have now put other parts of the law in question as these parts were dependent on those withdrawn.

There was universal agreement that our health care system needed reform before the passage of ObamaCare. It is pretty clear now that the system today is worse as a result, not better.

But, when we say that we need reform in health care, it isn't that we have bad care as a society. Arguably, we have the best medical care in the world. People stream here from countries across the globe to access the best American doctors and procedures. And, our problem is not access either. We often hear talking heads call for "universal care". I would argue that we have universal care already. No one is turned away from an emergency room. Sick people are not roaming the streets without access to doctors. Now, that doesn't mean that everyone has equal care. That will never happen because doctors are human beings and they are different and hospitals will be different and so forth. But, we do already have universal care. Our problem is that we are paying for it in an inefficient and inequitable manner. Therein lies the challenge.

In this "Fix It" series, I have endeavored to provide you with solutions that I think can attract bipartisan support. Health Care may be the area where this is the most difficult. That is because ObamaCare is directionally opposite from where I, and all Republicans, think the solution should go. ObamaCare moves more control and decision making to the government and your employer. I believe that we should be doing precisely the reverse. We should be freeing individuals from dependency on either their employment or a government bureaucrat for their health care. You should own your policy and it shouldn’t depend on what job you have or if that job changes. Pre-existing conditions should not affect your ability to change health care providers. Not because of some government mandate, but because we all should pay into a pool to cover ourselves in the event we fall into that category some day. A premium support program (just as exists and works in Medicare Part D today) can provide increasing support for those who can't afford the coverage or are enrolled in Medicare. And, if you don't like your coverage, you should be able to easily change it. And, if you want to have a bigger deductible and pay less, you should be able to do that, too. And, if you think your provider doesn't cover everything you want covered, you should be able to switch and determine if the benefit is worth any additional cost.

That's the way human economics works. It works for something as essential as food. It can work for health care, too.

In this short piece, I can obviously not do an exhaustive explanation of this very complex subject. But, I think you get the point. Finding a bipartisan solution here will not be easy. But, fixing the way we pay for health care can free businesses to hire more workers without fear of unknown, future health care liabilities. It can free health care professionals to go back to actually providing care, instead of managing through a labyrinth of confusing and changing regulations. We can get billions of dollars of unnecessary costs and procedures out of the system. And, we can save federal dollars in support programs as well.

It will never be perfect, but we can be much closer than we are.

I'm going to call my doctor now because I feel better already!