Thinking Anew and Acting Anew: A People's Bailout Or A Politicians' Bailout?

America is about to enter the post-Bush era.  Two recent events — the terrorist attack in Mumbai and the collapse of CitiBank — are vivid warnings about the complex, uncertain and potentially very dangerous time we are about to enter.

In the New York Times last week, columnist Tom Friedman made the following stunning point:

I spent Sunday afternoon brooding over a great piece of Times reporting by Eric Dash and Julie Creswell about Citigroup. Maybe brooding isn’t the right word. The front-page article, entitled “Citigroup Pays for a Rush to Risk,” actually left me totally disgusted.

“Why? Because in searing detail it exposed — using Citigroup as Exhibit A — how some of our country’s best-paid bankers were overrated dopes who had no idea what they were selling, or greedy cynics who did know and turned a blind eye. But it wasn’t only the bankers. This financial meltdown involved a broad national breakdown in personal responsibility, government regulation and financial ethics.

The Pelosi-Paulson Model of Crony Capitalism, Predatory Politicians and Micromanaging Bureaucrats

It is vital that every American understand the implications of Friedman’s last sentence. “The financial meltdown involved a broad breakdown in personal responsibility, government regulation and financial ethics.”

Righting such a systemic wrong requires far more than the Pelosi-Paulson model of crony capitalism, predatory politicians and micromanaging bureaucrats. In fact, in the face of the scale of collapse Friedman is describing, throwing trillions of the American peoples’ dollars into a cynical, corrupt, unethical system is exactly the wrong thing to be doing.

And the scale of the problem we face in the financial world is matched by the scale of the challenges we face in the national security world.

Both these challenges require new thinking.

“As Our Case is New We Must Act Anew and Think Anew”

I often quote President Abraham Lincoln at times like this because he captured the challenge so perfectly in his annual address to Congress on December 1, 1862:

“The dogmas of the quiet past are inadequate to the stormy present and the occasional is piled high with difficulties, and we must rise to the occasion.  As our case is new we must act anew and think anew.  We must disenthrall ourselves and then we shall save our country.”

Lincoln’s call to think anew and act anew is especially important today because of the establishment nature of the team President-elect Obama is gathering. I write this with admiration and not with criticism.

The Danger of Looking to the Past in Times of Dramatic Change

President-elect Obama has done a good job of assembling sophisticated and highly respected teams for both national security and economic-financial policy.

Yet these two events — Mumbai and CitiBank — should remind us that knowledge about past systems and confident expectations based on past rules can actually be a detriment in dealing with periods of dramatic change. Peter Drucker wrote brilliantly about this problem in The Age of Discontinuities.  Drucker argued that one can be an expert on the period before the discontinuity and one can learn to be an expert on the new period emerging after the discontinuity but during the discontinuity itself there is a real danger of past knowledge becoming very misleading.

Drucker’s argument is illustrated expertly in David Halberstam’s study of Vietnam War policy making in Washington, The Best and the Brightest.  The new team being assembled by President-elect Obama would do well to heed its lessons.

A New Team of “Whiz Kids” In Washington DC?

Halberstam argues that it was precisely the confidence and the certainty of the team of “whiz kids” President Kennedy assembled which led them to make assumptions that proved to be false and to reject fact-based information which conflicted with their previous theories of how the world should work.  They rushed into policies in Vietnam confident that what Halberstam called their “brilliant policies that defied common sense” would enable them to impose their will on reality.  But with agony they learned that a harsh and unyielding reality was imposing its price in blood and treasure on America.

The new Obama teams for national security, finance, and the economy should ponder deeply the lessons of Drucker and Halberstam and question whether the theories and principles they are bringing into office are in fact the right solutions for today.

Mumbai and Citibank should be sufficient proof that the election of a new president has not changed any of the fundamental challenges facing America and threatening the civilized world.

How Much Damage Could a Mumbai-Style Attack Do To An American City?

The terrorist assault on Mumbai is a profound reminder that the world remains dangerous and there are many terrorists dedicated to destroying liberty and the rule of law as we know it.

For America, the scale and coordination of the Mumbai attack are a grim warning that our Homeland Security preparations are almost certainly inadequate.

If the Department of Homeland Security were to run a series of exercises in the first six months of 2009 replicating the Mumbai attack in cities like Boston, Charleston, Baltimore, Savannah, New Orleans, Houston, Long Beach, San Francisco and Seattle, it would be shocked to discover how much damage a ship-based assault team using simple weapons could inflict on an American city.

Pragmatic Decision Making Versus Institutional Reform

And if the Department of Homeland Security had the courage to go a step further and run tests involving simulated nuclear and biological weapons, the results would be so horrifying Americans would demand a crash program of preparedness beyond anything the current authorities can imagine.

The new Obama national security team is competent and professional and he is to be commended for his courage in recruiting Senator Clinton, Secretary Gates, and General Jim Jones. These three nominees are intelligent, tough minded, and hard working.

The greatest danger they will face is in their own belief that hard work and methodical pragmatic decision making can substitute for strategic planning and institutional reform.

America’s Immediate National Security Threats:

The fact is Mumbai is a grim reminder that more than seven years after the attack of 9/11 the United States and its allies have no solutions to the most difficult problems of terrorism on the planet. 

•    The Saudis are still shipping money overseas to recruit for the most militant wing of Islam.
•    The Iranians are still trying to develop nuclear weapons so they can dominate the Persian Gulf and eliminate Israel from the face of the Earth.
•    Pakistan has more nuclear weapons and is more unstable today than it was in 2001.
•    The Taliban and its Pashtun allies in Northwestern Pakistan are as entrenched as they were in 2002 and are regaining strength in Afghanistan.
•    The erosion of Western rule of law under the onslaught of internal Islamic demands is continuing to spread through Great Britain, Holland, and other countries.

America’s Long-Term National Security Needs
The long-term challenge of China as an economic, scientific and technological competitor requires a national security based assessment of the requirements for change in America. If we are to remain the leading power in the world 25 years from now we have to reform litigation, taxation, regulation, education, health, energy, and infrastructure. The scale of change needed is greater than the New Deal but in a fundamentally different direction.

As Tom Friedman has written in other columns and in several best selling books, the United States needs an extraordinary level of achievement to remain the most productive and most creative country in the world.  And our national security leadership depends on precisely those characteristics as well.

Out:  Republican and Democrat.  In:  Honesty, Productivity, Creativity, Effectiveness

The key words describing the kind of reform that will solve our economic and national security challenges in the next decade will not be liberal or conservative, Republican or Democrat.

They will be:       

•    Honesty
•    Productivity
•    Creativity
•    Effectiveness

Next week I will focus on these four words and what they will mean for public policy in 2009.

Why Would You Give One More Dime of Your Taxpayer Money to a Company That Paid $400 Million to Name the New York Mets’ New Baseball Stadium “Citi Field”?

But for now, it’s worth stating what should be obvious:  The Pelosi-Paulson centralized government, politician defined, bureaucratically implemented bailout system fails to meet the test of any of these four words of reform. It will not lead to more honesty, productivity, creativity or effectiveness.

Remember the reason for Tom Friedman’s disgust over the article about Citigroup:  “Because in searing detail it exposed — using Citigroup as Exhibit A — how some of our country’s best-paid bankers were overrated dopes who had no idea what they were selling, or greedy cynics who did know and turned a blind eye.”

Why would you vote for another $350 billion to go to people and institutions which fit that condemnation?  Why would you give one more dime of your taxpayer money to a company that paid $400 million to name the New York Mets’ new baseball stadium “Citi Field”?

A Politicans’ Stimulus Package or a People’s Stimulus Package?

It’s the very bankruptcy of the current establishment which makes Congressman Louie Gohmert’s (R-TX) tax holiday proposal so intriguing.

Congressman Gohmert has calculated that the amount Speaker Pelosi and Secretary Paulson will be advocating for the second installment of the bailout — $350 billion — is more than the amount needed to allow every American to have a two month tax holiday from both the FICA (Social Security and Medicare) and income tax.

Let me repeat that:  What Pelosi and Paulson are proposing to pour into crony capitalism is more than what it would cost to give every American taxpayer a total federal tax holiday for two months.

Which do you think would do more to get America growing again? $350 billion to failing managements, “overrated dopes” and “greedy cynics” or allowing every American to simply keep all their money for January and February?

The Money You Will Keep?  Your Monthly Income Multiplied by .66

For the working poor a FICA tax holiday (the $350 billion Paulson was going to send to Wall Street would simply be used to cover the revenue losses in the Treasury so Social Security and Medicare would not lose a penny) will be a dramatic increase in take home pay.  This one act will save more homes from bankruptcy than any centralized government bureaucratic red tape ridden system.

If you want to figure out how much Rep. Gohmert’s tax holiday would save you, Jed Babbin of Human Events has this advice:

Most Americans pay about 25 percent of their income in federal income tax and another 7.25 percent in FICA (Social Security and Medicare taxes). Computing how much money Gohmert’s tax holiday would leave in your family’s checkbook is very simple.

Take your monthly income (the gross amount shown on your pay stubs before tax and any other withholding) and multiply it by 0.66. That amount is roughly what Gohmert’s two-month tax holiday will leave in your pocket.

If a Two Month Tax Holiday Sounds Good, Why Not Six Months?

But there’s more.

Speaker Pelosi’s desire for an additional $700 billion Washington centered, government stimulus program would actually create the opportunity to offer an additional four months of FICA and income tax holiday for the American people.

If the American people knew they were going to have no personal federal taxes until July, 2009 how much debt could they pay down? How many mortgages would be saved? How many college tuitions could they pay? How much could they invest to rebuild their retirement accounts?

This is an example of what President Lincoln meant by “thinking anew.”

Send me a note at letting me know what you think of the tax holiday idea.

And if you like the idea of not paying federal taxes until July, 2009, please send this newsletter on to your friends and encourage them to speak out on these new solutions.
And remember, coming next week: The four key words to getting America moving again and how to apply them to federal, state, and local government.

Your friend,

P.S.  My friend and advisor, Randy Evans, has written an insightful piece on what’s next for the Republican party.  You can read it here.

P.S.S.  John Mauldin has written an excellent column on the need for new thinking about our economic challenges, which you can view at his website.

HE Newsletter – December 2, 2008

American Solutions has initiated two new projects for the coming year.

The American Solutions Airline Passengers (ASAP)
initiative is an effort to improve technology and reduce flight delays. The current air traffic control system uses analog radar technology from the 1950’s. A new system, called NextGen, using global positioning satellites has been proposed. It would allow planes to fly closer together while increasing safety and would boost the capacity of our airways by about 40 percent. Best of all, it would eliminate nearly all delays, except for those caused by weather. It would mean more efficient airlines, using less fuel, having higher profits and higher wages, and offering better service at lower costs.

It is time for a twenty-first century solution. Become an American Solutions Airline Passenger, and join the action team!  Submit your travel “horror stories” to our blog.
American Solutions is calling for a repeal of Sarbanes-Oxley. Now, with signs that our economy is moving toward recession, Congress should take this opportunity to repeal the law for four reasons: It was insufficient at preventing insolvencies and accounting shortfalls in companies such as Bear Sterns, Lehman Bros., American International Group (AIG) and Merrill Lynch; It takes longer for a company to enter the Capital Market. In addition, by creating criminal liabilities for board members, Sarbanes-Oxley has made it harder to find experienced members to join corporate boards; it initiated a movement among smaller public companies to return to private status or merge; it is resulting in a trend where companies choose to go public on foreign, not American, stock exchanges.

Get involved with this movement and share your stories.