Half baked idea

Having gone through a round of brinkmanship on the budget without accomplishing much, we should consider how to approach the underlying problem. While people always think they are paying too much in taxes, that is not the root cause of the current struggle. After all the budget didn't decrease spending very much, since increases in defense spending offset most of the drop in domestic spending. The problem is that people don't want their taxes funding certain spending.

Here is a proposal to address that. Congress could create a National Endowment for Defense and Security and a National Endowment for Poverty Reduction. Taxpayers would then be able to donate money (minimum $200) to the endowment of their choice and get an 80% tax credit. The endowment money would be invested in 10-year TIPS or equivalent and the interest from those securities would go directly to programs for that area, bypassing the appropriations process.

This would mean that taxpayers can choose to direct their tax dollars. So if a person didn't want his money going to poverty programs, he could donate to the National Endowment for Defense. Or if they object to defense spending, they could donate to the National Endowment for Poverty Reduction.

Notice this doesn't decrease their taxes, it actually increases revenue. But it does decrease the amount of money that Congress has available to appropriate. Most people would not donate and simply allow Congress to allocate their tax dollars. But those who want to direct their tax dollars can pay up and know what purpose their money is supporting.

Populism in the Arab World

It was only on February 17 that Libyan protesters staged a "Day of rage" against the rule by Colonel Gaddafi. I admit I thought it unlikely that they would be able to succeed against the ruthless regime. But now we have reached an end game with most of the country in open revolt and only a few areas held by brute force. What is more surprising is how quickly elements of the regime defected in the face of the determined uprising, including the Justice Minister, the Interior Minister, Ambassadors and the United Nations delegation.

I hesitate to call this a democracy revolt; it is not clear what sort of country Libya will be after Gaddafi has been dealt with. But it is likely that the next government will attend more to the needs of the populace than the current government.

And this is probably the lesson that we should take from these events, that the voice of the people do matter even in an authoritarian government. Certainly, other governments are feeling nervous, as shown by the action taken by the King of Saudi Arabia. But it is too soon to begin looking for the next domino. The two big items to watch for are Iran and China but both governments have a lots of infrastructure and money invested in repressing the populations so it will be more likely a battle of attrition than the kind of sudden protest that worked in Tunisia, Egypt and Libya.

Democracy? in Egypt

Now that Hosni Mubarak has resigned as President of Egypt, many commenters are already talking about the possibility of elections in September. Every time a regime changes the same script seems to be run about returning to civilian rule and free and fair elections.

However, elections are not a sufficient and perhaps not even a necessary condition for Democracy. The rush for elections demonstrates an impatience quite at odds with the lassitude of efforts to push the previous regime towards Democracy. Quite evident, the hunger from “Western” governments is not for Democracy but for Stability. Fake elections are seen as an expedient towards returning to business as usual.

The most robust policy in the long term is not to seek Stability but to encourage Vibrancy. A central component must be to ensure a variety of voices have access to the media. Either state supported media must give equal opportunities to all parties or multiple competing private channels must be licensed. An independent judiciary must be capable of holding government accountable for corruption and for violation of human rights. Only with these elements can a sustained, and perhaps messy, national debate allow people to hear and decide the options for their future.

The recurring refrain is that elections will inevitably lead to fundamentalist Islamic rule. Chancellor Merkel heads the Christian Democratic Union; does that make Germany a Theocracy? The parties that contest a free and fair election must reflect the character and culture of the country in which it is held. An aversion to Islamic parties that lawfully compete in the electoral process is purely xenophobia.

In the end, Democracy must be tailored to each country; and only the citizens of that country, in a careful and negotiated process, can bring life to the aspirations for a freer and fairer country. Those who have already trod this path can offer advice about the pitfalls of this path, but Democracy can only be claimed by the courage, patience and wisdom of the people, Allah willing.

Budget myth

In a Washington post story about Obama's strategy for the next two years, there is the statement:

Unlike the federal government, states must balance their budgets.

This does not mean what most people think it means. It does not mean that states must raise more in taxes than they spend. It merely means that legislators have to say where the money they intend to spend is coming from. It may come from taxes; it may come from reserves; it may come from issuing bonds.

But state don't actually know how much they will raise in taxes, often the project revenue is optimistic. When revenue falls short of projections (as happens during a recession), the state will spend from reserves if they have any. One of the issues with the current downturn is that states are reaching the bottom of the barrel of reserves. This is why Illinois is simply not paying vendors on time. When the money comes it, they write a check.

The only difference between the Federal government and state government is that state legislatures have to explicitly vote for a bond issue, where as Congress implicitly authorizes bond issues when they pass appropriations bill or continuing resolution. The debt limit legislation is completely redundant. If Congress want to limit the deficit, they should simply cut spending.

Budget Conscious

Paul Krugman has been criticizing President Obama for enacting a much too small stimulus package. Dr. Krugman's take is that Obama is appeasing the Republicans and not willing to admit that his strategy last year was a mistake. But I think Dr. Krugman is wrong, I don't think the size of the stimulus package was the result of strategy, I think it was a deliberate policy choice.

President Barak Obama is a budget-conscious socialist. The giveaway was his appointment of Peter Orszag (a budget hawk) to the head of the Office of Management and Budget. Too many of the choices that the President has made have been seen as concessions to the Republicans rather than penny pinching by the President. President Obama wants Universal Healthcare but only if wasn't too expensive. Contrast this with President Bush and Medicare part D.

Time to be Presidential

Many people forget that Barak Obama was just a few years ago, merely a state legislator. It was only 2005, not quite six years ago, that he first came to Washington as a Senator. While in the Senate, he was mentored by some of the old hands there, including Senator Ted Kennedy, Senator Robert Byrd, Senator Tom Daschle and Senator Harry Reid. If Senator Reid loses his re-election bid, as most polls indicate, none of the people listed will be in the Senate next year.

When I look back at President Obama's first two years in office, what strikes me is how passive he has been. The stimulus bill passes was quite tepid; the signature Healthcare Reform was left to the hands of the Democratic leaders of the House and Senate and only rescued by Presidential action when the election of Scott Brown threatened to block it. The Financial Reform bill was also quite mild, partly because of intense lobbying by the banking industry but also because the attitude in the Whitehouse was "We need a bill but we don't care what's in it." In many ways, we've experienced two years of Senator Obama instead of President Obama.

With the departure of Rahm Emmanuel and Larry Summers, the Clintonite aspects of the current administration will likely fade and we will see much more of Obama's style of leadership, if he has any. The founders of the country created the office of the President because they felt that the country couldn't simply run on auto-pilot. We are still waiting to see of Barak Obama is up to the job.

Terrorist Free

Most gas stations in the U.S. sell three blends of gasoline. The regular is an unleaded low octane blend, usually the cheapest of the three blends. The premium blend is a higher octane fuel required by high performance engines that use a higher compression ratio. The higher octane prevents premature combustion at the higher pressure. The third blend is a left over from the days when gas station sold an older regular leaded blend in addition to the unleaded regular required by cars with catalytic converters. This tends to be a blend with an octane rating between regular and premium, without any particular reason for being sold other than the infrastructure for selling three blends exists.

Instead of selling a middle octane blend, gas stations should offer a blend that is only refined from North American crude oil: a Terrorist-Free gasoline. They should be able to charge a higher price than regular gasoline. This blend could have a higher octane and more additives, in fact it could be the exact same formula they sell now but with the paperwork to prove that it was refined from Crude Oil pumped from the U.S., Canada, or Mexico.

Just as consumer can choose a dolphin-safe tuna or a conflict free diamond, they should be able to prefer domestically produced gasoline over gasoline that may or may not be made from imported oil.

Marketing should be simple:
Help bring the troops home; buy terrorist-free gasoline.
If you want energy independence, just pay for it.

To the oil companies, I say, “Give America a choice. Sell Terrorist Free gasoline at every gas station.”