It's Time for a No-Fly Zone in Libya

It has taken me quite some time, but I now believe that we should enforce a no-fly zone in Libya, ideally as part of a NATO or UN operation, but speed is probably more important than allies.

The huge wave of non-violent pro-freedom and democracy protests sweeping the Arab world is potentially a major strategic victory for America. First, the protesters may succeed in establishing democracies in many, if not most, Arab countries, a big plus for the U.S. Second, the protesters have handed al Qaeda a strategic defeat. After all, 15 years of violence never toppled a single corrupt Arab government, and non-violent protest took out two in a few months.

Unfortunately, there is a way to defeat large popular non-violent uprisings: massive deadly force. In Egypt public and (no doubt) private pressure from America helped prevent this, but we have no such influence in Libya and Gaddafi has taken this approach with a vengeance. If Gaddafi succeeds in crushing the protesters, other Arab dictators will know exactly how to stay in power. If Gaddafi falls, Arab dictators will have little choice but to bow to the aspirations of their people.

The question, of course, is how to help the protesters. The answer, of course, is to listen to them. They are quite clear on one point: they don't want boots on the ground. British special forces inserted into Libya were arrested by the protestors and sent home. On the other hand, voices within the protest movement are increasingly of one mind: take Gaddafi's air force out of the equation.

This is something we can do, and we are probably preparing. Aircraft carriers have been sent to the region. Reconnoissance planes are flying off the coast. Warships are gathering for potential 'humanitarian missions.' Allies are being consulted. NATO is meeting. UN resolutions are being drafted. Unfortunately, international consensus takes time and speed is of the essence.

In the last few days the government has driven protesters from two cities. Gaddafi's firepower is beginning to overwhelm the opposition. Establishing a no-fly zone is an act of war, which is always risky, but taking down Gaddafi's air force will certainly help, a lot, and with a bit of luck putting America's unmatched firepower in the service of the protest could trigger a government collapse. With a third corrupt Arab dictatorship down, the winds of freedom and democracy could well sweep the Arab world with little additional effort from, but lots of benefit to, America and the rest of the world.

What you can do: go to http://www.whitehouse.gov/contact or call 202-456-1111 and make your voice heard.

When is 51,000 more than 250,000?

Lately, the pundits at FOX have been telling us Wisconsin teachers are overpaid. These teachers have an average salary of $51,000, $75,000 if you include benefits; and the FOX folks tell us this is a lot of money. Too much. Although the teachers have agreed to a 7% cut overall to help with a $3.6 billion deficit over two years, the FOX pundits say this is not enough; the teachers must give up collective bargaining and take bigger cuts.

Rewind to the debate last year over ending the Bush tax cuts on income over $250,000. These same FOX pundits told us $250,000 was not that much money, hardly enough to pay a mortgage and send the kids to college! It was way too much to ask for a 3.9% tax tax increase on income over $250,000 to deal with a federal deficit of $1,400 billion.

So when is 51,000 (or 75,000) more than 250,000, 3.9 more than 7, and 3.6 billion more than 1,400 billion? When you are a FOX pundit!

Egypt thought

Hundreds of thousands of Egyptian non-violent protestors calling for freedom and democracy have driven their dictator of 30 years, Muhammad Hosni Sayyid Mubarak, from power. A few months ago, nobody thought anything like this could happen.

The Egyptian protests have succeeded, so far, because the army refused to mow them down. Whenever a repressive government loses the will to butcher large numbers of its citizens, that government's days are numbered. The interesting question is "Why?" In part, of course, the military just didn't want to. In part, the officers weren't sure the conscripts who actually carry the guns would follow orders to kill thousands of their compatriots. Also, to our credit, America may have played a role.

About one third of the Egyptian military budget comes from the U.S. treasury. In addition, the Egyptian military uses American hardware. American weapons are very good, but their functioning depends on supplies and spare parts from America. If that supply chain is cut, the weapons quickly become useless. This is what happened to Iran after 1979. When Iraq invaded Iran the U.S. sided with Iraq, cut the supply lines to Iranian American-made weapons, and major Iranian weapon systems quickly became useless.

Fast forward to Egypt the last few weeks. Obama and Clinton, in public, made it crystal clear that America expected the parties involved, including the Egyptian army, to remain non-violent. I don't know, but wouldn't be surprised, if there was also some private communication with the Egyptian government and military. I think the Egyptian military was probably told, in no uncertain terms, that if the started shooting protestors the flow of American dollars and spare parts would stop.

Today is the Egyptian's day. They toppled Mubarak. I think we helped a bit. It was the right thing to do.

U.S. Federal Debt, Part III, Expenses and Income

In Part I I laid out our debt problem. The short story: $13.7 trillion and growing fast. In Part II I discussed ways to give the major players incentives to eliminate the debt, reversing current incentives. In the current section, Part III, I discuss ways to reduce expenses and increase income. The ground rules are: everything gets cut and everyone pays more taxes. The scale of the problem is much too large for any other approach. I break this rule once because overall economic costs should go down significantly although government costs go up. It should be noted that most deficit reduction proposals boil down to: cut stuff I don't like and tax other people, i.e., everyone else hurts but not me. This is not serious. Serious debt reduction means cutting things you like and paying more taxes.

Note that I do not put dollar figures on these ideas. That's because I do not have the resources to make realistic estimates. However, in all cases brief reflection will show that costs will go down or income will go up, often by a lot. Now for the proposals:

Each year, eliminate all tax breaks. This will raise a lot of revenue. Allow Congress to put tax breaks back in, but only associated with tax rate increases to pay for them and only by a separate vote for each tax break. This would reduce the complexity of the tax code and, therefore, implementation costs. It would also substantially level the economic playing field and contribute to economic growth. It will probably be necessary to reduce tax rates to avoid over-taxation.

Eliminate all government subsidies except

1. Research and development, which the government is very good at and pays for itself handsomely (consider the Internet, which began as a government project).
   
2. Purchasing. The government buys a lot of stuff, and this can be used to boost important emerging industries. For example, it would make sense for all government buildings and military bases to be energy self-sufficient so as not to be vulnerable to attacks on the power grid. This would justify covering all buildings with solar cells and installing wind generators where appropriate. This would enhance national security directly and develop permanent domestic energy supplies.

Eliminating subsidies would substantially reduce government expenses and level the economic playing field.

Change our military grand strategy from global military domination to self-defense. While we call our military the Department of Defense, it is neither designed nor deployed to defend America -- as we discovered on 9/11/2001 when our multi-hundred billion dollar military failed totally and a few passengers on United Flight 93 provided the only effective defense [reference]. If you do not think we seek global military dominance, consider:

1. We can completely destroy any nation or combination of nations with our nuclear stockpile. Only Russia has similar capabilities.
   
2. We can destroy any building in the world within a few hours with our precision guided munitions, and we can do that to thousands of buildings within hours or days. No other nation has this capacity.
   
3. We can deploy hundreds of thousands of troops to the furthest reaches of the Earth, for example, Afghanistan. No other nation has this capacity.
   
4. We spend more on the military ($680 billion -1,300 trillion this year, depending on what you include) than the rest of the world combined, even though many of the other powerful militaries are our allies and America is extraordinarily easy to defend: two borders are large oceans and both neighbors are friendly, small, and weak.

Defending America is pretty easy and should be fairly cheap. Global military dominance, on the other hand, is infinitely expensive. Although we have more than doubled expenses since 9/11, we have failed to destroy tiny al Qaeda. Indeed, al Qaeda is probably stronger today than it was then. The expense of global military dominance feeds into al Qaeda's strategy, which is to trick America into spending ourselves into bankruptcy. This strategy is working very well.

Of course, global military dominance is nice to have. One can push small nations around at will and even intimidate large ones. However, it is bankrupting us. We will either abandon it gradually, under control, or we will spend ourselves into default and the system will come crashing down in a completely uncontrolled manner with disastrous consequences. Choose.

Get rid of the mercenaries. The wars in Iraq and Afghanistan are the first in which America made extensive use of mercenaries, euphemistically called 'contractors.' These are also the longest wars America has ever fought and neither is headed for decisive victory. This isn't an accident. There are many reasons mercenaries are a particularly bad choice for counter-insurgency warfare, but there is a more fundamental issue. Mercenaries don't benefit from winning, they lose their jobs. Mercenaries benefit from the longest, most drawn-out war possible. Mercenaries are also very expensive. Get rid of them.

End the war on drugs. Portugal did so and ten years later the number of heroin addicts was cut in half. Not only can whole government bureaucracies be eliminated and policing and court costs reduced, there will be hundreds of thousands fewer inmates in jail sucking up tax dollars rather than paying taxes. Legalization would put an end to funding criminals and terrorists with this illicit trade. The Taliban, al Qaeda's ally, receives substantial drug money (see Seeds of Terror by Gretchen Peters) and countries like Mexico and Columbia have been destabilized by drug wars. Finally, done properly, legalization can destroy the drug trade entirely using the civil court system. See How to Actually Win the War on Drugs for details.

Social Security can help a little, but not much. Unlike the federal government, social security is currently paying all its bills and has $2.7 trillion of government bonds in the bank. In 20, 30, 40 years, depending on who you believe, social security will run out of money. There are several ways to deal with this, the simplest of which is to raise the retirement age for people under 30 or 40. However, this will do nothing to help with the current fiscal crisis. Indeed, little can be done since even if social security generated a surplus again it would only replace outside debt with social security bonds. These bonds are very low interest so it would help a little. There are two ways to provide social security money to the general fund: increase income or decrease benefits. Income could be increased by raising the cap on income subject to social security taxes. If the cap were eliminated, one could even lower the tax rate on 85% of Americans as so much of America's income goes to those at the top. The other way, reducing benefits, can be done in two ways: reduce everyone's benefits -- and put millions of grandmas into poverty -- or means-test benefits so those with ample funds will get smaller social security checks. Choose.

Medicare is the exception. The American medical system is, by far, the most expensive in the world; and the results are among the worst in the industrialized world (see here for this and other supporting info). America also has, by far, the most complicated health care system and the only one in the industrial world where basic health care is profit driven. The government already pays something like 45% of all health care costs. For something close to that we should be able to provide basic health care to everyone. I suggest "Medicare for All." It's simple, people on Medicare usually like it, and we understand it. For those who want more extensive coverage, a lightly regulated for-profit sector should work fine. While this would probably increase government expenditures somewhat, if the experience of every other industrialized country is any guide, total health care costs could be radically reduced and Americans would, on average, get better health care.

Cut back the mission of government agencies. There are many, many government agencies that could have their mission cut back, but I don't know enough about them to suggest anything specific. NASA I know a bit more about, having worked there as a contractor for 30 years. NASA's current goals are very ambitious -- appropriate for a wealthy nation. However, we are no longer really a wealthy nation. We are nation mired in debt. As with the military, we need to do less, or face financial collapse. The things to drop are those that are less important for day-to-day practical life. Thus, human travel beyond Low Earth Orbit should be dropped until our finances are in order. As implemented, the human space flight program is mostly for prestige, a luxury we cannot afford at the moment. Much of the deep space science program could be dropped as well and for the same reason: they are nice, really nice, but they are not necessary and don't contribute as much to 'the general welfare' as they could. NASA should be trying to spawn space industries that will eventually pay for themselves and increase the tax base. This is exactly what happened with communication satellites and, more recently, Earth observation satellites. Further possibilities include space tourism and space solar power. Space tourism may get some very important support from Obama's new initiative to purchase flights to the International Space Station (ISS) by developing a private, commercial human launch capability. Space solar power is getting nothing, which is silly while vast sums are spent on prestige.

Tax pollution. Pollution shifts costs from those producing it to those harmed by it. For example, polluting the air and water can lower production costs, but drives up medical costs for those poisoned by the pollution. Taxing pollution provides revenue and reduces pollution, a win win. Setting the right taxation level is difficult. One approach is to identify an acceptable level of a given pollutant and, over time, raise or lower taxes until that level is reached. Ideally, pollution taxes could provide the bulk of government revenue, eliminating income tax for most.

Tax financial speculation. The capital markets in the U.S. are very well developed and provide an important function: generating funds to create and expand business. However, the financial markets are also rife with speculation that provides no benefit except to transfer money to and from the speculators. Speculation, particularly computerized speculation, also creates bubbles and other financial pathologies; sometimes on very short time scales (seconds for computerized trading). Speculation cannot be eliminated, but it can be substantially reduced by taxing it. Specifically, add a time-based tax on financial transactions. Financial assets, such as stocks, held, say, a year or more would not be subject to this tax. Financial instruments sold more quickly would be taxed more and more for shorter and shorter times between acquisition and sale, culminating in a, say, 1% tax for assets held less than one hour. A tax of this nature would cost real investors nothing, but short-term speculators that buy and sell on literally a second-to-second basis would be hit hard, and hopefully eliminated. Exceptions could be made for certain technical brokers who are simply managing a market. This tax would also generate a lot of income, possibly allowing a reduction in the income tax.

There you have it, ideas to cut federal spending and increase revenue, sometimes radically; and something radical is needed. The federal government borrowed $1.7 trillion in the last year. That's about how much we must cut expenditures and increase taxes just to avoid increasing the interest payments we must pay on our $13.7 trillion debt. We need to cut expenditures and raise taxes more than $1.7 trillion just to reduce the bleeding. Right now interest payments are about $400 billion. Over the roughly 80 year life of an average taxpayer, $32 trillion in taxes is needed just to pay the interest. What do you get for that $32 trillion? Nothing. After paying $32 trillion in taxes you still owe $13.7 trillion and your grandkids can pay another $32 trillion to get nowhere. We need to not only eliminate the deficit and stop borrowing; we need to pay down the debt. That requires serious spending reductions and tax increases.

Lots of people will tell you they are serious about the deficit and the debt, but are unwilling to cut anything they like or pay more taxes. Real fiscal control will require cutting pretty much everything and involve pretty much everyone paying more taxes. The alternative is massive financial collapse. Choose.

Protect Your Country and Save Money: Contact Your Sentator

Russia has thousands of nuclear warheads that can reach America in an hour or so. If they are launched, for whatever reason, even a simple mistake, America will be destroyed. Al Qaeda can do damage, Russia can kill most Americans in hours. Fortunately, we can substantially reduce that threat and save money at the same time.

Following in Reagan's footsteps, President Obama recently signed a new START treaty with Russia. Like the previous START treaty, this will

• Substantially reduce the number of Russian warheads that can reach America.
  
• Put American inspectors on the ground in Russia to make sure the treaty is observed.
  
• Reduce the number of American warheads we have to pay for, leaving 1,550 -- more than enough to deter any aggressor.

This treaty is a complete no brainer. It increases America's security and saves money. Opposition is limited to those who don't understand the facts and those playing stupid political games with our survival.

To go into effect, the Senate must vote for the treaty. Contact your Senators today and urge them to do so.

U.S. Federal Debt, Part II, Incentives

In Part I I laid out our debt problem. The short story: $13.7 trillion and growing fast. In that piece, I noted that all the major players: powerful people, Congress, federal managers, taxpayers, federal employees etc. all have strong incentives to increase the debt. Part II, this essay, is devoted to exploring ways to change that.

Let's start with an easy one: Congressional earmarks. For many years, each Congressman has been given a quota of money that they can spend in their district more-or-less as they please. Congressmen use these funds to get votes by giving voters stuff. Consider a new rule: earmarks are only allowed if total federal debt shrank the previous year. This would give each Congressman a powerful incentive to stop borrowing.

Now the hard one: a debt tax. This is an additional graduated tax on all income with most of the burden falling on the wealthiest (1), who are generally the most powerful and thus in a position to affect the debt. This tax is cut in half when we stop borrowing, and goes away entirely when the government has a surplus rather than a debt. The exact percentage is not critical, so long as it is too small to sink the poor and big enough to really matter to the rich. I suggest the following rates by income:

• 1% $0-50,000 (55% of taxpayers)
  
• 2% $50,001-100,000 (30%)
  
• 3% $100,001-150,000 (10%)
  
• 4% $150,001-200,000 (3%)
  
• 5% $200,001-250,000 (1%)
  
• 6% $250,001-500,000 (all others combined 1.5%)
  
• 7% $500,001-1,000,000
  
• 8% $1,000,001-10,000,000
  
• 10% $10,000,001-100,000,000
  
• 15% $100,000,001-1,000,000,000
  
• 20% $1,000,000,001 and above.
  

This would give a strong incentive to the most powerful people in the country to have the federal government stop borrowing and pay off the debt. Yet even at the highest level, total tax when combined with current income tax would still be far less than the top tax rate of the 1950s and 60s; which was 91%. If the debt tax creates too much government income, damaging the economy, then other taxes can be reduced. I prefer taking people on the bottom off the tax roles entirely but there are other sensible approaches. For example, for the vast majority of Americans -- those earning less than $250K -- reduce the current income tax by the amount of the debt tax leaving taxation levels the same.

Right now federal managers are severely punished when they do not spend all the money they are responsible for by the end of the fiscal year (October 1). This is why the government goes on a buying spree every September -- managers are desperately trying to spend all their money. Instead of punishing managers who are fiscally responsible they should get awards, their projects should keep at least some of the money, and their budgets should not be cut. Those who over-spend should be cut. This could make a very big difference.

Finally, consider rank and file government employees. Their incentive is to increase their pay, which increases government spending. There is no way around this. However, federal employees are civil servants. Civil servants have strong job protection. Before the civil service was established it was normal for a new president to fire the entire government and replace them with campaign supporters. Laws to prevent this require a RIFF (reduction in force) to fire civil servants in any significant numbers. Usually the firing is by seniority -- the youngest, least expensive employees get canned. Civil servants could be given an incentive to reduce the debt if RIFFs were only allowed when the debt is increasing. As a general rule civil servants make less than those in private industry doing the same job, but they are compensated by job security. This would make job security contingent on reducing federal debt, a powerful incentive.

There you have it, ways to give the major players significant incentives to reduce rather than increase the federal debt. There may be better ways, but these would almost certainly work. It's also safe to say that as long as the incentives stay the same, and all the incentives are to borrow more rather than pay off the debt, the debt will increase until default and disaster (see Part I for details).

Part III: reducing government size and expenditures is next. Stay tuned.

Notes:

1. Small states, such as New Jersey, have raised taxes on the wealthy only to see them leave the state. However, leaving the U.S. is a much bigger step than moving from New Jersey to New York, and the U.S. has low levels of taxation compared to other industrialized countries. Not only are income taxes at the top brackets generally higher elsewhere, there is often a very large VAT (Value Added Tax) on everything purchased. Thus, flight of the wealthy to avoid the tax is unlikely.
   

U.S. Federal Debt, Part I, The Problem

Today, the Federal Government of the United State owes $13.7 trillion. In the last year alone we have borrowed $1.7 trillion (source: TreasuaryDirect) on an income of $2.1 trillion (source). Worse, we have been borrowing huge amounts of money, almost every year, since the early 1980s. No one, not even the U.S. government, can borrow this kind of cash (1) without eventually being unable to make the payments. Indeed, there is already speculation that our creditors are getting nervous about being repaid. Without a major change in course, default is inevitable. When default happens the government will no longer be able to borrow; requiring us to immediately cut expenditure and/or raise taxes by roughly $150 billion per month if it happened today, more if later. This will almost certainly mean:

• Most of the U.S. military will be demobilized and all foreign bases abandoned. We will lose whatever wars we are in.
  
• Social security checks will be substantially reduced or eliminated.
  
• Poor and elderly people will not get medical care.
  
• All federal research will end: NASA, National Institute of Health, National Science Foundation, etc.
  
• Most federal employees will lose their jobs.
  
• The states and cities will lose all, or almost all, of their federal funding. Many teachers, police, firemen, etc. will lose their jobs.
  
• All government bonds ($13.7 trillion today) will lose much of their value, throwing the economy into a deep dive, probably much worse than the Great Depression.

The borrowing must stop, and the debt must be paid off (2). It will be hard and painful, no part of the government can be spared and taxes must be raised, but the alternative is disaster.

Right now the short term interests of all the players is to increase spending and reduce taxes, hastening the catastrophe. For example:

• Congressmen get votes and money by reducing taxes and giving people money (or tax breaks, which, for all practical purposes, is the same thing). They lose votes by increasing taxes and cutting off the federal money spigot.
  
• Republicans win elections by cutting taxes and increasing military spending.
  
• Democrats win elections by increasing social service spending.
  
• Government managers are severely punished if they do not spend all the money allocated. I've talked to multiple mid-level government managers who proudly came in under budget their first year, and got clobbered. They all say they will never do that again.
  
• Taxpayers do not want to pay for the government.
  
• Government funding recipients, including everyone on social security, everyone on medicare or medicaid, everyone using a tax deduction, and all government employees, which means all military, almost all teachers, all police, almost all firemen, almost all researchers, etc., want their income to increase.
  

Everyone in this country has a choice: either increase your taxes and reduce the goodies you get from the government, or go off a cliff. In the near future I will lay out one approach to accomplishing this, including changing the incentives of the major players -- particularly the most powerful, which will increase revenue and reduce the size and cost of government.

However, no matter how we wiggle and shake, we owe $13.7 trillion, which means someone is going to pay at least $13.7 trillion in taxes. There is no way around this. It won't be the poor, they don't have any money. It will be the middle class, the rich, or some combination. How we allocate these taxes will determine what kind of country we are to become. Get the $13.7 trillion from the middle class and America will be a country of a few wealthy and many poor. Get the $13.7 trillion from the wealthy and the middle class has a chance to prosper and there will be fewer extremely wealthy individuals. Choose.

Footnotes:

1. Note that I do not use the term 'deficit.' This is because the official deficit is artificially manipulated to look much lower than it is. For example, until recently most of the cost of the Iraq and Afghan wars were not included in the deficit. Also, until last year the social security trust fund loaned hundreds of billions of dollars a year to the treasury but this was not included in the deficit. A truer measure is the total debt, which is used here.
   
2. If we continue to borrow, the interest on the national debt will hit $1 trillion per year within about a decade. Regardless of the size of the interest payments, those tax dollars won't buy one gun, fund a single research project, build a single road, pay a single teacher, or fund a single social security check. The only way to stop bleeding interest is to pay off the debt.