[Paleopsych] inauguration and exit strategies

[Paul J. Werbos, Dr.]

The Bush inauguration speech today was much better than one might
have predicted. I really hope that key Democrats will give it proper credit as
a kind of unifying starting point that we can all agree on, and all agree 
to try to maximize...
with a strong flag, of course, that it will be a major challenge for us all 
to work
together to really achieve the kinds of goals he talked about. Nit-picking 
about
the shading of words is really not a... sapient... approach.

But what of exit strategies?

The exist strategy problem which seems most clearcut... in sheer logic... 
is not the issue
of exit strategy from Iraq but exit strategy from the deficit.

Colin Powell has said that we are indeed well on the road to a true 
Vietnam-style disaster in Iraq.
(Though I am tempted to revisit aspects of the Vietnam history that few are 
aware of.)
Rice says no. Whom should we believe? NEITHER. Powell knows traditional 
war-fighting stuff
better, but this is a kind of complex socio-historical thing that no one I 
know really has a right
to predict with confidence. But it's clear that Bush WANTS a credible 
exit... that the plan
is rooted in accepting a new elected government in which the Shia play a 
dominant role..
that Sistani fully understands this, and will be happy to make it pleasant 
for Bush to go...
that Bush will accept this... Bush has stated very clearly that the 
protection of minorities
(like Sunni and Kurds and others) is an important goal of US policy, but if 
Sunnis keep killing
everyone else and trying to revive Saddam Hussein, he will not stay longer 
for the sake of
protecting them more effectively. He would have responded to other 
things... but in any case,
it's a muddle, but not a very changeable muddle, and it is at least 
plausible that the US will
be out of Iraq by the end of the term of this Administration. Who knows? At 
a minimum,
this is Bush's intent and it doesn't seem impossible.

But... the deficit situation is far more serious. It is what drove the 
Financial Times to endorse
Kerry -- albeit with an obvious expression of distaste as they did so.

It is a clear case where predictions made earlier simply fell flat, in a 
clearcut unequivocal way.

I believe I remember statements by Bill Clinton saying that there should be 
no tax cuts... and that
the benefits should NOT be spent, but should be held for social security, 
without which he predicted there would be
a major crisis in funding social security. And I remember early Bush 
predictions that the tax cuts
would unleash the magic of "supply side economics" (formerly called "voodoo 
economics")
and generate X number of new jobs and no deficit.

Here we are. It seems clear -- surprise, surprise -- that objective 
econometrics, warts and all, predicted reality
a lot better than positive thinking ideological boosters. And we DO have a 
crisis in social security
and with deficits -- maybe half the deficit due to Iraq, but not all. So 
what is the exit strategy from THAT
one? How do we keep the US economy afloat? (And I can't help recalling that 
Schroder and Chirac
have dug themselves into a very similar hole...).

The "privatizing" scheme reminds me a lot of the time when people tried to 
reduce the US government budget
in part by moving government workers from a defined-benefit scheme (CSRS) 
to a floating market-holding
kind of scheme  (FERS). They told federal employees they would be much 
better off under the new scheme..
and then told Congress how much money it would save. Likewise, lots of 
private companies made similar
changes... and... after so many people became destitute as a result, and 
appeared on TV this past year...
I really doubt Congress will go along with it. If they do... well. if the 
Democrats are clear enough, it would
pave the way for a really massive realignment of Congress. It sounds good 
on the surface...
but there is a kind of no-free-lunch principle at work here, and it really 
doesn't work in the end,
if the entire system is considered.

So what can be done?

One possibility....

After proposing a really extreme reform motion... and carefully NOT 
twisting anyone's arm to vote for it...
and seeing it defeated... IMMEDIATELY AFTER AND AS SOON AS POSSIBLE...

Then Bush could say: "OK guys, I tried it the painless way. (Though 
objective third parties would deeply doubt it would
be painless.) We MUST save social security. So... I have had bipartisan 
discussions... here is our fallback plan,
we agree to do in a nice smooth bipartisan way... no recriminations or 
second-guessing....
we are going to have a massive reform BOTH in taxes and in social security. 
Our goal is not only
to save social security, but SIMPLIFY the tax system so as to make it 
possible for ordinary people to do their taxes again
without relying on accountant... so as to reduce the number of people who 
have to file at all...

We will engage a European-style value-added tax which, in the long-term, 
will take over from the present income tax system.
We will calibrate the level of the tax to automatically balance the budget 
in the next 5 years. We will phase out
not only complex deductions but also taxes, and level down core income 
taxes -- not to zero in five years -- but enough to
substantially simplify the system. The loss of some deductions will be a 
loss to some people, but everyone will benefit
in the net in the long-term because of the lower tax rates and the greater 
simplicity and rationality of the system.
Also, because this will make us closer to the European systems of taxation, 
it will make it easier for us to
organize the improved economic cooperation we hope for in the coming decades...

And if there is a bipartisan agreement to support this and not make anyone 
feel embarrassed... maybe
the US economy could be salvaged.

And I really hope the word "SIMPLIFY" would be real. So many 
lawyer/lobbyists bragged
about the new benefits they delivered for small businesses and large 
financial companies...
on the last round... yet I'd bet that a whole lot of small businesses were 
more upset by the new paperwork
than pleased by the benefits. And I even saw some large funds send out 
notices that they were totally at wits end
trying to handle the weird new paperwork that the new investment deductions 
imposed. I hope
there will be an exit strategy from all of THAT....

=======

Whatever. Quick thoughts on a snowy holiday... not any kind of cosmic 
inspiration,
just a matter of trying to follow a trail of imperfect logic wherever it 
might go...

Best of luck to us all...

     Paul