October
2, 2005
Relief with a Vision
By Lawrence
Kudlow
During
this hurricane season of George W. Bush’s political discontent,
the president has been slammed almost uniformly by pundits on
the left and the right. Some criticisms about the administration’s
late reaction to Katrina, and FEMA’s inadequacies in a crisis,
are justified. But critics, especially in the conservative ranks,
are missing two crucial messages being sent by the president --
messages that could endure long after the names Katrina and Rita
are just names again.
Bush knows,
even if others have forgotten, that the terrorists are carefully
watching the U.S. government’s response to the natural disasters
in New Orleans, Houston, and elsewhere. Hurricanes are one thing,
but a terrorist attack with biochemical weapons or a nuclear weapon
would be far more devastating. Even another 9/11-type bombing
episode from the air, ground, or sea could present more of a challenge
than what we now face in the Gulf Coast. Bush knows this. He knows
that the U.S. must rebuild the Gulf no matter what it takes
because this effort might be a test run for something far worse.
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Is $200 billion
too high a price to pay to send a message to our terrorist enemies?
I doubt it. This is something our $13 trillion economy can easily
shoulder. (Although a federal emergency control board should be
appointed to monitor the taxpayer monies headed for the political
swamp of New Orleans.) Yes, the budget deficit will rise for a
year or two, from roughly 2.5 percent of GDP to perhaps something
over 4 percent. Big deal. The very bond markets that actually
do the financing have shrugged the spending off, with Treasury
issues continuing to trade around 4.25 percent. There was no “spiking
up” of long-run interest rates that might suggest a financial
crisis. The stock markets, meanwhile, just registered their best
third quarter in seven years.
In this new
spending environment, total U.S. debt held in public hands will
rise a little more quickly to the $4 trillion mark. But that’s
a small fraction of our nation’s wealth. The Federal Reserve recently
indicated that total family net wealth -- which includes the value
of our nation’s businesses, bonds, stocks, and real estate --
just hit an all-time high of $50 trillion. This illustrates the
firepower of the free nation and economy that the radical Islamic
fundamentalists desire to overthrow.
Bankers often
talk about debt-to-equity ratios when it comes to financing corporate
deals. Well, our federal-debt-to-national-wealth ratio is a paltry
8 percent -- a metric that would make any M&A specialist gleeful.
Of all the commentary I’ve seen about the so-called fiscal crisis
of hurricane-recovery spending, only Nick Danger of the RedState
blog has had the sense to argue the issue like a banker. Global
financing markets will underwrite new U.S. spending without a
drop of perspiration.
If the Republican
party intends to keep the flame of lower taxing and spending,
it should adopt the kind of across-the-board spending cuts on
non-security and non-entitlement accounts being proposed by congressional
conservatives like Mike Pence, Jeff Flake, and Marsha Blackburn
in the House, or Tom Coburn, Jim DeMint, and Jeff Sessions in
the Senate. Of course, Republicans on Capitol Hill should have
been making this case before Katrina. But if they’re going to
fight for budget responsibility now, they must do so while preserving
the economic-recovery-igniting tax cuts on personal income, investor
dividends, and capital gains.
No matter
what it takes.
A second
crucial message that most conservative critics are missing has
to do with free-enterprise and ownership in the post-Katrina/Rita
world. Along with emergency funds for victim-relief and infrastructure
rebuilding (the latter of which is mandated by law), the president
is proposing a free-enterprise, anti-poverty program to deal with
the long-term decline of New Orleans. Bush has adopted this from
Jack Kemp, whose idea for zones of lower taxation and regulation
in the Gulf will incentivize private capital formation and put
businesses in the recovery driver’s seat.
Bush is also
restating his vision for an ownership society in the form of a
homesteading program for middle- and lower-income hurricane victims.
Mingled with this is his theme of personal responsibility, whereby
vouchers for education, employment, and health care will give
choice and access to those who most need it. Rather than creating
a new New Deal, which would cater to the failed welfare state
of New Orleans, Bush is proposing a conservative vision that can
be copied in blighted urban areas nationwide.
These are
far-reaching reforms that will be vastly more important and more
enduring than the temporary financial-assistance plans that have
so occupied the musings of conservative think-tankers.
It may be
many years before Bush is given credit for waging war against
both radical Islamic terrorists and welfarist anti-poverty programs.
But he is smarter than the punditocracy thinks. And his long-run
vision for the health, security, and welfare of this country is
far grander than most of his critics could ever dream possible.
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