Forget the Planet, Retrofit the Earth

Looking at images of nearly all Iowa underwater got me thinking about the difference in politics between fixing the here-and-now and fantasizing about the future.

One began to suspect our public officials might be drifting toward the clouds when many started referring to Earth as "the planet." Democrats especially of a certain environmental stripe talk only about "the planet."

Wonder Land columnist Dan Henninger tells Kelsey Hubbard how building technology and community preparedness go a long way to minimizing the damage caused by extreme weather. (June 19)

Of late, one might ask: Which planet are they living on? The Earth is about the here-and-now. The Planet is about the out-there.

This week John McCain sounded like an Earth guy and Barack Obama like a Planet man.

When Sen. McCain said he wanted to open drilling on the Outer Continental Shelf, he was talking about the here-and-now of $135 oil and $4 gasoline. When Sen. Obama in his own energy speech spoke of spending $150 billion over 10 years to create five million new "green energy jobs," he was talking about the out-there.

When House and Senate Democrats last week said their "climate change" bill would collect $6.7 trillion from polluters over 40 years to save the planet, this too was public policy about the out-there.

"Extreme weather" is the name given to the big rains pouring down on the American Midwest and sending rivers over levees. Extreme weather includes tornadoes, hurricanes, cyclones, floods, drought, blizzards and such. Many of the Planet-centric people would say the Iowa floods are more proof of global warming.

One doesn't have to doubt the sincerity of global warming's advocates to worry that their friends in Congress would throw $6 trillion of GDP at it, wave acres of windmills into existence and claim to have "addressed the problem." But what about the problems of the here-and-now?

In 2008, the U.S. likely will experience a record number of tornadoes, with more than 115 people killed so far. Some 15 named storms occurred in the 2007 Atlantic hurricane season. If one of them blew down your street and wrecked your or your neighbor's house, you might reasonably wonder: While Washington's gods debate the future of the icecaps, isn't there something that can be done in the here-and-now to mitigate the effects of these godawful storms?

AP

Flooded homes in Machesney Park, Ill., June 16, 2008.

The answer is yes. Plenty can be done, all the result of smart people figuring out real-world solutions right now to the damage done by extreme weather, even as we wait for President Obama's windmill farms, solar panels and flex-fuel cars to stop hurricanes from happening a generation hence.

In 2004, Hurricane Charley ravaged the Caribbean and U.S. and caused more than $8 billion in insured losses. According to an analysis of Charley's damage, done by the Wharton Business School's risk management center, residences built to wind-resistance standards developed since 1996 had a 60% lower claim frequency than pre-1996 buildings; in short, less destruction. The study hypothesized that mitigation strategies would reduce the damage of a 100-year hurricane in Florida by 61%. That's a lot of intact homes.

The array of protective techniques and technologies that engineering science has developed the past decade is astonishing. Scientists have analyzed wind flows across roofs and siding, damage from wind-driven projectiles and water infiltration through windows, roofs, doors and foundations. Building materials and techniques exist now to reduce damage from high wind and water surges. A big reason more vulnerable homes aren't retrofitted is due to distortions in pricing insurance risk, such as the National Flood Insurance Program.

Yes, engineering can do only so much to reduce human suffering from a cataclysmic event, as in Katrina or China's earthquake. Arguably no one on Earth has thought more about this than Lynn Fritz. The former CEO of a major logistics firm that was acquired by UPS, he transferred those skills to the Fritz Institute, which has innovated techniques to integrate the can-do systems of the private sector into large-scale relief efforts, as for the Indonesian tsunami.

His answer: Emphasize "preparation rather than response." It's never anyone's job in a community to be ready for a disaster. "Everyone is too busy," he says. "9/11? They can barely get through the day. Most common-sensical things haven't been prepared before the event."

Mr. Fritz argues that, based on their studies of mega-disasters, what saves people in the crucial first days is "civil infrastructure," by which he means local community groups, private organizations, churches and such. "They know who you are and where you are. You have trust in them." Waiting for the government or military to show up will always be too late for the first, most vulnerable victims.

I asked if any of this was transferable to, say, Asia. It already has been, he said. India after its awful 2001 Bhuj earthquake addressed disaster readiness, such that it famously refused U.S. help after the 2004 tsunami. This was appropriate, Mr. Fritz said. "The Indians did have better preparedness than all these people slopping in from all over the world to make a mess."

Whatever the reality of global warming, we are not prostrate before extreme nature. A convenient truth is that smart people will find here-and-now solutions before the coming of the climate Apocalypse.

Obama Turns FDR Upside Down

By LAWRENCE B. LINDSEY

Sen. Barack Obama has a bad idea for "extending the life of Social Security." He has proposed applying the Social Security tax to incomes above $250,000, in addition to the current tax on incomes up to $102,000. It's unfair, he explained, for middle-class earners to pay Social Security tax on "every dime they make" while the very rich pay on "only a very small percentage of their income."

Reporters cited the Obama statement without asking for the logic behind having someone making $100,000 pay on every dime and someone making $250,000 pay on just 41% of income, while someone making $10,000,000 would pay on 98.5% of income. There is no economic principle or theory of tax law that would endorse such a result.

Chad Crowe

Sen. Obama's logic is fairly obvious, although it hardly makes him an exemplar of the "new politics." The $100,000 to $250,000 group is a targeted voter demographic, and he really didn't want to sock them with a 12.4 percentage point hike in their tax rate. But, as Sen. Obama himself noted in his June 13 announcement, just 3% of workers make more than a quarter-million.

Neither Franklin Roosevelt, who started Social Security, nor the intervening three dozen Congresses thought they were imposing an "unfair" system on the middle class. There is a very good and principled reason why Social Security taxes are paid on just $102,000 of income: Benefits are calculated based on that same $102,000 of income.

The fundamental principle of linking taxes and benefits was established when Roosevelt designed Social Security. He wanted to make sure that it was not a welfare system, calling Social Security "a base upon which each one of our citizens may build his individual security through his own individual efforts." His instincts have generally proved sound. Had Social Security been considered "welfare" rather than a return on taxes earned, it probably would never have had the popularity or the staying power that it has enjoyed for the last seven decades.

Although the formula connecting benefits to tax payments or "contributions" has evolved slightly over time, it still adheres to this basic message. Today, what Social Security terms a "low-wage" worker will pay (in present value terms) $77,197 over his or her lifetime and get $112,261 in benefits. A median-wage worker earning $42,000 will pay $171,550 and get back $187,085. A "high-wage" worker making $67,000 will pay $274,480 and get back $245,085.

Under the current formula, lower-wage workers get a slightly better deal than do higher-wage workers, assuming the same life expectancy. But the principle remains that as workers' wages rise so do the taxes they pay, and so do the benefits they will get from the system.

Sen. Obama would do away with this principle by requiring higher-end workers to pay taxes without getting any extra benefits linked to their higher contributions. This would be a big step toward turning Social Security from a contributory pension scheme into just another welfare program.

The economics of what Sen. Obama is proposing should be at least as troubling. A high-income entrepreneur would see his or her federal marginal tax rate rise to 53% from 37.7% under Sen. Obama's tax plan. He proposes a 4.6 percentage point hike in the personal income tax rate, a loss of some itemized deductions, and a 12.4 percentage point hike in the Social Security payroll tax. This would take a successful entrepreneur's effective marginal tax rate higher than what it was under Jimmy Carter or Richard Nixon, when the maximum tax on an entrepreneur was 50%.

One of the lessons from the disastrous economics of the 1970s and the subsequent Reagan tax cuts is that everyone – particularly entrepreneurs – responds to incentives. If you take away 10% of a high earner's after-tax income at the margin, he will cut his taxable income by at least 4%. At the margin, this taxpayer now takes home 62.3% of his earnings, a figure that will drop to 47% under the Obama plan. According to a widely accepted economics rule of thumb, the entrepreneur's taxable profit would drop by 11.2%.

Now consider how the Obama plan would affect the taxes paid by such an entrepreneur with a taxable profit from his business of $500,000. Under current law, he would pay $27,148 in Social Security and Medicare taxes, plus $142,969 in personal income taxes, for a total of $170,117. If the taxpayer did not change his behavior at all, under the Obama plan he would face a $31,000 Social Security tax hike and a $11,494 hike in his personal taxes – or a 25% tax hike. But, if the taxpayer responds as the economic models predict, his taxable profit would drop to $444,000. His Social Security and Medicare tax bill would still soar to $51,580. But his income taxes, even with a higher tax rate, would drop to $132,882 for a total of $184,462.

In other words, Sen. Obama is planning on a combined series of tax hikes to produce $42,000 in tax revenue, but consensus economic modeling suggests the government's net take would rise only $14,000.

We should also keep in mind that the economic well-being of the country is not measured by how much taxes the government can collect, or even the size of the deficit. Rather, it is measured by the country's productive capacity. Our theoretical entrepreneur's 11.2% decline in taxable income reflects both less effort on his part and a less efficient use of his income in order to avoid confiscatory tax rates. Or, to put it directly, Sen. Obama's plan would reduce an entrepreneur's after-tax profits by $70,000 – $56,000 in lost profits and $14,000 more in taxes – just to produce a net revenue gain to the government of $14,000.

It is shocking to think that we have a presidential candidate who would make the private sector $5 poorer in order to make the government $1 richer. More likely, given the calculated political design of the proposal, no one in the Obama campaign told the candidate about the economic, ethical or historical consequences of his suggestion.

This indicates that what is really on offer is not some postpartisan approach to politics, but a Democratic candidate far to the left of Bill Clinton.

Mr. Lindsey is president and CEO of the Lindsey Group, and author of "What a President Should Know . . . But Most Learn Too Late" (Rowman & Littlefield, 2008).

Farewell, New Democrats

Listen closely to all those cheers for newly crowned nominee Barack Obama, and in the background you'll catch the notes of a funeral march. Resting, if not in peace, are the New Democrats.

The Illinois senator's primary victory marked the end of many things, and one looks to be his party's 20-year experiment with ideological centrism. The New Dems are still out there, still urging their party to fight its natural liberal instincts. But who's listening? Buoyed by the Republican implosion, wild for their retro nominee, the intellectual soul of the Democratic Party is now firmly left.

AP

The New Democrats were born in the 1980s, in response to Ronald Reagan's triumphs. Prominent Democrats worried the party was out of touch, and created the Democratic Leadership Council. Its members were foreign-policy hawks, unafraid of cultural conservatism, and preached economic centrism. Their poster boy: Bill Clinton.

The 1990s were their midlife heyday, though even then the New Dems struggled. Party liberals despised Mr. Clinton's embrace of free trade, hated his accommodation of welfare reform, cringed when he pronounced "the era of big government" over. But no one could deny his success at giving the party its first two full terms in the White House since FDR. So they shut up and went along.

When Mr. Clinton left, so did the most prominent New Democratic voice. Party liberals have been reasserting control ever since. Howard Dean's 2004 consolation prize was the Democratic National Committee. Nancy Pelosi became House Speaker in 2006, and gave back committee chairs to the old 1960s liberal bulls. And now comes Mr. Obama, the party's most liberal nominee since Hubert Humphrey.

What's left of the New Democratic agenda? On foreign policy, Bill Clinton engaged in Bosnia, and as recently as 2004 John Kerry saw the wisdom of running as at least a moderate hawk. But today's unpopular war has only emboldened the party to revert to its antiwar comfort zone.

Mr. Obama calls for an immediate pullout of troops from Iraq, no matter what the consequences. His foreign policy, to the extent it is one, flows not from strength, but from greater American accommodation in the name of diplomacy. Mrs. Pelosi and Senate Majority Leader Harry Reid have together held some 72 votes on Iraq, most devoted to cutting off troop money, blocking the surge, or forcing a pullout. Last year, all but 10 House Democrats voted for a withdrawal timeline.

Economic centrism? What's that? Even Mr. Clinton's wife disavowed his New Democratic legacy by trashing free trade and Nafta. Mr. Obama raised her bet, aligning himself with leftist trade populists. The Democratic leadership has held up deals with Colombia, Peru and South Korea. Big Labor is calling the shots, and Big Labor will suffer no new trade.

Mr. Obama is hawking a tax policy that would take the nation back to the effective marginal tax rates of the Carter days. He wants to further tax income, payroll, capital gains, dividends and death. His philosophy is pure redistribution. Congressional Democrats voted for a budget that includes the largest tax hike in American history.

About all that remains of the New Democratic economic agenda is the mantra of "fiscal discipline." But since taking power, Democrats have passed spending bills far beyond President Bush's limits, and broken their own "pay-as-you-go" rules. The party's Blue Dogs have fought its leaders on some spending, though not when it risks derailing, say, farm bills. Mr. Obama recently revealed that his plan for economic recovery was to spend the nation out of its doldrums.

The one place where New Democrats have made a more lasting mark is on the culture. The party leadership has seen the wisdom of relaxing litmus tests on guns and abortion, a change that in 2006 let them field candidates who won conservative districts. But even here, Mr. Obama is a skeptic. He's said he'd repeal the Defense of Marriage Act – which Bill Clinton signed. He's criticized the Supreme Court for upholding the partial-birth abortion ban.

Yes, there are still New Democrats in prominent positions. House Democratic Caucus Chair Rahm Emanuel has used his clout to help protect party centrists. But on trade, economics and foreign policy, Mrs. Pelosi and the liberals are in charge. The speaker has given "passes" to her more conservative members on tough votes, but she's not asked them to help craft an agenda.

So where does this leave the party? The New Democratic approach gave the party its best run in decades, and it has remained a magic formula for many local candidates. But nationally, the general political mood has left the leadership believing it can win no matter what it says. Maybe. Then again, one election doesn't make for a lasting majority.