Cringe-onomics
Did any of the Democratic presidential contenders take Economics 101?

By J. Edward Carter

You can learn a lot about economics by watching Howard Dean and his rivals tussle over the Democratic presidential nomination. If you pay close attention, take copious notes, and ignore nearly everything the Democratic contenders say, you will learn a lot. Dean, Clark, Edwards, and Kerry have each offered campaign proposals that would make any self-respecting economist cringe.
While some of their proposals may be characterized as merely ineffective or misleading, others are downright harmful. Some of their more egregious proposals include:
To "help families live and thrive off their wages," Howard Dean says he "will press Congress to move toward increasing the minimum wage to $7.00 per hour." Despite the populist appeal of such a move, increasing the minimum wage will only harm the least-skilled and least-educated members of the labor force. Even Dean's economic advisers have cautioned against raising the minimum wage.
As Joseph Stiglitz, former chairman of President Clinton's Council of Economic Advisors and an occasional Dean advisor, wrote in his textbook, "a higher minimum wage does not seem a particularly useful way to help the poor." Why? According to Alan Blinder, another former Clinton economist known to be advising Dean, "The primary consequence of the minimum wage law is not an increase in the incomes of the least skilled workers but a restriction of their employment opportunities."
To spur economic growth and job creation, Dean would create "a White House Office of Economic Growth" (OEG). As the old saying goes, for every perceived problem there is an acronym in Washington waiting to be created. This reflects the notion that creating a new office and a new layer of bureaucrats is the same as finding a solution. Presumably Dean would add the OEG alongside the two currently existing offices in the White House that deal solely with economic matters -- the National Economic Council (NEC) and the Council of Economic Advisors (CEA).
John Edwards has called for a slew of new federal spending programs and (paradoxically) a return to fiscal discipline. Among other things, Edwards wants to lavish $50 billion on state governments and provide massive federal subsidies for education and health care. The cumulative price tag for his proposals could amount to nearly $1 trillion. Yet, Edwards insists he is an advocate of "fiscal discipline."
Unfortunately, in Washington, the common-sense notion of fiscal discipline -- being frugal and watching what you spend -- has been hijacked and redefined to mean "a willingness to raise taxes." In truth, raising taxes is akin to buying larger pants in lieu of exercise and a low-calorie diet. True fiscal discipline entails keeping government spending under control to minimize the drain of resources from the private sector to the public sector.
Likewise, Wesley Clark has yet to grasp the true meaning of fiscal discipline. Although Clark proposes to "save $2.35 trillion over ten years," tax increases account for more than half ($1.2 trillion) of the total. Reduced debt-service costs generate another $600 billion in savings. Actual spending cuts account for less than one-fourth of the total. And the vast majority of those spending cuts are unspecified and concealed under sweeping generalities such as "streamline government." But more importantly, Clark's spending cuts -- his "tough steps" -- equal less than two percent of what the federal government is expected to spend over the next ten years.
John Kerry routinely preaches that corporations should pay their "fair share" of the nation's tax burden." That sounds like a no-brainer. But it isn't. As most college freshmen learn in Economics 101, corporations do not pay taxes, people do. The burden of corporate taxation is ultimately borne by customers (through higher prices), stockholders (smaller dividends and capital gains), and employees (lower wages). As one introductory economics textbook warns, "Suffice it to say that you should be cautious when you advocate increasing corporate income taxes. You may be the one who ultimately ends up paying the increase."
The contenders for the Democratic nomination have much in common. They want to raise taxes. They want to spend more taxpayer dollars on a range of politically popular causes. And, unfortunately, they often demonstrate a poor understanding of basic economics. So sharpen your pencils and get ready to ignore almost everything you hear on the campaign trail. You can learn a lot.
-- J. Edward Carter is an economist in Washington, D.C., and the chairman of Economists for Bush.
http://www.nationalreview.com/nrof_comment/carter200401300856.asp

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Get Thee to the CIA
A new job for David Kay.

David Kay has returned from Iraq, having failed to locate the weapons of mass destruction (WMD) he was sent there to find. President George W. Bush's would-be successors and other critics have seized upon his conclusion that -- notwithstanding U.S. and foreign-intelligence assessments to the contrary -- they ceased to exist in large quantity after 1991 to justify charges of presidential malfeasance.
President Bush could be forgiven for feeling annoyed with Dr. Kay. A heated reelection campaign is not exactly the moment any candidate would chose have new turmoil engendered over one of his most controversial decisions.
The president should, instead, feel grateful to the erstwhile head of the Iraq Survey Group, both for his past, courageous public service and for his present candor. And there is no better, or more appropriate, way to express his appreciation than to ask him to replace George Tenet as Director of Central Intelligence (DCI).
David Kay has, after all, demonstrated once again the qualities of intellect, integrity, and independence that are always desirable in leaders of the U.S. intelligence community, but rarely more necessary than right now. Although he has expressed a view about the status of Saddam's missing weapons programs that is debatable -- and may ultimately be proven wrong -- the former weapons inspector has certainly said many things that have long needed saying.
For example, Dr. Kay has made clear that, if there is fault to be found over Iraq's weapons of mass destruction, the blame should lie with those intelligence officials who produced the faulty data, not those policymakers who made decisions on the basis of it. As he told National Public Radio last Sunday, "It's an issue of the capabilities of one's intelligence service to collect valid, truthful information."
In congressional testimony yesterday, Dr. Kay went even further: "I actually think the intelligence community owes the president [an apology] rather than the president owing [one to] the American people." He went on to warn President Bush's partisan critics that, "We have to remember that this view of Iraq was held during the Clinton administration and didn't change in the Bush administration. It is not a political 'got you' issue. It is a serious issue of how you could come to the conclusion that is not matched by the [facts]."
One of Dr. Kay's most important observations cut the legs out from under those who insist the president and his subordinates -- in particular, Vice President Dick Cheney -- manipulated the intelligence they received from the CIA and other agencies. "In the course of [his work in Iraq], I had innumerable analysts who came to me in apology that the world that we were finding was not the world that they had thought existed and that they had estimated. Reality on the ground differed in advance. And never -- not in a single case -- was the explanation, 'I was pressured to do this.' The explanation was very often, 'The limited data we had led one to reasonably conclude this. I now see that there's another explanation for it.'"
He went on to note that, "...Almost in a perverse way, I wish it had been undue influence because we know how to correct that. We get rid of the people who, in fact, were exercising that. The fact that it wasn't tells me that we've got a much more fundamental problem of understanding what went wrong and we've got to figure out what was there. And that's what I call fundamental fault analysis."
Dr. Kay also offered an opinion on the question that properly should be the focus of the debate in this election cycle: Given what the Bush team was being told about the threat posed by Saddam Hussein's regime, did it act not only properly, but prudently?
He told the Senate Armed Services Committee: "Based on the intelligence that existed, I think it was reasonable to reach the conclusion that Iraq posed an imminent threat. Now that you know reality on the ground as opposed to what you estimated before, you may reach a different conclusion -- although I must say I actually think what we learned during the inspection made Iraq a more dangerous place, potentially, than, in fact, we thought it was even before the war."
That danger lay in the reality that, no matter how large the stocks of weapons of mass destruction retained by Saddam Hussein at the beginning of Operation Iraqi Freedom, he surely retained at least small quantities, a likelihood David Kay acknowledges. As Secretary of State Colin Powell reminded the U.N. Security Council in his appearance before it on the eve of war, even a tiny vial of biological weapons could be employed to kill tens of thousands of people.
Underscoring this danger, Dr. Kay added: "After the war and with the inspection effort that we have carried out now for nine months, I think we all agree that there were not large amounts of weapons available for imminent action; that's not the same thing as saying it was not a serious, imminent threat that you're not willing to run for the nation. That is a political judgment, not a technical judgment."
More to the point, Dr. Kay's team has established that the Iraqi despot had the production capacity and know-how to produce a great deal more chemical and biological weaponry when international economic sanctions were lifted. It should be recalled that Russia, France, and Germany, among others, were actively working to bring about such an outcome. In fact, they would almost certainly have succeeded, but for President Bush's decisive leadership and action.
Even if Democratic presidential candidates refuse to acknowledge it, David Kay's testimony actually confirms the president's most important claim to reelection: He spared us the very difficult problem of having to do something about the "Butcher of Baghdad" after the U.N. had let Saddam out of the so-called "box" in which he was supposedly being "contained." Had that happened, there can be no doubt the Iraqi despot would not only have been the "grave and growing danger" President Bush said he was, but a truly "imminent" one.
George W. Bush could do himself and the country an enormous favor by recognizing that David Kay is the sort of man who should be fixing what ails America's intelligence services, notably by ending the practice of trying to get intelligence "on the cheap" without the costly and time-consuming investment in clandestine human assets (also known as spies). More importantly, Dr. Kay could be relied on as director of central intelligence to do what he has been doing ever since he got back from Iraq -- speaking truth to power, something we are likely to need more than ever if the war on terror is to be won by freedom-loving people.
-- Frank J. Gaffney Jr. is president of the Center for Security Policy and an NRO contributing editor.

http://www.nationalreview.com/gaffney/gaffney200401290843.asp
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DCI ANNOUNCES DUELFER TO SUCCEED KAY AS SPECIAL ADVISOR
Director of Central Intelligence George J. Tenet announced today that Dr. David Kay will be stepping down as his Special Advisor for Strategy regarding Iraqi Weapons of Mass Destruction (WMD) Programs. The DCI also announced that Dr. Kay will be succeeded by Charles A. Duelfer, who served as Deputy Executive Chairman of the UN Special Commission on Iraq (UNSCOM) from 1993 until its termination in 2000 and is currently a public policy scholar at the Woodrow Wilson International Center for Scholars.
Duelfer, 51, will be working closely with Major General Keith W. Dayton, who commands the Iraq Survey Group (ISG).
In making the announcement, Tenet praised Dr. Kay for his "extraordinary service under dangerous and difficult circumstances."
"David is a model private citizen who willingly lent his unique expertise to his government in a time of need," Tenet said. "At a time when our WMD hunt efforts were just beginning, David provided a critical strategic framework that enabled the ISG to focus the hunt for information on Saddam's WMD programs."
Dr. Kay will be returning to the private sector.
In accepting Dr. Kay's resignation and announcing Duelfer's appointment, Tenet said, "Building on the framework that David has put in place, I am very confident that Charlie and the ISG will continue to make progress in the months ahead in determining the status of the former Iraqi regime's WMD programs."
"Given his knowledge of Iraqi weapons programs and his understanding of the nature and extent of Iraqi efforts to conceal these programs, I can think of no one better suited to carry on this very important work than Charlie Duelfer," the DCI said.
In accepting the position, Duelfer said, "I'm honored that Director Tenet has asked me to tackle this challenging assignment. I'm approaching it with an open mind and am absolutely committed to following the evidence wherever it takes us."
In submitting his resignation, Dr Kay said: "It has been my honor and privilege to work with a tremendous group of men and women in Iraq, Qatar, and Washington. Despite arduous working conditions and an inhospitable and often threatening environment, the ISG, led by General Dayton, has performed its important mission with great skill and the utmost integrity. While there are many unresolved issues, I am confident that the ISG will do everything possible to answer remaining questions about the former Iraqi regime's WMD efforts."
Duelfer, like his predecessor, will be based in Iraq and will be in charge of directing the overall approach for the search for Iraq's weapons of mass destruction. ISG will continue to provide direct support to the Special Advisor.
Before joining UNSCOM in 1993, Duelfer was Deputy Assistant Secretary of State for arms control and multilateral defense matters. From 1990 to 1992, he was in charge of defense trade matters as the Director of the Center for Defense Trade and deputy to the Assistant Secretary of State for Politico-Military Affairs. In this capacity, he had responsibility for arms transfers, munitions licensing, and conventional arms control. Duelfer has a B.A. from the University of Connecticut and a M.Sc. from the Massachusetts Institute of Technology.