“It's hard to imagine a more complete repudiation of Keynesian stimulus than the evidence of the last year's job market,” according to the Wall Street Journal editors. And, they concluded that, “The sooner Democrats stop what they're doing, the faster the private job market will recover on its own.”

And, then there is the Deficit and the Debt.

If the fantasy world that the White House has created regarding saved-or-created jobs is scandalous, then the fiscal abomination of Obama’s deficit spending and exploding national debt is a horror story.

Last week we learned that the federal deficit for just the month of October was a staggering $176.4 billion   – an all time record deficit for October, the first month of the new fiscal year.

That revelation follows September’s announcement that the FY-2009 deficit total was $1.42 trillion – more than three times the previous record deficit one year earlier in 2008.  These “staggering numbers” are the equivalent of 9.9% of the Gross Domestic Product, and represent the widest deficit gap since 1945, the final year of World War II.

Expectations are that the 2010 deficit will be “similar to that posted in fiscal year 2009,”   and additional deficit spending “will total $9.1 trillion over the next decade.”

When a borrower rapidly takes on debt without a corresponding increase in revenue to service the debt, creditors get nervous.  When the debt-to-income ratio gets too high, lenders lose faith in the borrower, and the credit door goes closed.  It works that way for individuals, for businesses, and even for nations.

China, the largest buyer of U.S. debt in the world holding over a trillion dollars of U.S. notes, has “expressed concern about the size of U.S. deficits,” and the stability of their massive investment.  Many experts worry that “alarm over deficits could push foreigners into cutting back on their purchases of (U.S.) Treasury debt.” A coalition of nations are discussing moving away from the U.S. dollar as the global currency standard.  Moody’s Investor Services, the private rating agency relied upon to evaluate credit worthiness of government and private debt instruments throughout the world, is sufficiently alarmed by the out of control deficits to warn of the unthinkable – a downgrading of U.S. Treasuries.  "The AAA rating of the U.S. is not guaranteed," said Steven Hess, Moody's lead analyst for the United States. "So if they don't get the deficit down in the next 3-4 years to a sustainable level, then the rating will be in jeopardy."

As White House Chief-of-Staff Rahm Emanuel has said, “You never want a serious crisis to go to waste.”  So, with a plethora of economic indicators screaming “crisis,” Obama’s wasn’t about to waste another golden opportunity – so, he left town on yet another road trip for Asia and Europe to talk about global warming and left his staff to respond to the growing avalanche of concern.

As though he was seeing the frightening deficit numbers for the very first time, White House Budget Director Peter Orzag said that “soon” the White House “will be putting forward proposals that will put us back on a fiscally sustainable path and that have lower deficits.”

Oh, you mean “proposals” like a trillion dollar federal takeover of the health care industry to be followed by cap-and-trade, the largest energy tax in the history of the world predicted to raise electricity costs 90%, gasoline by 74%, and natural gas by 55%?  Somehow, I don’t feel any better.

Coincidental with the White House release of the $1.42 trillion deficit number, the General Accounting Office (GAO) issued the latest Long-Term Fiscal Outlook.  It wasn’t pretty.

“Unsustainable” was how the GAO described the path the Obama Administration has America headed down.  The GAO utilized two methodologies to make their projections: first an optimistic “baseline” assuming lower than historical average spending and higher than average revenue, and secondly the “alternative” based on historical average levels.  The GAO found that “both simulations show that the federal government is on an unsustainable fiscal path.” See the following chart from the GAO report.  We believe both simulations may be overly optimistic due to the rapid increase in the growth of government (spending) and the perpetual cost that will now be inherent with the expansion.

In just over ten years, debt held by the public as a percent of GDP under the Alternative simulation is projected to exceed the historical high reached in the aftermath of World War II, and grow at a steady rate thereafter.” (emphasis added)

Even if revenue (taxes) remained at 20.2% - higher than the historical average – the GAO says that “by 2030 there will be little room for ‘all other spending,’  which consists of what many think of as ‘government,’ including national defense, homeland security, investment in highways and mass transit and alternative energy sources, plus smaller entitlement programs such as supplemental social security, Temporary Assistance for needy Families (TANF), and farm price supports.”

As early as 2019 under the Alterative simulation, which again is based on historical spending and revenue levels, “roughly 92 cents of every dollar of federal revenue will be spent on the major entitlement programs and net interest costs by 2019.  This is due largely to the substantial increase in interest on federal debt.” (emphasis added)

It is important to note that the GAO report did not attempt to factor in costs associated with health care reform, cap-and-trade, or any other pending legislation in Congress.

The growing federal debt has concerned conservatives for years, but never has the problem been so rapidly compounded by such massive continual annual deficits.  Over the last 40 years, U.S. debt held by the public has varied slightly but averaged 35.8% of GDP.  Even during the much criticized George W. Bush years, public debt to GDP averaged well below 40%, and was 40.8% when Obama took office.

However, by 2019 the GAO report projects publicly held debt will surpass 109%, the all time historical record reached in 1946 following World War II.  As the following chart from the GAO demonstrates, the U.S. is on a financial course into uncharted territory. 

The harsh reality of staring in the face of America’s financial future prompted Sen. Judd Gregg (R-NH), ranking member on the Senate Budget Committee, to compare the U.S. to a third world country.  When asked if the source of the deficits and growing debt were because of George W. Bush as the White House likes to claim, Gregg said, “the systemic risk today is the Congress of the United States.” Gregg told John King, CNN political correspondent.  “[W]e’re creating these massive debts which we’re passing on to our children. We’re going to undermine fundamentally the quality of life for our children by doing this.” Referring specifically to the 2009 deficit of $1.42 trillion and projections by the Obama Administration for more of the same, Gregg told King, these figures “mean we’re basically on the path to a banana-republic-type of financial situation in this country. And you just can’t do that. You can’t keep running these programs out and not paying for them. And you can’t keep throwing debt on top of debt.”

So, what to do?  The GAO is obligated by policy to make very long-term (75 year) projections.  As part of their analysis, the agency calculates the “fiscal gap”, or as they define it, “the size of action needed – in terms of tax increases, spending reductions, or some combination of the two – for debt as a share of GDP to equal today’s ratio (40.8%) at the end of (the 75 year period).” According to the GAO calcualtions necessary to fill the anticipated fiscal gap, federal revenue (taxes) would need to increase an astounding 47%, or non-interest spending decrease by 33% “on average over the next 75 years” to get the books just back to the current state of disrepair.

Anyone who thinks Congress can actually cut spending by one-third immediately and hold it there for the next 75 years is dreaming.  That would include draconian cuts to all entitlements, social programs, education benefits, transportation projects, national defense and veterans programs – not going to happen.

Further anybody who thinks even the American economy can withstand a 47% increase in taxes is equally loony.  Which gets us back to the GAO’s startling indictment: “GAO’s simulations continue to show escalating levels of debt that illustrate that the long-term fiscal outlook remains unsustainable.”

The scene in Washington is reminescent of the Hollywood creation of the tragic sinking of the Titanic.  The passangers partied, the captain pretended all was well even when he had gotten the bad news, and the band played on as water gushed into the hole in the ship’s hull portending eminent disaster.  Obama claims to have rescued the economy from eminent disaster with his stimulus, he claims to have created jobs no one can find, he claims to have a plan to provide health care to all Americans without raising costs……you get the picture.

The problems are enormous, and the solutions will not be easy.  We fear that the Administration will back America into a cycle of runaway inflation to manufacture the dollars to temporarily stay afloat just like a giant ponzi scheme.

Ignoring reality and exponentially compounding the situation is unconscionable.  Obama did inherit significant challenges, but his policies and his agenda are exacerbating the situation, not fixing it.  As Peggy Noonan says, “They are not offering a new path, they are only offering old paths—spend more, regulate more, tax more… And in the long term everyone—well, not those in government, but most everyone else—seems to know that won't work.”

Election night 2009 offered encouraging signs that America was waking up, and in a foul mood about the direction the Democrats are taking America.  Election 2010 is right around the corner.  It can’t come soon enough for the people to once again take back and save The Republic.

On Nov. 3, Republicans scored tremendous victories in Virginia, New Jersey and elsewhere. Leading the charge were the same independent voters who helped sweep President Obama to victory last year. In Virginia, 66 percent of those who identified themselves as independents chose Republican Bob McDonnell over Democrat Creigh Deeds. In the traditionally blue state of New Jersey, 60 percent of such voters chose GOP candidate Chris Christie over incumbent Jon Corzine.

What happened, and how will Republicans build off this momentum?

Roughly 85 percent of voters exiting the polls in Virginia on Tuesday said they were concerned about the economy. In New Jersey, the figure was 90 percent. Many of these voters are angry with the uncompromising and failing economic policies that Speaker Pelosi and the White House are jamming through Washington. McDonnell and Christie ran positive, disciplined and ideas-oriented campaigns – and drew a contrast with the administration by offering fresh solutions to kitchen-table issues.

The strong focus on creating jobs and restoring the economy exposed glaring Democratic vulnerabilities. Only 363 days before Congressional midterm elections, the GOP demonstrated that it can win anywhere if it unites around a clear common-sense conservative message. We can win in the north and the south; in the suburbs and rural areas; and among women, minorities and voters under 30.

Much of the national outrage stems from the severe disconnect between the public and the White House agenda. With the unemployment rate at a staggering 10.2 percent, the American people have had to tighten their belts and cut expenditures across the board. They expect their government to live within its means and do everything in its power to help small businesses and entrepreneurs retain and create new jobs.

But in less than a year the administration has passed extravagant budgets and spending programs that would double the debt in five years and triple it in 10. Meanwhile, jobs have all too often been a secondary concern. In February, the White House promised that its $787 billion “stimulus” bill would hold unemployment below 8 percent. The final package was largely a grab bag of funding increases for government programs supported by the very lawmakers who wrote the bill behind closed doors. Since its passage, our economy has shed well over 3 million private-sector jobs.

And then there are the overt job killers. The cap-and-trade regulatory regime would raise energy costs for all Americans and small businesses.  The $1.052 trillion House healthcare overhaul – which will put the government in between doctors and patients, increase premiums for many Americans and cut Medicare benefits for millions of seniors – imposes stiff mandates for coverage on our nation’s small businesses. Meanwhile, one third of the tax revenue generated by the new surtax on individuals will come from small businesses.

If the Administration and Speaker Pelosi didn’t get the message from voters that Tuesday night, House Democrats from moderate districts did. Said Rep. Dan Boren, a Democrat from a conservative district: “I think voters sent a clear message that the administration and Congress need to focus on the economy.” He added that “We need to focus on creating jobs right now, and you don’t do that by raising taxes on small business.”

Republicans agree. A more balanced and bipartisan approach would refocus the nation on job creation and not pile mountains more debt onto future generations. We could start by using the billions in unspent stimulus funds to reduce the debt – or even to cut taxes for small businesses. Our nation’s job creators need the assurance that the government won’t squeeze them in order to fund increased spending.  

House Democrats have had every opportunity to work with Republicans on an agenda more attuned to mainstream America.  The party-line passage of the Democrats’ health care overhaul is just the latest example of their refusal to compromise.

Such tone-deafness has consequences. With midterm elections on the horizon, the Democrats are only growing more susceptible to the pressure points exposed in Virginia and New Jersey.

The intensity of the discourse on health care reform has thus far overshadowed the discussion on another liberal agenda item: cap-and-trade. Like health care reform, cap-and-trade proposals would have an adverse affect on all Americans, particularly low income and middle income households.  

Cap-and-trade is a major agenda item for the left. It is a scheme to reduce CO2 emissions by capping the amount of CO2 that some sectors of the economy emit each year in an effort to curb global warming. Each year, the government would award companies in carbon emitting industries, such as energy and manufacturing, emission credits that could be bought, sold, and traded to other companies. Each credit would represent a given amount of CO2 that the company could emit that year. The premise on which cap-and-trade is based, however, is highly controversial and the outcomes of cap-and-trade would have negligible reductions in CO2 and harm low income and middle income households.  

Numerous scientists, including the notable hurricane forecaster Dr. Richard Pielke of Colorado State University and Atmospheric Science professor Dr. Richard Linzen of MIT, reject the notion that CO2 emissions due to human activity have had an alarming impact on global temperatures. Yet, in its bid to appease environmental special interest groups like the Sierra Club, the left is determined to pass legislation that would limit productivity in the United States’ carbon-based economy.  

Energy that emits carbon dioxide (CO2) fuels the vehicles that most Americans drive provides electricity from coal powered electrical plants, and performs various other functions in the economy. Capping the amount of Co2 that companies emit each year would increase the cost of energy and other goods and services indirectly tied to energy. The goal of cap-and-trade legislation is to reduce CO2 emissions by a certain percentage, around two percent, each year until the economy transitions from a carbon-based economy into an alternative energy economy.

Basic laws of economics suggest that capping the amount of production in an industry would increase the price of the goods produced in that industry. It’s supply and demand economics. In the energy sector, the supply of energy would drop under cap-and-trade while the demand would increase. Energy companies would increase the price of energy to compensate for the decrease in revenue due to the government-imposed cap on production. The price increase would have a disproportional affect on low income and middle income households.  

In a March 12, 2009 testimony before the US House of Representatives Subcommittee on Income Security and Family Support, Congressional Budget Office Senior Advisor Terry M. Dinan, an advocate of human-caused global warming and proponent of cap-and-trade legislation, stated that “price increases would impose a larger burden on low- and moderate-income households than on higher-income households, relative to either their income or total spending.” Dinan suggested later in the testimony that the increased costs of energy could be offset by fiscal policies like reductions in taxes or by a tax credit; which is another way to say that whoever the government deems to be wealthy would bear the burden of the increased costs of cap-and-trade. Dinan went on to imply that increased energy prices would necessarily force energy consumers to change their behavior and seek alternative energy. If this sounds familiar, then presidential candidate Barack Obama said that “electricity rates would necessarily skyrocket” under his cap-and-trade plan during an interview with the San Francisco Chronicle.   

Dinan’s testimony makes perfect sense to those who believe that global temperatures will continue to rise to catastrophic levels unless humans curb CO2 emissions. As the evidence against human-caused global warming continues to accumulate and the debate heats up, however, countless scientists and others who believe that human activity plays an insignificant role in global climate change feel that cap-and-trade legislation is unnecessary and destructive public policy. In addition to the direct costs of increased utility and gasoline prices there are indirect costs that will increase as well. For example, companies that rely on gasoline to transport goods and services will shift their energy cost increase to consumers (i.e. grocery stores). The impending inflation from the federal bailout programs and other spending will be bad enough but coupling it with inflation due to cap-and-trade would be catastrophic to low income and middle income families.  

Cap-and-trade is another example of big government interfering with the private sector and mandating how private industries and citizens should behave. Instead of imposing cap-and-trade on the private sector, the government apparatus in Washington D.C. should lift restrictions on oil drilling and oil production while simultaneously encouraging alternative energy production via low pollution methods such as nuclear power plants and natural gas. Doing so would decrease the cost of energy for all income brackets.  

On June 25, 2009 the Heritage Foundation released a short video that sums up the misconceptions about the impact of CO2 on climate change.

What sets America apart from other countries is the extraordinary reservoir of idealism that has been a constant in our  national life from the very beginning.  The national narrative-a.k.a.  The American Dream- has always been about individuals and groups who achieved remarkable things against great odds.   Cynics for whom the glass is always half empty call the dream  a myth but Americans know better for they have seen it fulfilled in their own lives or those of others for generations.  Throughout our history the stories of Horatio Alger, Abraham Lincoln and countless others have reinforced our belief in the boundless potential of the common man and our deep conviction that such aspirations are no relic of the past but rather a living legacy for our children and grandchildren.

      A parallel theme to this American idealism is a recurring naivete in our initial assessments of politicians who seek to be our leaders.  Through endless elections we have seen the triumph of hope over experience in our susceptibility to slogans like “ending business as usual or “eliminating waste in government” or “driving out the special interests”.  We tend to believe that if ordinary Americans can do extraordinary things then it is quite reasonable to expect politicians to deliver on their promises.  Accordingly new Presidents invariably enter office with high approval ratings and even higher expectations.

      A corollary to these themes of idealism and naivete is that when the politicians fail to deliver results or worse do things that contradict their promises we commonly feel disappointment, even anger, a sense of betrayal, and a righteous determination to punish those who have proved themselves unworthy of our trust (i.e. “Throw the Bums Out”).

      The speed with which the people can turn on their elected leaders is in direct proportion to how high the initial approval ratings and how wide the subsequently perceived gap between expectations and performance.

      In accord with the above political axioms America is now at the mid-point of one of the most dramatic transformations in all of our history.  While the truth of this assertion cannot be fully known until at least November 2010, already the extraordinary events of 2009 culminating in the recent elections and the imminent climax of the proposed health care revolution give abundant evidence that a decisive turning point in our nation's history is at hand.

      In the day  following his narrow election in the tumultuous year of 1968 Richard Nixon told the story of the little girl who asked him to “Bring Us Together”.  While that mission didn't end too well for Nixon, nonetheless that little girl's three words represented an enduring aspiration and expectation that Americans have for all their Presidents.

      In 2004 a relatively unknown Barack Obama electrified the Democratic convention by insisting that there should be “ no blue states or red states, but only United States of America” Four years later candidate Obama-aided by the Perfect Storm of an unpopular war, a more unpopular President, and an apparently collapsing economy- with rare eloquence offered Americans the shining vision of a “post-partisan America” where old wounds racial and otherwise would be healed and the country would be “positively transformed”.

      That vision and the visionary that inspired the nation on that sunny January Inauguration Day seemed almost too good to be true.  And so it has proved.

      Barack Obama's first year approval  ratings though still respectable have fallen further  faster than any other President in over half a century.  Support for his ambitious agenda has plummeted even more precipitously.  Instead of the promised “post-partisan” America our body politic is more polarized than at any time since the Vietnam /Watergate era.

      The frighteningly unprecedented explosion of deficits, and the national debt so threatening to future generations and the vast societal redesign inherent in both Obamacare and Cap and Trade is not the “positively transformed” America that people thought they were being promised in the 2008 campaign.

      Only events of the next twelve months punctuated by the mid-term elections will accurately measure the forces of political disaffection now clearly moving across the nation.  Nonetheless current polling reveals growing majorities opposed to the “extreme makeover” of healthcare, seeing the country as on the “wrong track”, and deeply concerned about runaway spending and debt.

      All this spells certain trouble for those who currently rule the political roost.  What is equally certain is that just one year ago no one foresaw this extraordinary turn of events.
 
 

William Moloney's columns have appeared in the Wall St. Journal, U.S.A. Today, Washington Post,

Washington Times, Philadelphia Inquirer, Baltimore Sun , Rocky Mountain News and the Denver Post.
 
 
 

A myriad of factors have been identified as contributing to the ongoing global financial crisis, running the gamut from misguided government policies to an absence of market discipline of financial institutions that had inadequate or flawed risk-monitoring and incentive systems. Such government policies include low interest rates by the Federal Reserve and promotion of subprime risk-taking by government-sponsored entities dominating the residential mortgage market so as to increase home ownership by those who could not otherwise afford it, which fueled a housing bubble, and bank capital and institutional investor holding requirements dependent on credit ratings by entities which were either conflicted or incompetent (or both), providing triple-A ratings to securitized packages of subprime mortgages.  Identified sources of inadequate market discipline include ownership restrictions, deposit insurance’s inducing moral hazard, ineffective prudential regulation including capital requirements that favored securitized subprime loans over more conventional assets, while internal organizational factors contributing to the crisis include business strategies dependent on high leverage and short-term financing of long-term assets, reliance on risk and valuation models with grossly unrealistic assumptions, and poorly-designed incentive compensation.  These factors, taken as a whole, encouraged what was, as can readily be observed with the benefit of hindsight, excessive risk-taking.

      Yet only one of the items on the extensive list of factors contributing to the crisis has consistently been a focal point of the reform agenda across nations: executive compensation. In the United States, for example, multiple legislative and regulatory initiatives have regulated the compensation of executives of financial institutions receiving government assistance.  The governments of many European nations have followed a similar regulatory strategy, while the European Union’s Competition Commissioner has announced that it will be examining banks’ compensation in light of government support received during the crisis.

      Given an environment in which there is widespread political unease over executive compensation, we advance in this article what we consider to be a superior regulatory approach to that being proposed by Special Master Mr. Kenneth Feinberg, and to what existed prior to the barrage of crisis-related compensation legislative and regulatory initiatives. In brief, we advocate providing all incentive compensation in the form of restricted stock and options – restricted in the sense that shares cannot be sold nor options exercised until two to four years after an individual’s last day in office – albeit we would permit a minor amount to be paid out over time to address liquidity, diversification, tax and premature turnover concerns.  The proposal meets three criteria that we think compensation packages should meet, not only to provide appropriate incentives, but also to be understandable by investors and the public: it should be simple, transparent and focused on creating and sustaining long-term shareholder value.  Although our proposal is specifically addressed to what should be required of financial institutions, given prudential concerns related to protecting the fisc (a public treasury), we are of the view that all firms, both financial and non-financial, ought to consider its adoption as well. Specifically, boards of directors of non-financial companies and institutional investors in these companies should give serious consideration to our proposal for reforming executive compensation. Managers whose incentive compensation takes such a form have diminished incentives to make public statements, manage earnings, engage in imprudent business strategies or accept undue risk, for the sake of short-term price appreciation, as their ability to exit before problems come to light is greatly reduced. 

The proposal differs from the mandate in the stimulus legislation in three critical respects.  First, the term of restricted stock is tied to an executive’s term of employment and not the institution’s indebtedness to TARP. This holding period better matches individual incentives with taxpayers’ – Congress’ concern – along with other equity holders’ interests. Permitting the sale of restricted shares upon repayment of TARP funds may encourage executives to repay funds prematurely, at the expense of an institution’s long-term value. Because TARP recipients, for the most part, are FDIC-insured institutions, that long-term value should be of particular concern to taxpayers.  
           
The holding period should not end on repayment of TARP funds as long as the firms are still obtaining other forms of government financial assistance through access to the Federal Reserve Bank’s discount window and participation in guaranteed debt or deposit insurance programs.  Moreover, we recommend that our proposal be mandated for managers of all financial institutions whose liabilities are guaranteed by the government through the federal deposit insurance program, and not simply those receiving TARP funds, to align managerial incentives against excessive risk-taking and thereby protect the fisc. Hedge funds and other institutions that do not receive governmental financial assistance should not be so regulated.
           
Why do we advocate a post-departure two to four year waiting period?  Two years should be the minimum as managers’ discretionary authority, under current U.S. accounting conventions, to manage earnings unravels within a one to two year period.  On the other side, four years is a reasonable time for at least the intermediate-term results of the executive’s decisions to come to realization.  
           
Second, our proposal does not cap the amount of restricted stock that can be awarded.  It is well-established in the theoretical and empirical management compensation literature that incentive compensation is a more desirable form of executive pay than fixed compensation for aligning manager and shareholder interests in maximizing firms’ long-term value.  It should therefore not be the smaller component.  The problems thought to have been generated from equity incentive compensation – earnings manipulation or the taking on of unwarranted risk - are a function of the structure, not the level, of the incentive payments.  Moreover, empirical research indicates that companies find a way to circumvent congressional limitations on compensation. The result is invariably even higher and more opaque compensation, as pre-regulation compensation contracts are adjusted, often with unintended adverse consequences.
           
Third, our proposal applies to all executives and not only to the “most highly compensated” employee or employees. Broader coverage is necessary because decisions of lower-level individuals, such as traders, can adversely affect, indeed implode, a firm. Attention must thereby be directed at ensuring that everyone’s incentives are aligned with a firm’s long-term performance, and not a transaction’s short-term impact.    
           
A benefit of our proposal is a natural “clawback” feature.  Because executives are compensated in equity that is not received until years after it is recorded as earned, they cannot capture short-lived income from transactions whose value is not long-lasting: the “compensation” will be dissipated as the value of the firm’s shares decline over time.  This mechanical “clawback” is simpler to administer than legislative mandates which require triggers, such as an accounting restatement, and can lead to litigation over whether an item in a financial statement was material or scienter is required for the compensation’s forfeiture.
           
Finally, an important concern that could be raised against the proposal is lack of liquidity for executives who are required to hold restricted shares past retirement.  To mitigate the loss of liquidity there should be a higher limit on cash compensation for tax deductibility purposes, say, $2 million, compared to the current $500,000 limit for executives of financial institutions receiving TARP funds and $1 million limit for all others. In addition, we would permit 10 to 15 percent of the restricted stock and restricted stock option compensation received in a given year to vest earlier than the required two to four year post-departure term.  
           
Our proposal that executive incentive compensation should consist of restricted stock and options held until several years after the individual’s retirement or departure from a firm is hortatory for public companies, both financial and non-financial, that are not receiving TARP funds or other government financial assistance, such as participation in debt guarantee or deposit insurance programs.  We would mandate it solely for the latter firms because only those firms implicate protection of the fisc. Although our proposal is specifically addressed to what should be required of financial institutions, given prudential concerns related to protecting the fisc, we are of the view that all firms, both financial and non-financial, ought to consider its adoption as well. Specifically, boards of directors of non-financial companies and institutional investors in these companies should give serious consideration to our proposal for reforming executive compensation. Managers whose incentive compensation takes such a form have diminished incentives to make public statements, manage earnings, engage in imprudent business strategies or accept undue risk, for the sake of short-term price appreciation, as their ability to exit before problems come to light is greatly reduced. 

Like most other doctors, I went into medicine with enthusiasm and optimism. Doctors go down this difficult road believing that they can help people and make the world a better place. If along the way, we prosper emotionally, professionally or financially, then all the better. More than 30 years later, my desire to help people has not waned, nor has my hope to make things better diminished. To accomplish this, I have taken a side road, becoming a political activist, to advocate for my patients in ways unforeseen to me even a year ago. But my enthusiasm and optimism has been replaced by concern and disgust. I am concerned about my patients (including myself because I too am a patient) and what we stand to lose and look forward to under a government run healthcare system. I am disgusted by the blatant lies that the White House and Congress constantly are telling the American public and the depths to which they have stooped to accomplish their scheme. I am also disgusted by the dishonesty of the US media, serving as sycophants for the administration rather than watchdogs.

In the prime of my career, I should be perfecting my skills as an innovator in the operating room, or devoting more time to training the Urological residents and fellows under my supervision. Instead, I am attached to my computer and Blackberry, trying to get every bit of current information to stay one step ahead of those trying to steal healthcare from all of us. When I take a child to the operating room, there is not a shred of doubt in my mind that what I am going to do will help that child. DO NO HARM - words found in the Hippocratic Oath, which every doctor has pledged to abide by. I have the same conviction about my efforts to keep the government from taking over healthcare. Unfortunately, many doctors do not see the danger in this for a multitude of reasons, and that is a big problem.

Some of the most fundamental things that we take for granted will be lost to us forever: freedom to choose our doctor, freedom to select an insurance plan, the ability to get prompt and high level healthcare. Doctors will become government employees or even worse; they simply will not care, because many of the incentives for them to work as hard as they do will be eliminated. Going further, doctors will be incentivized to give inferior levels of care because they will be penalized if they utilize too many resources and have money taken away from them by the federal government.  Patients will suffer even more because doctors will leave the profession, replaced by nurse practitioners and physician assistants, or possibly doctors from Third World countries having questionable education and training. Patients will wait longer for appointments and will wait longer for operations or treatments, provided that they can get them at all. That is because patients who are covered by government healthcare (which will eventually be everyone) will need to have their treatments approved by a National Health Board (already selected with 15 members, none of which are practicing doctors). They will use clinical algorithms and cost charts to determine if a procedure will be approved. This will make us all long for the days of HMOs and managed care. This Board would be overseen by the Secretary of Health & Human Services who would be granted sweeping, new powers, making this person the second most powerful person in America. There will be any number of new czars also with dictatorial power which would be part of the new healthcare bureaucracy of 111 new agencies that this legislation would create.

We are already witnessing with Harry Reid and Nevada the role that politics will play in the future with regard to all aspects of healthcare. He has secured “center of excellence” status for a cancer center that had not treated a single patient yet, so that when it was built, they would receive higher reimbursement. This only cost the center $118M in lobbying money. He has gotten Nevada exempted from picking up Medicaid costs for 5 years after enactment of the bill, so that all other states pay for Nevadans. It is easy to see that in the future, knowing powerful people in Washington will help you to get through the system seamlessly, while everyone else has to wait in line, just like at the DMV. The irony is that this system which is good enough for all of us is not suitable for members of Congress who have rejected over and over, attempts to bind them to this plan.

I am not just a doctor, but also a patient. I am a cancer survivor. Almost 3 years ago, I was diagnosed with prostate cancer. Because I am a urologist, I had regular screening and once the cancer was found, I knew immediately who my doctor would be, what kind of treatment I would have and where that would be. Imagine if I of all people, with the knowledge and experience of a professional lifetime, were unable to put this plan into motion because the government was overseeing my care instead of my doctor and me. This is the reason why I spend on average 5 hours every day fighting to protect these rights, because let’s face it- eventually we will all be a patient and we must not let the government come between the doctor and the patient.

Dr. Hal Scherz is the founding President of Docs4PatientCare.Org, http://www.docs4patientcare.org/  an organization of concerned physicians committed to the establishment of a health care system that preserves the sanctity of the doctor-patient relationship, promotes quality of care, supports affordable access to all Americans, and protects patients' freedom of choice. Docs4PatientCare.Org is sponsoring the Across America Rally on November 21.

Dr. Scherz completed his undergraduate degree Magna Cum Laude at State University of New York at Buffalo.  He then earned a Master of Science degree in Immunology from Roswell Park Memorial Institute in Buffalo, New York. He went on to earn his medical degree from the University of Texas at San Antonio.  Dr. Scherz was a surgical resident at the University of California San Diego before completing his urology residency there. Following his residency, Dr, Scherz completed a fellowship in Pediatric Urology at the Children’s Hospital of San Diego & UCSD.

Dr, Scherz is a past president of the American Association of Pediatric Urology. He is a member of the American Academy of Pediatrics – Urology Section, Society for Pediatric Urology, Society for Fetal Urology, American Association of Pediatric Urology, American Urological Association, Genitourinary Reconstructive Society, UROPAC, American Association of Clinical Urologists, American College of Surgeons, Medical Association of Georgia, and the Greater Atlanta Pediatric Society. He has been program chair for the Society for Pediatric Urology annual meeting, and for the AAPU annual meeting. He has authored over 75 peer reviewed articles and written 8 book chapters. Dr. Scherz is a reviewer for the Journal of Urology and Urology. He has been a principal or co-investigator in numerous FDA clinical trials. He has served on a number of specialty committees on a national level. Dr. Scherz was recognized by Atlanta Magazine as one of the Top Doctors in Atlanta in their most current doctor issue in July 2007.

Dr. Scherz is an Associate Clinical Professor of Urology at Emory University. He is an original member of the board of directors for the Children’s Healthcare of Atlanta Ambulatory Surgery Center. He has served several terms on the board of directors for The Children’s Healthcare Network. Dr. Scherz has been active at CHOA @ Scottish Rite, serving on numerous committees. He is the managing partner of Georgia Pediatric Urology, and a previous president of Georgia Urology PA.

Alternate Reality

Neverland was originally the home of Peter Pan, a place where a dreamlike, magical childhood never ends and imagination is reality.   Not surprisingly, Michael Jackson borrowed the fairytale creation for the fanciful hideaway he called Neverland Ranch.  Michael may be gone, but Neverland is alive and well at 1600 Pennsylvania Avenue where reality is only limited by extremely fertile imaginations.

Take for example the recent statement out of the White House that the results of the $800 billion Economic Stimulus “exceeds our expectations.” That pronouncement followed the release of a report claiming a mere 30,383 jobs had been “saved or created” by all the government spending that was supposed to “rescue the economy from catastrophe.”  Never mind that the stimulus was supposed to “save or create” 4 million jobs, not 30,000;  never mind that since Obama took office another 3.4 million Americans have lost their jobs;  never mind that Obama promised his stimulus would “keep the unemployment rate below 8%”  and since he took office it has risen from 7.2% to the current 9.8%.  And, never mind that those 30,000 saved-or-created jobs came at a cost of $533,000 taxpayer dollars each; more than five times what Obama’s Economic Advisers promised as recently as May of this year.  

Never mind, as well, that over the past year the US dollar has weakened dramatically, and some experts worry that “with the massive deficit spending in the U.S. there's concern the dollar could go lower."  Never mind that world media outlets are buzzing with rumors of moving away from the dollar as the globe’s benchmark to a “basket of currencies, including the Japanese yen, Chinese yuan, the euro and gold.”  

Never mind that the EU – not the United States - just clipped a free trade coupon with South Korea worth an estimated $26 billion in business in real economic growth.  As reported by Investor’s Business Daily, “The U.S. had already negotiated a trade pact of its own that was ready to go in 2006. Details of the EU-Korea treaty are nearly identical, so it's obvious the Europeans just Xeroxed the U.S.-Korea pact and will now walk off with the spoils.” Since the Democrats took majorities on Capitol Hill in 2006, several free trade agreements are left to only gather dust as Nancy Pelosi, Harry Reid, and now Obama pander to the whims of the liberal left and their Big Labor friends who universally object to trade.  

Never mind all apparent somber doses of reality, because speaking from the Rose Garden at Neverland, Barack Obama announced that, “we've rescued our economy from catastrophe, we've also begun to build a new foundation for growth.” All is therefore well.   

The Crown Prince of Neverland has been perpetrating a few more fantasies.  He heralded the Max Baucus health insurance reform plan as a “critical milestone” in his quest to implement ObamaCare and dismantle what remains of a private sector and patient choice in health care.  Never mind that Baucus is based on what even The Washington Post blasted as a $245 billion “shell game for disguising health care costs” – a reference to an accounting sleight of hand whereby Baucus “pretends that doctors take a 25 percent cut in reimbursements…and then stay at that low level forever.”  Never mind that the Baucus Plan is founded upon a phantom claim to suck $500 billion of savings out of Medicare – something no objective person believes can become a political reality – plus, $400 or so billion of new fees, penalties and taxes that will ultimately be passed on to consumers.  Never mind that as a result of Baucus, a PriceWaterhouseCoopers analysis determined family health insurance premiums will increase $1700 per year beyond existing estimates – although during the campaign Obama-Biden promised to reduce family premium costs by $2500.  Just never mind.

The Norwegians apparently drank the Neverland Kool-Aid, too, and awarded Obama the Nobel Peace Prize.  The Nobel committee is convinced the Obama’s aura alone has not only enhanced America’s National Security, but so too that of the entire world.  Amazingly, he accomplished this in only his first two weeks in office, but then in Neverland all things are possible.   

Never mind that his “war of necessity” in Afghanistan has him tied in a just-make-a-decision-knot with his generals, McChrystal and Petraeus, pulling on one side and pacifist Democrats including Nancy Pelosi, John Kerry and his own VP Joe Biden on the other.  (See Cong. Tom Cole’s and William Moloney’s features articles in this issue.) Never mind that casualties mount, the war worsens, and Pakistan is erupting as Obama spends time thinking about whether to follow the advice of his military experts or politicians. Never mind that Lyndon Johnson chose the advice of politicians over field commanders in a tragic mistake in Viet Nam.

Never mind that Obama’s plan to appease the Russians and create a new beginning with Vladimir Putin blew up in his face.  After unilaterally rescinding the planned missile defense shield in Poland and Czechoslovakia designed to protect our allies from a potential Iranian nuclear threat, the Russians handed Hillary Clinton back a scorpion by refusing to even discuss economic sanctions against the nuke seeking Iranians.  Never mind, that Obama said Iran had to show compliance by November with United Nations resolutions or be subject to “sanctions that have bite.” Never mind, because now we’re back to just talking as per the Russian’s plan, which Obama likes to do anyway, while Iran goes along with business as usual.

Never mind that while Obama dreamily talks of a nuclear free planet at the United Nations, Iran is busted for a second secret nuclear plant, Venezuelan thug Hugo Chavez openly flaunts his own nuclear desires that are being aided by his Iranian friends, Brazil’s Vice-President Jose Alencar says they want a nuke, and a couple weeks later Despot-in-Chief Kim Jong Il fired off five more missiles just to make sure we all knew he was still around.  Never mind that a UN report released this month confirms what many intelligence and military experts had long come to believe, that Iran now possesses “sufficient information to be able to design and produce a workable” nuclear bomb.  Never mind that even The New York Times noticed that this alarm sounded by the normally milquetoast crowd at the UN goes “well beyond” the position of the Obama Administration.

Never mind that all this happens as Obama bounces between the Middle East, Europe, and the United Nations apologizing for all of the times “America has shown arrogance and been dismissive, even derisive.” As well as the times “America has acted unilaterally, without regard for the interests of others.” Never mind that America’s foes are flexing their muscles as Obama forfeits America’s lone world Super-Power Status with the singular statement, “No one nation can or should try to dominate another nation.  No world order that elevates one nation or group of people over another will succeed.” Never mind, because that’s the stuff of which Nobel’s are made.  

Never mind that Obama’s  “dream” of disarmament was ridiculed by Nicolas Sarkozy. "We live in the real world, not in a virtual one,” the French President said boiling over with frustration at America’s timid reaction to a growing crisis.  "I support America's 'extended hand.' But what have these proposals for dialogue produced for the international community? Nothing but more enriched uranium and more centrifuges. And last but not least, it has resulted in a statement by Iranian leaders calling for wiping off the map a Member of the United Nations. What are we to do? What conclusions are we to draw? At a certain moment hard facts will force us to make decisions."  Never mind, that the President of France (for heaven’s sake!) displays greater resolve than America’s Commander-in-Chief.

Obama seems perfectly comfortable in his childlike, blissful dream world.  Meanwhile by both his actions and inactions, the Great American Economy is reeling, and families are struggling with prospects of more bad news to come metered out by Washington politicians.  Our national security and that of our allies is being put at ever greater risk.  Tossed aside is President John F. Kennedy’s pledge that America stood prepared to “pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, to assure the survival and the success of liberty.”

Of the many virtues often identified of a leader, “weakness” never makes the list.  Yet, in a matter of months this President has seen fit to bow to Arab kings, placate tyrants sworn to destroy us, our closest allies and our culture, ignore the reality of ominous present danger, and expose more vulnerability and weakness to our enemies.

Obama invests a great deal of his voluminous devotion to rhetoric with a typical populist’s professed desire to lift up the poor in America as well as the needy of the world.  He talks a lot about “spreading the wealth” which is his code for government to seize from those that have, and give it to those that want.

The new President might want to reassess his plan after pondering a guiding principle of perhaps our greatest President, Abraham Lincoln who understood that “You cannot strengthen the weak, by weakening the strong.”  

Obama might also want to think about the wisdom of Ronald Reagan who memorialized the doctrine of “Peace through Strength,” and once observed that “Of the four wars in my lifetime, none came about because the U.S. was too strong.”  

The next time Obama has a little quiet time at Neverland – maybe while he is polishing his Nobel trophy – and hopefully before he is once again inclined to offer an apology for American transgressions, or caving in to the bluster of some tyrant, he might think about the advice of someone else who understood real leadership and what it takes to answer the call of destiny and just do the right thing, Winston Churchill:  ”Never give in. Never give in. Never, never, never, never--in nothing, great or small, large or petty--never give in, except to convictions of honor and good sense. Never yield to force. Never yield to the apparently overwhelming might of the enemy.”