May 1, 2008

What’s Really Going on With the Economy?

Heritage Foundation Vice President Stuart Butler spoke to Heritage Foundation members last week during the Heritage Community Leadership Exchange teleconference about the nation’s economic problems and what the solutions are—and aren’t.

John Fogarty:  Thank you very much and welcome back, everyone, to another edition of our Heritage Community Leadership Exchange.  We designed this teleconference specifically for you, our most important supporters as members of the President’s Club.  We’ve been hosting these call-ins for about a year now and we received some really great feedback from you on how to make them even better.

Today, we’re tackling issues related to the U.S. economy, issues that affect each of us as taxpayers, as employers, as parents, grandparents, as young people on the line today, and as citizens.  We’re going to hear from Heritage’s top policy leader in just a few moments.  And after he gives us a brief overview of the current landscape in Washington and some of the insights on how Heritage’s principled policy recommendations will help to solve this, we’ll launch right into the exchange part of the call and attempt to answer as many of your questions as possible. 

So to ask a question, again, just press star one on your phone keypad and you’ll be directed to our lovely call screener to ask your question.  I know there are a lot of questions out there today so don’t hesitate.  Just press star one at any point during the call.  You don’t need to wait until our guest has finished speaking.  We’ve got hundreds of Heritage President Club’s members on the line today so welcome all.  And let’s get started.

So we’re talking about the state of the U.S. economy today and I think, the subtitle of the call pretty much says it all – “What’s Really Going on With the Economy: Beware of Washington.”  Few people in our fair capital city here can better address this question from a principled and solutions oriented standpoint than our guest today. 

Stuart Butler has been generating ideas for The Heritage Foundation for the last 29 years.  He serves as our Vice President for Domestic and Economic Policy.  And recently, he’s played a large role in the National Fiscal Wake Up Tour, in which a group of non-partisan, ideologically diverse budget realists have been traveling around the country to build support for tackling the growing budget threat posed by what we call the big three – the entitlements programs of Medicaid, Medicare and Social Security. 

I know Stuart will tackle a lot more about this in detail later on and will be happy to answer your question as well.  He’s been so involved in such a variety of policy issues ranging from healthcare and social security to welfare reform and privatizing government services that National Journal, a few years back, named him one of the 150 individuals outside government who has the greatest influence on decision making in Washington.  That’s a pretty powerful statement.  In his first paper for Heritage, back in 1979, he introduced the concept of enterprise zones. 

You remember they would encourage the economic development in blighted neighborhoods and cities by offering entrepreneurs incentives to start businesses in the area.  That idea caught the attention of then Congressman Jack Kemp of New York, who then sponsored bipartisan legislation in Congress on Butler’s idea.  There are now, across the country, at least 70 enterprise zones in various cities throughout the U.S. 

Stuart Butler is a man who’s passionate about changing the course in Washington towards a personal responsibility culture and one of limited government.  And we’re delighted to have him on the call today.  Stuart, welcome to the call.  And thanks for joining us.

Stuart Butler:  My pleasure, John.  And let me just say I appreciate the opportunity to talk to our supporters out there in the country.  As you said, I’ve been with Heritage for 29 years and I really understand, I think, how important it is to have the kind of support that we have from the people listening in today, not just financial support but the enthusiasm. 

I speak quite a lot at the President’s Club meetings, as you know, and it’s really a shot in the arm for those of us who are here in Washington (the scene of the crime, so to speak) where we try to battle for the principles that unite us.  So I really appreciate the opportunity to talk to everybody on the line. 

Let me take a few minutes at the beginning here to really give an overview of how we see the immediate and the long-term issues associated with the economy and how we are broadly trying to address them.  And then, happy to have questions and talk this through with you and answer your specific questions.

When you look at the short-term situation in terms of the economy, I think you have what you might call a classic recession, or at least a classic slowdown, compounded as we all know with a financial crisis triggered by the mortgage and the credit situation in the United States.  And that so, we got a classic situation with this complicating factor that is causing Washington to think about of doing something which is always, of course, a danger.  But anyway, that’s really what’s going on. 

And of course, what we really want to do in a situation like this is to enable the economy, to get through this period by making sure that, first of all, that adjustments occur, that the kinds of changes that occur during a slowdown and a recession period where capital and labor and the other parts of the economy start to adjust.  But also, in this particular situation, to make sure that our financial institutions are solid and sound and withstand this and we don’t get the kind of panic that we’ve seen in other countries including the incident in my native country, Britain, where we’ve seen runs on financial institutions there in the last few months, which is very disturbing. 

So it’s a question of trying to get through this difficult period and get back on track through a recession period.  If you’re going to do that, you got to look at things like tax policy to make sure we don’t raise taxes.  But definitely, we look at things like the capital gains tax and other taxes that effect whether people are prepared to take risks in uncertain times.  And it’s extremely important as we’re arguing that we look at reducing those taxes and certainly not increasing them. 

It’s also important to make sure that in a period like this; and this is a particular danger, I know, that we don’t start rushing in with new rules and regulations to fix apparent problems, often little unreal problems, which have the unintended effect of making it even less encouraging for people to jump in right now and start businesses and employ people and so on.  So we’ve got, in a sense, to resist that impulse the politicians have to jump in and try to do something, which sometimes can make the situation worse. 

It’s also very important to take some steps, some prudent steps, to make sure that the financial institutions that are critical to our credit system are made stable and to do that in a way that, again, doesn’t complicate the situation.  And that’s how we’re looking at the current situation so, when we look at what Washington is doing right now, this many people in Washington are arguing for, we’re very concerned. 

Many people are arguing that in order to fix some elements of the credit situation that we should have a whole new suave of new regulations in the financial sector.  The problem with that is, as I said, it will tend to discourage people from making loans, and we’re already seeing that happening.  But also, it will discourage people from entering into the economy, taking the risks necessary and so on. 

Within that area of the credit situation, of course, the mortgage situation is a particular concern.  And what we’re seeing in Washington is unfortunately a trend to say, “Let’s take action quickly and visibly,” so that people feel that Washington is there for them.  And so, one can understand they want to do that.  But we’re very concerned about the prospects of changes in the housing market and the financial system for the housing market that would encourage more and more people to go into housing with very limited or no equity stake. 

There are proposals on Capitol Hill to give tax credits, for example, to enable people to essentially amass the down payment to buy foreclosed property in areas where there is a lot of foreclosure.  The problem with that is that it could easily compound the very situation that we’ve had today of people with very low equity or no equity defaulting on loans because they just don’t have any skin in the game. 

It’s very important also that we don’t bail out people who have speculated in this area including people who are lenders as well as borrowers.  And so, for example, we’ve argued that people should not be able to walk away from any help that they’ve been given by defaulting and then, those loans or that assistance from the government, from the taxpayer to not be considered as required to be repaid in a bankruptcy.  There are many people on Capitol Hill who are arguing that any assistance given to strengthen people’s ability to buy housing shouldn’t appear in any bankruptcy proceedings in the future.  We think that that’s completely counter productive and will give very progressive incentives.

So if you look at the short term, I think it’s a question of getting through this period, not doing things that will damage our ability to adjust.  When you look at the long-term economy, in a sense, it’s no different than one always has to look at the long term; how do we create a situation in America that encourages a healthy economy.  In particular, giving people the incentive to take appropriate risks in business; to have a competitive economy so that as we compete with other countries, our entrepreneurs are not at a disadvantage, we don’t over regulate the, we don’t have high rates of corporate taxes we do in this country and bring those down.  In other words, create an environment where people can really look at the future, build, invest, create jobs in a competitive world.  And it’s very important to make sure we do that and that we do it in an open trade situation where we can compete vigorously around the world and not have protection trying to slow down appropriate competition in the world, which is good for everybody. 

We have a project here at the Heritage Foundation called our entrepreneurship project and that’s really one of our 10-year plans that seeks to create the kind of regulation and tax system that would encourage general, long-term attractiveness of the U.S. economy and make it more competitive.  Now, when you look at one of the dark clouds in the horizon in the long term, I think that there is one particular one that’s of great concern that John’s already mentioned.  We’re seeing and if we look at under current law, if Congress does nothing different from what it’s currently doing, we’re looking forward right now where we can – as we look into the future, at a significant increase in federal spending in the major entitlement programs – Medicaid, Social Security and particularly Medicare. 

And also alongside, which a lot of people don’t fully understand, that on the current law, current law means there will be, if nothing is done, a significant increase in taxes in the United States over the next 10 to 20 years.  It’s built into the system; it’s cooked into the cake right now.  So if we don’t do anything, then we’re going to see the three big entitlement programs that I’ve mentioned growing from about eight percent of our total economy today, not government spending, our total economy, to double that within the next 20 years so, 16 percent.  In other words, a doubling of this burden, of these programs on our economy.  That’s going to have a big impact. 

We’re also going to see, if nothing else is done, a significant increase in total taxes.  Right now, taxes are just about the level they have been, on average historically, in the United States, that’s about 19 percent, just under that of our GDP of the size of our economy.  That’s going to steadily rise in the future under current law, probably because more people go into the alternative minimum tax, probably because pay higher rates, probably because higher rates have built in. 

After the year 2010, many of the Bush tax cuts will expire.  Capital gains tax will increase, the marriage penalty will increase, all sorts of things like that will start happening if we don’t do anything.  And so, we’re going to see total taxes as a proportion of our economy reaching record levels rising to 20 to 21 percent within the next five to 10 years and continually rising thereafter.  That’s going to discourage enterprise, that’s going to make America less competitive, it’s going to lead to slow growth.

So at the Heritage Foundation, we’re really focused on this long-term and we are making the case around the country as well as here in Washington that we’ve got to really ratchet down those entitlement programs and make some tough decisions and talk to the American people about them.  And also, we’ve got to ratchet down the growth in tax rates that are currently in place under current law. 

We’ve been going around the country, as John mentioned, on a Fiscal Wake Up Tour to 30 cities in the last 18 months with the Brookings institution, bipartisan, with others, too, to let people know what’s going on and engage them in conversation.  That’s been a very important part of what we are doing.  We believe that some very specific things must be done in Washington to get us on the right course for the long-term. 

First thing we’ve got to do, with regards to the entitlement programs, is to let people know what the long-term picture looks like.  Right now, unlike corporations that have to report to their stockholders exactly what their retirement obligations are, what their long-term capital situation is, the federal government does not have to do that.  So a lot of Americans don’t even know what the future looks like. 

We’ve got to make changes in the budget process and there’s bipartisan support for this to show people clearly what’s going on.  That’s what happens in private corporations.  It’s increasing what’s happening in the state and local level where governments are required to make this information available to taxpayers and to ordinary voters.  We’ve got to look at taking these entitlement programs off what we call autopilot because they are not budgeted in any real sense of the word as a household budget or even a state budget is put together. 

Really, what people do in Washington is guess how much it’s going to cost to have Medicare in 10 years or 20 years time to the federal government and to the taxpayers.  We have got to put these on a real budget like other countries do, maybe a 20 or 30 year budget, revisit that budget, ask if it’s affordable, make decisions, set priorities and so on.  It does not happen today.  And we’ve got to look at making some prudent changes in a lot of those entitlement programs to say, “Do people need all the things that they’re entitled to?”  If we can afford to finance defense to an adequate level and finance other critical parts of our society, we’ve got to make some tough decisions about whether people should have unlimited funding for say, Medicare, well above what they really need financially or whether we make some changes to deal with that. 

So we’ve got to make some tough decisions and we’ve got to discuss that with the American people and that’s what Heritage is going to be doing.  And we are, right now, constructing what we’re calling a conservative Fiscal Wake Up Tour.  And the idea of that is to go out to organizations and to our supporters around the country and to other groups and talk to them as moderates and conservatives about what needs to happen and the tough decisions that need to be made in these areas. 

For example, we’re going to be going to St. Louis later this month.  On April the 28th; we’re going to New York City, on May the 19th; Atlanta, on the 23rd of June; in July 14th, we’re going to Denver; and then later in the summer, we’re going to other cities such as Minneapolis, Boston and Tucson and we can give you information on those.  At a number of those, one of our board members, well known Steve Forbes from Forbes Magazine, is going to be talking about these issues, too.

So we’re very much engaged in this issue.  We very much differentiate in the short-term and long-term in terms of what has to happen.  And we’re very actively involved in trying to stop Washington in doing the wrong thing, which is usually what it does, and to address the long-term needs for the economy to get us to have a tax system that’s competitive and encourages entrepreneurs and a spending level, particularly on these entitlement programs.  The debts that are under control, for us today, it is out of control.  So those are things that we’re up to.  That’s how we see the short-term and long-term situation in the economy and I’d be very happy to talk to any of you and to answer any questions you have about specifically what’s happening and what Washington is trying to do to you in the future.

John Fogarty:  Great.  Stuart, thank you very much.  I think there’s a lot to be digested in that.  We’ve got a lot of questions.  It really does sound as Heritage is quite prepared to tackle this mammoth issue.  A couple of questions have come in already but I want to remind the callers press star, one to ask a question.  Again, that’s star, one.

I want to go to Darryle O. who is one of our New York Committee Members.  Darryle, are you there?

Darryle O.:  Yes.  Can you hear me OK? 

John Fogarty:  Yes.  I do, Darryle.

Darryle O.:  Hi.  My question is this.  I recently found out that moveon.org is launching a campaign to misinform the American public such that they’re saying that the Iraq war and our other – I can’t remember the term they use – useless wars I’ll call them, that’s not my characterization, are the cause or are a primary cause of our economic slowdown and are preventing the federal government from helping in this situation that we’re in. 

Stuart Butler:  Right.

Darryle O.:  And my question is, how do you respond to that and put those, the cause and those particular numbers into context?

Stuart Butler:  Right.  We hear that a lot as we go around the country.  When everyone talks about the economic situation or particularly, the budget situation in Washington, a lot of people get up in the audience and it’s understandable.  And say, we’re spending all this money in Iraq, surely if we get rid of that, then we’d be in great shape. 

Darryle O.:  Right.

Stuart Butler:  It’s plausible and that’s why it’s got to be dealt with appropriately, as I’m sure you understand.  First of all, of course, nobody wants to spend money on defense if they don’t have to.  There’s no question that we don’t have to do that.  We have to do it because of our national security and because of our obligations around the world in order to reach security.  But, given all that, if you were just for the sake of argument to spend nothing on the – let’s go even further, let’s spend nothing at all on defense like Costa Rica, somewhere country like that.

Darryle O.:  Yes.

Stuart Butler:  That fact is, you and everybody from Brookings and elsewhere will agree with what I’m about to say.  When you look at either the short-term or the long-term, it makes very little difference to these numbers.  The trend lines don’t alter.  The problem with entitlements is that they are constantly growing, they are constantly locked into the future and they will keep on.  The war in Iraq and spending on defense is a very small amount and certainly, there is very little argument to say that the current economic situation has somehow made worse by our commitments in Iraq.

Actually, one can make the argument – not that I’m suggesting this is an argument for defense spending – but one can certainly make the argument that the demands of defense spending, in fact, mean that federal government is purchasing items around America, employing people.

Darryle O.:  Yes.

Stuart Butler:  Maybe not to make things they really wanted to make but they’re certainly employing people and generating economic activity.  If you go to Boeing and you go around the country and you go into parts of the United States where there’s a strong defense establishments, I’m telling you, they’re not laying off people. 

Darryle O.:  Right.

Stuart Butler:  So I mean, in fact, moveon.org is literally wrong in the short term and its argument that there’s a long-term drag by defense and that’s slowing down everything else, the numbers just do not add up.  They are dwarfed by something like Medicare, which is a staggering level.  I mean, right now today, we spend double the amount on Medicare alone than the entire defense budget for the United States and that number, as I said, over the next 10 to 15 years is going to double.  So they’re just wrong on this issue and it just needs to be said.   

Darryle O.:  Yes.

John Fogarty:  And we need to replace the slogan of moveon.org with myheritage.org to get our word out there as well.

Darryle O.:  Right.

John Fogarty:  It’s true.  I want to get to another caller and he is from Chicago, Illinois.  That’s Jim G.  Good afternoon, Jim.

Jim G.: I think this program is great. 

John Fogarty:  Good.

Jim G.:  I got about three things, I wonder some of these – our idea of a slowdown is accentuated by the idea we’re in the big election year and that probably talks people into the idea that we got problems.  But, I wonder, one thing on repurchasing homes is what equity can work into it at all and if in gauging things, everyone looks at the unemployment rate and some static, things like that, or non-static.  But, could we establish a rating and every quarter come out with an entitlement percentage to see where it’s going?

Stuart Butler:  Yes, let me answer that.  First of all, your premise is correct (in that) and then, the election year.  It’s like some people used to say the first casualty of war is truth.  I think you can almost say that in an election year so, there’s always a tendency to try to either talk up or talk down the economy during an election year. 

But to deal with your specific question, the idea of sweat equity, that’s a term that you know I’m very familiar with, in terms of the work I did in urban issues many years ago.  Maybe in terms of rather than money, people look at foreclosed housing or dilapidated housing and they work on it to earn the down payment.  They contribute sweat and have skin and gain enhancement.  I think that’s got a lot of merit in these areas because people do not walk away from something.  Literally, their sweat is part of the investment and we see that in depressed urban areas and we’ve seen that over many years. 

People will stick with it if they have been working hard on that property and so on.  So I think that might well be part of the solution here in some areas.  So I very strongly agree with that rather than giving people free money to go make a down payment then, they’ll feel they’ve got anything invested.  The critical thing is to get people into a position wherein they can buy and they feel that they’re going to see it through and feel connected and don’t walk away. 

As far as the employment numbers, right, we give unemployment numbers.  I think it is very important to look at the entitlement index in some way.  Actually, we’ve developed, you can see on our Web site, a term which we call the dependency index, which is related to this.  What we’ve done is say, “How dependent are people on their government as a proportion of their income and their earnings, if you like, or their money during the year?” 

And we’re going to have a new version, an updated version of that in the next month or so.  So look for that, the dependency index.  And what we actually measure is that proportion – that is, in fact, a measurement of how dependent people are and we pick up these entitlement programs and other things, too.  And it’s very worrying because it’s continually rising. 

People are becoming more and more dependent.  At the same time, more and more people are not even in the tax system in the United States.  So we got two things going on – people being more dependent on Medicare and other programs but at the same time, millions more people not paying any federal income tax.  They pay social security tax but about 40 million working Americans do not pay any federal income tax.  They’re below the tax threshold.

So then, you start thinking about our democracy.  You have all these people who don’t have any skin in the game in the tax system and yet are dependent on government program.  And think of the way in which they’re going to interact with the politician and that’s part of what we’re seeing so, it’s very worrying. 

John Fogarty: Stuart, thanks for that one.  On our nationwide tour of President Club’s members, we’re going to fly down to Virginia and pick up a call from Craig D.  Hello, Craig.  Good afternoon.  Are you there?

Craig D.:  Are you there?

Stuart Butler:  Yes, I’m here.  Is that Craig?

Craig D.:  Yes.  Hi, Stuart.  I’m calling in reference to an article in the New York – I mean, excuse me, Wall Street Journal this morning by Laura Meckler.  It’s entitled “McCain Tax Cuts Will Bloat Deficit or Take Huge Spending Curbs.”  I guess that goes to your comment a little bit earlier about the need for reducing entitlements. 

Stuart Butler:  Right.

Craig D.:  Did you get a chance to read that article? 

Stuart Butler:  I’m familiar with the argument and what she said before.  And I think part of – without reading the article, I think there’s a general issue of what is a tax cut in America.  We tend to, I’m afraid, and including the media, to use the language of Washington in that which is, if I right now, by doing nothing, let’s say, you were a renter in my house and I was your landlord and I say, “I’m going to raise your rent every year by 10 percent into the future.”  And then somebody comes along and she said, “She only raised it by eight percent next year rather than 10 percent.”  Washington says, “I’m cutting your rent by two percent.” 

And that’s how people look, in the media they often add taxes.  What we have, as I said in my remarks, is we actually are seeing taxes going steadily up in the United States.  Even if we were to extend the Bush acts permanently, taxes as a proportion of our economy would rise to record levels in the future.  Let there be no misunderstanding about that.  So when people talk about McCain “cutting taxes and making the situation work,” he’s slowing down our growth in current taxes. 

But, on the other side of the coin, we’ve got to address the underlying cause of the budget, particularly those entitlement programs and make some really tough decisions in those areas if we’re going to get taxes down to a more respectable level without having huge deficits in the future.  Now, I think, he and some others have said that there are some steps that have to be taken.  He, I think, has – McCain has – said we ought to be looking at people who are very affluent should have their full premium for the new Medicare drug benefit subsidized.

At the moment, everybody will get a subsidy to that.  Maybe not everybody should but we got to make some tough decisions to that.  So I think that article, in many ways, shows that “Hey, you’ve got to get the terminology right, you’ve got to explain to people that a tax cut to the average person means my taxes will go down” and you’ll think that’s not what’s happening in the future and even the slow down, as some like McCain argues, means that taxes will still go up but just not quite as fast as under current law, and that we’ve got to deal with these big entitlement programs. 

John Fogarty:  Thanks, Stuart.  Let’s go to John L. from Mateo, California.  John, you there?  John, go ahead with your question.

John L.:  Yes.  My question is with respect to the entitlement programs and I think, whichever party is in charge of Congress is probably a tough challenge to take on that issue.

John Fogarty:  Right.

John L.:  But, in terms of potential solutions, is there a way that possibly individuals who did not have to rely on one or more of these programs could, in effect, opt out of the programs and return for getting either tax credits or other tax breaks going forward?

Stuart Butler:  That’s a very interesting question and we are very much engaged.  First of all, I would say that you’re right.  If we don’t do anything in terms of the politics of this right now, if would be very difficult for whoever is elected, from our department I’m including John McCain on this, if he is elected, to really, without any other changes, to really get a success on entitlement anew. 

Our lessons from going around the country on the Fiscal Wake Up Tour is that if you can show people what the future levels in spending and tax levels of the government are actually, they react to that very strongly.  They want something done about it, they want those brought down.  Right now, as I said, we don’t have to do that, we being the federal government. 

But, that’s why we think it’s very important to have changes in the budget process that discloses the future in a way that every stockholder is required by law to be given that information about the company they invest in or increasingly states around the country.  So I think that that’s a precondition to getting a serious discussion taking place.

(Get) to do with your second question, I think, again, you’re right that we find a lot of people who say “Wait a minute, I now see it, it’s a big problem and I’m willing to forego some of these because I don’t really need it if it goes to the right people.”  But, they don’t trust the government, so if you were to say “Just tell the government you don’t need quite so much in Social Security or Medicare and ask them to give it to something that you think it ought to go to like your grandchildren, for example, we will trust the government to do that with good reason. 

So we’ve been working on ideas like you mentioned – actual programs and policies including with people from both sides of the aisle including Senator Obama, I should mention actually to some extent. 

John L.:  How did you work with Obama, Stuart?

Stuart Butler:  Because he, like others, have said “If we can have a situation where you can put money into some kind of account, a kid savings account as sometimes people call it, so that your grandchild could start off say, with an IRA funded in this way.”  And you can be very supportive of that.  Our variant to that is maybe a way to do that is to say, “If you’ve got entitlements, if you’ve got benefits in the future, you don’t really need.”  Maybe you can have that account credited with what you’re prepared to forego so you know it’s going to go to your grandchild.  It’s not going to the federal government, it’s going to be basically there getting your account, or at least part of your account, that currently would give you Medicare and Social Security benefits.  I think its tools and devices like these that accomplish what John has suggested in a way that doesn’t let the government getting handed the money.

John L.:  Right.

Stuart Butler:  Which is what happens if you say, “I’m prepared to forego it.”  It’s like why do people never say, “Well, put my tax rebate at the end of the tax year; put it into the national debt.”  People don’t do that because they don’t trust the government to do that. 

John Fogarty:  Good to see, Stuart, that we’ve got some, even from the most liberal member of the Senate there, some responsiveness at least on some of these issues related to personal responsibility.

Stuart Butler:  I think, that’s right because I would say that one of the things I’ve found is that when visiting often, that (it’s) only concerns or worries about this.

John Fogarty:  Right. 

Stuart Butler:  That’s really not true.  If you look at people on the liberal side, for example, they look at the same numbers that I have.  First of all, they don’t want the economy to tank in the long-term.  That’s not good for anybody.

But also, they’re concerned about the growth of middle class entitlements because what they see is those squeezing out things they’re concerned about such as investments in the young, investments or payments in other areas for the poor.  And so, we may be more concerned about defense and other things but we’re both seeing the same problem – growth of these entitlements that is squeezing out everything else that’s why I can work with people on the left.  And we say, “Let’s fix this problem of the entitlement then we’ll duke it out between us later on in terms of how we think this savings ought to be distributed and so forth but let’s agree on this first spot and this broad agreement.”  That’s why we can work with Brookings and Obama and other people out there.

John Fogarty:  Right.  Good to hear.  We’ve got time for a couple more calls.  We’re going to go to New York again to Alan M.  Alan. 

Alan M.:  ((Inaudible)) which monetary policy.  Why do you think that Bernanke and the fed still go on unconcerned about the fall on the dollar, the implications for inflation and then, that being a tax, a different kind of tax on savings?

Stuart Butler:  Right.  I wouldn’t say they’re unconcerned.  I think they’re just, unfortunately, trade offs that you have to look at.  I mean, obviously, one of the factors, big factors about the decline in the dollar generally; one is concern about the U.S. economy and worry about the strength of the dollar reflective of our economy. 

But I think, in addition, the more we do to try to reduce interest rates, which of course the fed has been doing to try to deal with our immediate credit problems and financial situation, that in terms of investment in the dollar, the rate of return, the rate of interest that you get in investing in dollars declines and that really adds to the disincentive to hold dollars and all the other currencies in which there are better returns.  So I think there’s a dilemma here.  I don’t think it will be fair to say that Bernanke is somehow unconcerned about that and you know very well the consequences of the falling dollar, it’s very expensive.  My daughter is going to go to a summer school program in Europe this summer and the costs are going almost every day.  We see it in terms of the price of oil, we see in the price of import. 

On the other hand, it does mean that we do have our products now, at least for a while, more competitive in the world market and that it’s going to help us in terms of getting out of this slowdown or recession right now.  So it’s kind of a mixed blessing but I do think that there is always a dilemma in terms of the value of the dollar, in terms of using fed policy to alter interest rates to deal with that.  And if they would have raised interest rates, we would certainly increase the value of the dollar but then, that would be big concern for people in the credit markets and the ability to get loans to start new businesses, buy cars and so on.

John Fogarty:  Right.  Thanks, Stuart.  Let’s go to Texas and pick up a call from Charles S.  Hi, Charles.  How are you?  Charles, are you there?

Charles S.:  Can you hear me?

John Fogarty:  Yes.  Go ahead, Charles.  What’s your question?

Charles S.:  My question was a follow-up on the question you just asked about the weakness of the dollar in relation to our current economy and the future economy.  Isn’t that part of what’s driving the price of oil? 

Male:  Yes.

Charles S.:  Is it also what’s driving up the cost of imports even though we’re…

Stuart Butler:  ((Inaudible)).

Charles S.:  So I was asking how you address that in the current economy and the future.

Stuart Butler:  Right.  You’re certainly correct that it does.  As I said, if you simply solve that through raising interest rates so that the dollar is more attractive, then you have the unfortunate side effect that pushes up the cost of money, the cost of borrowing to go into business or expanding your business and so on.  So I think in terms of long-term, the right way to strengthen the economy is not to either try to manipulate interest rates or to certainly protect the economy, which also, I mean, protectionism and tariffs and so on pushes up the cost even further of imports, but to really get to the basics, to look at the long-term structure that we have. 

We have, as I think I said earlier, among the highest rates of corporate tax in this country compared with others in the developed world.  We have uncertainty of tax system.  Taxes are going to go up in 2010; we know that.  Regulation, we’re seeing more and more regulation in Main Street and in Wall Street and so on that it’s more important to focus on that.  If we do that and get that under control, we will see a strengthening of the domestic economy and that, in the long run, is going to be much more advantageous, make us more competitive than trying to do this pre-monetary policy.

John Fogarty:  Stuart, let’s take a call and I think, this will probably be our last call.  We have time for only one more.  That’s from Kenneth E..  Kenneth, what’s your question for Stuart?  Hello, Kenneth.  Are you with us?  OK.

Operator:  Kenneth E.?

John Fogarty:  OK.  Let’s just take another call here.  We have…

Operator:  I apologize.  Kenneth’s line is open. 

John Fogarty:  OK.  Kenneth, go ahead with your question.

Kenneth E.:  Yes.  How do we change the mentality of an entitlement culture?

Stuart Butler:  Of an entitlement.  You kept the toughest question to last.  I think that it’s a long haul.  But I do think I’m very heartened by the fact that if you actually show people the situation, if you show them what the consequences of an entitlement culture are, people really do get it and they are prepared to think.  If you don’t do that, I think people are inclined to get sucked more and more into what we hear in election years in generally, that you have an entitlement, everybody else has an obligation to you and so on. 

I think it’s going to be a long haul, we certainly see it here at Heritage that way.  We’re doing a number of things, we’re going out, as I said, into the country and we’re showing people.  I think that’s part of the solution.  I’m very confident if you show people the situation.  They really do smell the coffee and realize that it’s bad for people they love, their kids and grandkids in the future for them to be so dependent on the government.  I think also, as I said, changes in the budget process help that. 

I think also, it’s very important to empathize with people.  People are worried about the future; they’re worried about retirement.  You can’t just say, “Go cold turkey.”  And so, part of also what we’re doing is engaging the other organizations to have really detailed conversations with people.  What is it that they worry about in terms of retirement?  What would they need to feel if adequate is a base so that then, we can win them off other things, more elaborate benefits they don’t really need. 

So it’s a tough question but I think it’s a question that is answered by saying this really requires a long-term commitment to this conversation with Americans because it took us a long time to get into the mess we’re in.  And I’m really very confident that if we do that and Heritage is in the lead of holding these conversations like the Fiscal Wake Up Tour.  I really think that deep down and when you talk to Americans directly, they get it; they understand that they can’t go on this way.  They’re shocked by the numbers and they actually are prepared to consider the kind of changes necessary.

John Fogarty:  Stuart, this is really terrific.  I think we really ought to have you back again for one of these calls.

Stuart Butler:  I’d be happy to do that.

John Fogarty:  I’ve heard you talk before about the Fiscal Wake Up Tour and the importance of not only getting the message out but getting the feedback from our members and others throughout the country and this is very helpful for us. 

We haven’t been able to get all of the calls but I encourage anybody who’s still on the line with a question, do send me an e-mail directly or even better, come down to the President’s Club in May and join us in Washington.  That’s May 5th and 6th and you’ll get to speak with brilliant analysts like Stuart and others.  We’ll also get a number of recognizable conservatives like Fred Barns, Mike Barone, Shawn Hannity, and Tom Coburn. 

If you’re able to join us for that, please give us a call at the RSVP hotline.  That’s 202-675-1765 for the President’s Club and in addition to our events going on in Washington, we’ve really been active around the country over the last several months and in fact, we’re gearing up for an even busier summer and spring. 

Here’s just a pace of what’s been going in the last couple of weeks and months.  Dallas/Fort Worth, our Committee there, has been tremendously active.  They hosted recently a dinner with former Attorney General, Ed Meese and then a luncheon the next week with former Oklahoma Congressman, Ernest Istook.  Both are distinguished fellows at Heritage.  Later this month, the Dallas Committee is planning on hosting a major luncheon event featuring Charles Krauthammer, FOX News contributor.  The Committee has already over 700 people RSVP for that lecture. 

 Then in May, Heritage Vice President for Foreign Policy, Kim Holmes will be in Dallas for a special luncheon just for President Club’s Members in the area and he’s going to address the topic of his latest book which is “Liberty’s Best Hope: American Leadership for the 21st Century.”  Kim was just in Omaha where the Committee there hosted a book reception and event for him just last week and several dozen of our Heritage Members and in fact, new friends joined us for that. 

And then, in Colorado Springs, our new Colorado Committee heard from Vice President for Government Relations, Mike Franc, at a dinner event last week and they’re looking forward to hosting Steve Forbes in Denver for a major address on the economy, as Stuart mentioned, in July.  In fact, as Stuart mentioned, Forbes is going to be speaking along with our Heritage analysts on the entitlements reform initiative in four other Committees – again, New York, Tucson, Atlanta and Minneapolis. 

And six weeks from now, the Southern California Committee for Heritage is going to host four seminars over the course of three days on health policy and promoting free market reforms in California.  I hope some of you on the West Coast can join us for that.  Invitations are forthcoming.  So as you can tell a number of activities going on both in Washington and around the country, I encourage you to check out myheritage.org, our members’ Web site.  Again, myheritage.org for more details on these events and our nationally syndicated, “What Would Reagan Do?” talk radio campaign which Sean Hannity and Laura Ingraham are featuring daily. 

So that’s all the time we’ve had for today.  Thanks again to each of you for joining and for your support.  Please keep it up and keep up all of your good work as real true champions of freedom.  Thanks again.  We look forward to seeing you and hearing from you next time and have a great day.  Goodbye, now.