An All-Investor Nation
Time to transform Social Security into a wealth-creating vehicle.

By Larry Kudlow

Imagine if every worker in the United States had the opportunity to become an investor. Well, that dream has a shot at reality.

In his 2004 State of the Union address President Bush suggested that workers be given the ability to redirect a portion of their payroll taxes into individual retirement accounts. That was a big statement. It means there’s now a legitimate chance of transforming Social Security from a financially bankrupt system into a source of real ownership and prosperity for all Americans.

Many Americans are investors, but not all. According to the Federal Reserve, 31.6 percent of households owned stock either directly or indirectly in 1989. By 2001 that number was 51.9 percent.

Since the Reagan presidency the country has made great strides toward democratizing capitalism by reducing marginal tax rates, deregulating the financial-services industry, and creating savings vehicles like IRAs and 401(k)s. Bush’s latest proposal to create Lifetime Savings Accounts is another step in this right direction.

That said, the greatest impediment to saving, investing, creating wealth, and retiring prosperously is still the payroll tax — which is presently 12.4 percent. Each payday workers see half of that go to today’s retirees as well as many government programs. This depletes household savings and diminishes wealth, leaving too many Americans dependant on the government for retirement income.

When discussing even the idea of personal retirement accounts skeptics always point to the volatility of the stock market. What they fail to realize is that Social Security is a riskier scheme than the market will ever be. The government can at any time raise taxes or cut benefits. Moreover, workers born after 1960 are expected to receive a real rate of return on their payroll-tax contributions of less than 2 percent. Alan Greenspan stated this in 1999; his estimate was likely generous.

This measly rate of return (which is actually negative for African-Americans, a group with high mortality rates) is not a fair deal for retirees — today or in the future. Even workers who put their money in standard government-insured savings accounts will earn higher rates of return than what the current Social Security system can provide.

But there’s an alternative. According to a study by the chief actuary of the Social Security Administration, a worker with a large personal retirement account can expect a return that’s 60 percent greater than what’s promised under the current system. As a Cato Institute study has shown, even during the worst twenty-year period for stocks, 1929 to 1948, the market’s average rate of return was 3.36 percent — a better return than Social Security promises today.

Dissenters also point to the collapse of Enron as further evidence the stock market is a “risky scheme.” To the contrary, the Dow Jones closed at 9,736 the day after Enron’s bankruptcy was announced in December 2001. Today it hovers above 10,400. Investors, who account for two out of three of all voters, have demonstrated by perseverance amid short-term shocks that they know the market is an immense source of long-run wealth. The investor class can vouch for the common sense of personal retirement accounts.

It’s interesting that many who adamantly oppose personal retirement accounts already have their personal pensions in the stock market. In fact, state and local governments have been investing pension money in private stocks and bonds for generations. Members of Congress and other federal workers also have the option to invest in private markets. Why can’t ordinary people have this opportunity?

The truth is they should. Individual retirement accounts are not a risk, but an historic opportunity to increase prosperity for all.

The question remains “How?” — but the Alliance for Retirement Prosperity has an excellent answer. This group — led by former congressman and HUD Secretary Jack Kemp, former House Majority Leader Dick Armey, and former Social Security Commissioner Dorcas Hardy — is devoted to enacting legislation that will enable all Americans to invest at least half of their payroll taxes in personal retirement accounts.

Under their scheme, the government, in effect, becomes the plan sponsor, putting the appropriate funds on the table and guaranteeing something akin to a death benefit should individuals lose money over forty years. In the unlikely event that market performance falls below promised Social Security benefits, government fills in the difference. In the likelier scenario that investment-market performance exceeds Social Security returns, investors pocket the gain.

This plan — vacant of draconian tax increases or benefit cuts — is on the money. Today there’s a small window of opportunity for transforming Social Security into a vehicle that creates wealth and retirement prosperity for individuals, households, and communities. All Americans can have the chance to realize the American Dream if every American becomes an investor and every worker an owner.

— Larry Kudlow, NRO's Economics Editor, is CEO of Kudlow & Co. and host with Jim Cramer of CNBC's Kudlow & Cramer.


Santorum Beats Conservatives

Toomey lost to the Republican party, president and all.

By Timothy P. Carney

FOGELSVILLE, PA. — Pat Toomey's campaign was a model of hard work and honesty, but he ended it with a lie. In his concession speech before a tearful crowd in the Holiday Inn, Toomey began by speaking of the ideas of freedom, limited government, and traditional values. "These ideas," he said, "are at the heart of the Republican party. These ideas are what the Republican party is about."

If the Republican party had these ideas at its core, Pat Toomey would be the nominee for U.S. Senate.

That the GOP is at essence a conservative institution is a common misperception, one shared by Lehigh Valley farmer Arland Schantz. Schantz is kept busy working his farm not far from Toomey's hometown of Zionsville, but he took time off Monday night to attend a Toomey rally. Schantz is a conservative and a free trader, and he's sick of having a Republican senator who "acts like a Democrat" as he puts it.

Schantz is an ardent Bush supporter and backer of Senator Rick Santorum. I asked Schantz about Santorum's and Bush's endorsement of Specter, and Schantz said it was political necessity. "They have to endorse the incumbent," he said, echoing the explanation of everyone else in that room.

Then Schantz winked and went on about Bush and Santorum. "We know what they really want, deep down inside." Schantz was one of a handful of Toomey backers who sincerely believed that Santorum on Tuesday after campaigning for Specter was going to close the curtain behind him in the election booth and pull the lever for Toomey. Similarly, these Toomey fans said Bush needs Toomey in the Senate to advance his agenda.

As I spoke with Schantz, president of "Farmers for Toomey," farmers in central Pennsylvania were receiving automated phone calls from the Specter campaign. The calls had the voice of President Bush, endorsing Specter.

Canvassing voters on Tuesday leaving polling places in Lower Paxton Township and Newberry Township, almost all of the Specter voters cited Santorum's and Bush's endorsements as the reason for their votes.

One dentist in Lower Paxton calls himself a conservative and a pro-lifer, but Bush's relentless campaigning made the dentist think Bush needed Specter if he was going to win the November election. This reasoning is faulty, but local media parroted it, and it pervaded the state enough to push Specter over the top.

Conservatives such as Schantz believe Bush and Santorum backed Specter reluctantly. But this ignores the facts. Bush visited Pennsylvania with Specter many times, endorsing Specter not only for reelection, but also for Judiciary chairman. Bush came to Pittsburgh again eight days ago for a fundraiser and said, "I'm here to say it as plainly as I can: Arlen Specter is the right man for the Senate."

There can be no doubt about it: Bush and Santorum won this election for Arlen Specter, and that is exactly what they meant to do.

The question is why?

Contrary to the common explanation, this move by Bush and Santorum was not part of long-term, complex pragmatic move to advance the conservative cause. It was, however, enlightened self-interest.

This race had been billed as a battle between the conservatives and the liberals within the Republican party. That characterization ignores the glaring facts of Santorum and Bush.

This was instead a battle between the establishment and the grassroots. Local media described Specter defending the Keystone GOP's tradition as a moderate Republican state. That more describes the leaders of the party in Harrisburg than it does the voters throughout that state's 67 counties.

To hold on to power, the party heads had to scare the conservatives throughout the state. A vote for Toomey, they said, is not only a vote for Joe Hoeffel and thus for Tom Daschle, it is also a vote for John Kerry. These lines are lies, but with that much supposedly on the line, it's no wonder so many conservatives held their noses and voted for Specter.

And one State Republican Committee candidate described her vote for the incumbent exactly that way, with her head turned away and her fingers pinching her nose.

Toomey's campaign had legions of motivated young conservatives volunteering — the college Republicans from schools throughout the state, and young Capitol Hill staffers up from Washington, D.C.

But Arlen Specter had something far more powerful on his side. He had the machine on working for him. He was able to pour $5 million into a get-out-the-vote effort in the final 72 hours, and drive up turnout in the moderate white-bread suburbs of Montgomery County. Specter had George Soros and well-heeled Main Street Republicans teaming up with the National Republican Senatorial Committee for him at the last minute.

The party was not trying to advance Specter's liberal policies. The party was doing what the party exists to do: protect its own. Throwing Bob Smith overboard in 2002 was easy. Smith had done something far worse than sink a GOP judicial nominee, derail a tax cut, or vote to fund abortion. Smith had left the party for a few weeks.

Tom Fleig of Harrisburg voted for Pat Toomey Tuesday. He told me he did it "to send President Bush a message." The Medicare Prescription Drug Entitlement is a costly fraud. Don't think of appointing another Anthony Kennedy to the bench. Forget about amnesty.

That's not a message Bush wanted to hear. Nor is it one Rick Santorum, the Senate Republican Conference head, wants to deal with. Now they don't have to worry about Pat Toomey rocking the boat for the next six months — or the next six years.

But in his conscience, Rick Santorum has a new burden to bear. For every vote Specter casts to keep abortion legal, for every dollar Specter adds to a spending bill or subtracts from a tax cut, Americans can blame Santorum.

Pat Toomey didn't lose to liberal Arlen Specter. Toomey lost to the entire Republican party. That Republican victory was at the cost of the conservative cause.

— Timothy P. Carney is a reporter for the Evans-Novak Political Report.



Tomorrow marks the day many of us political dorks on the conservative side have been looking forward to for quite some time. Tomorrow marks D-Day, Election Day in Pennsylvania. Lefty Liberal Commie Pinko, Snarlin’ Arlen Specter goes up against Superstar Conservative Pat Toomey.

John J Miller from the National Review penned the best piece so far about the reasons Arlen Specter is THE WORST REPUBLICAN SENATOR…Not only is the piece incredibly well-argued, it is incredibly well-written.

It comes down to this: Is the Republican Party going to stand for something more than an “R” after someone’s name – or are they going to be different from the Democrats, and actually support an ideology, a belief in (at the very least) lower taxes, smaller government, a strong national defense, and individual responsibility?

It’s not a case (like with Arnold – where some actually tried to make the case he was a conservative) where the argument in favor or Specter is that he really is a conservative. Even Specter’s people concede he is not. Their only arguments are (a)his seniority brings home lots of pork to Pennsylvania, and (b)he can win in November – keeping the Senate in Republican hands.

The first part of that, they are right about – Arlen is KING PORKER.

But that second part is pure nonsense. Arlen BARELY held on to win in his last time up to bat, eeking out a win by a measly 3 points to a nobody opponent. Conversely, Pat Toomey has pulled off convincing victories in each of his 3 elections – IN A SEAT THAT WAS DRAWN FOR DEMOCRATS! That’s right, Toomey’s seat is not a safe Republican seat – it is a heavily unionized Democrat district that the DNCC has time and again tried to get back, each time unsuccessfully.

Not being from PA, and not having pork as an issue – the scariest reason, and the #1 reason Arlen has got to go – and has got to go now, is that he in set to become Chairman of the Senate Judiciary Chairman should he be reelected. This, the man who stopped Judge Bork from becoming Supreme Court Justice Bork – is set to become the one-man traffic cop of all judges nationwide. I pray that doesn’t come to pass. Just imagine how much ammo the Democrats will have when even the Republican Chairman of the Judiciary Committee calls a nominee “too conservative.” YIKES!

I think Toomey – along with the help of the Club for Growth - has done a great job of informing voters just how bad a vote Specter is. Not being in the state, and not seeing the dollars put into airing each of their ads, I can only hope and assume that they’ve equally made the case why Pat is a good alternative to Specter. If so, I think we conservatives could be in for a great day tomorrow.

One of the problems that always arises from having your Party in office is that partisanship trumps principles. Tomorrow, if Pat Toomey can pull off this win – conservatives can take a strong stand against that trend.

Lastly, Steve Moore easily wins the “best line of the day” award for this quip in today’s National Review Online. “Polls show that more than 1/3rd of self-professed conservatives in Pennsylvania are leaning toward voting for Arlen Specter. This is like an oak tree voting for a chainsaw.”

Let’s hope those oak trees have a last second change of heart!



Giago scraps Senate race, backs Daschle
David Kranz
Argus Leader

Tim Giago has decided to end his independent candidacy for the U.S. Senate and throw his support to Democratic incumbent Tom Daschle.

Giago, publisher of the Lakota Journal, met with Daschle at a Rapid City restaurant Saturday and ironed out differences.

"I told him I have accomplished what I set out to do, get the important Indian issues on the table," Giago said. "We shook hands and he gave me his word of honor that he would actively pursue and is already pursuing the things we talked about."

Daschle, running for a fourth term in the Senate, will face Republican challenger John Thune in the Nov. 2 election.

"I will be campaigning for him, go anywhere he wants me to go," Giago said.

One of the requests of Daschle was attendance at an August meeting in the Black Hills to discuss Native American issues with tribal leaders.

"I believe we need an open dialogue to discuss these problems and come up with solutions," Giago said.

Daschle responded to Giago's decision during a Washington, D.C., press conference.

"I've admired - respected - Tim Giago a great deal," Daschle said. "He has been a leader, a journalist, an advocate for Native American issues that I think has made an extraordinary impact not only in South Dakota but around the country, and I look forward to working with him and I think that for a lot of reasons this has been a very positive development."

Thune's campaign heralded Giago's entry into the race as a significant development, but Dick Wadhams, Thune's campaign manager, said he is not disappointed by his exit.

"Even with his departure, that discontent persists. You can see that from John's response on the reservation," Wadhams said.

The Native American concerns expressed to Thune are what Wadhams characterizes as "a reflection on the failure of federal policies on the reservation."

He said Daschle is the embodiment of that situation.

"That is why you have a young, dynamic activist such as Bruce Whalen and a high-profile person such as Russell Means openly supporting John Thune. You can't ignore the significance of that kind of support," Wadhams said.

Giago initiated the meeting between the two candidates, said Dan Pfeiffer, Daschle's communications director.

"It is obviously very gratifying that Tim Giago believes in Senator Daschle and is willing to work with him on issues like health care, economic development and sovereignty," Pfeiffer said. "Those are some of the many issues they talked about."

Continuing to work on those issues and joining the Black Hills meeting was the extent of Daschle's agreement with Giago, Pfeiffer said.

Pfeiffer said Daschle has long been out front promoting Native American issues and this complements that work.

Giago has been critical of Daschle for his opposition to turning over some Black Hills land to the Native Americans and for his siding with former Gov. Bill Janklow on land mitigation issues.

That led him to announce a primary bid against Daschle earlier this year. But Giago ended that campaign and opted for the general election because he wanted a broader forum for the discussion.

The shift in the campaign landscape helps Daschle, said Bob Burns, political science professor at South Dakota State University.

"On the agreement they may have reached, it appears that Senator Daschle is willing to use his office to create a forum for statewide discussion of those issues important to the Native American population," Burns said.

"He doesn't seem to have committed himself to work for the return of the Black Hills. That door seems to have been closed. But he is interested in creating a forum for open discussion."

Giago and Daschle have not discussed all of the talking points that will be part of future discussions, but Burns said some subjects are inevitable.

"Indian Health Service, a host of social issues challenging the Indian population and then education issues," he said. "There are certainly many and it's important that they be addressed."


Laffer Lines
Be discerning when reading explanations of the supply-side’s landmark curve.

By Thomas E. Nugent

Ever since Time magazine selected supply-side economist Arthur Laffer as one of the hundred greatest minds of the 20th century, economists, authors, and media commentators have attempted to define supply-side economics and the Laffer curve. As with any second-hand explanation of an “idea,” there are often distortions and misunderstandings. So, to be sure the record is straight on the origin and meaning of the Laffer curve, here’s the inside scoop.

At a dinner in 1974, Dr. Arthur Laffer met with Donald Rumsfeld, the current secretary of Defense, and Jude Wanniski, a journalist for the Wall Street Journal. The purpose of the meeting was to discuss President Ford’s proposal to increase taxes in order to stop inflation. [I remember President Ford’s economic summit at that time and even have the memento given out — a little red WIN button that stood for “Whip Inflation Now.”] During dinner at the Washington Hotel restaurant, Laffer sketched the now-famous Laffer curve on a napkin to illustrate his concept of the relationship between tax rates and tax revenues. Wanniski described that meeting and what he first termed the Laffer curve in an article for The Public Interest.

The Laffer curve is a unique pedagogical device that captures the important role of incentives in a free economy. The application of the curve to the structure of the tax system allows for a visual representation of what happens when taxpayers respond to disincentives to pay taxes: Tax revenues fall when tax rates are high.

Using the example of taxes, the act of lowering or raising tax rates has two revenue effects: the arithmetic effect and the economic effect. The arithmetic (or static) effect is obvious: When you raise tax rates, you get more tax revenue. The economic or dynamic effect recognizes that, at certain high levels of taxation, people will not work, save, or invest. In the extreme, a zero tax rate produces no revenues and a 100 percent tax rate is likely to produce minimal revenues.

The principal of the Laffer curve is present in virtually every business decision where the overall objective is to maximize profitability through the determination of setting prices consistent with the ability and desire of the consumer to buy. Setting prices too high produces a shortfall in sales and revenues while setting prices too low produces a shortfall in profits.

The parabolic shape of the Laffer curve demonstrates that there is no one exact point or tax rate that changes incentives. However, there are at least two tax rates that will produce the same tax revenue (points A and A* in the graph below). At lower tax rates there is little resistance to paying tax, but as tax rates rise, each of us reaches a point where we take actions that will reduce our exposure to these higher tax rates.

As mentioned earlier, some notions of the Laffer curve, which is at the heart of supply-side economics, are a little different. For instance, Chris Rohmann, author of A World Of Ideas — a so-called dictionary of “important theories, concepts, beliefs, and thinkers” — describes the Laffer curve in terms of a pot belly. “As the ‘belly’ (tax rate) grows, revenues increase; but when the tax rate gets too high, people are discouraged from making the extra effort to generate more wealth to spend, save, or invest and are more inclined to use legal loopholes or false claims to avoid paying taxes, so the ‘belly’ of tax revenue begins to diminish.”

The “belly” (or outline of the Laffer curve) doesn’t get bigger. There are points along the outline of the “belly” that represent a mix of tax rates and tax revenues. There are two distinct partitions of the Laffer curve; one is the normal range and one is the prohibitive range. When in the prohibitive range, higher tax rates produce lower — not higher — tax revenues. The relationship between these two variables is a plot point on the curve and is not the shrinkage of the “belly.”

Continuing with the above as an example of people getting the Laffer curve wrong, Rohmann revisits history and appears to have acquired limited knowledge of the effects of the Laffer curve on tax revenues in the 1980s. He writes,

The Laffer curve was used to justify large tax cuts in the early 1980s, when President Reagan’s economic advisors were convinced that tax rates had passed the optimal level. But tax revenues fell rather than increasing, and this failure to achieve the predicted outcome contributed to a perception of the Laffer curve as simplistic and unreliable.
According to a number of subsequent studies, tax revenues collected from individuals in the higher tax brackets expanded dramatically in the 1980s while tax revenues from people in the normal zone fell, as was to be expected. According to the Internal Revenue Service, the share of total federal income taxes paid by just the top 1 percent of taxpayers (ranked by adjusted gross income) rose from 19 percent to 33 percent between 1980 and 1997. The top 25 percent of taxpayers increased their share from 73 percent to 82 percent.

The effective tax rate on those with high incomes is substantially lower today than it was when their share of total income taxes was much smaller. In 1980, the effective tax rate on the top 1 percent of taxpayers was 34.5 percent. In 1990, the rate fell to 23 percent. In other words, lower effective tax rates appear to have produced higher tax revenues.

According to the Treasury Department, marginal tax rates on the wealthy are down dramatically. In 1981, the top federal income-tax rate was 70 percent. Today it is 35 percent. Looked at in another way, the retention rate — the rate of income that individuals keep after taxes — went from 30 percent to 65 percent, an increase of well-over 100 percent since 1981.

Rohmann goes on to identify what he calls a “corollary hypothesis,” the so called trickle-down theory, where greater spending and investing power unleashed by tax cuts for those at the top of the economic ladder eventually “trickles down” in the form of increased employment, benefiting all of society. The term “trickle down” is a derogatory term invented by detractors of supply-side ideas. An appropriate description of the effects of supply-side policies was captured by John F. Kennedy in reference to the importance of economic growth in driving up the well-being of all Americans. Said JFK, “a rising tide raises all boats.”

As you can see, some perceptions of the Laffer curve are simplistic and unreliable. But the truth is that the curve represents a simple explanation of the way the world works, simple in the sense that people respond to incentives, high tax rates being one potential disincentive to work, save, and invest. “Unreliable,” however, is an obviously inaccurate characterization of incentive-based economics by those who would adhere to other, more complicated economic theories.



The Fruits of Appeasement
Victor Davis Hanson

Imagine a different November 4, 1979, in Teheran. Shortly after Iranian terrorists storm the American embassy and take some 90 American hostages, President Jimmy Carter announces that Islamic fundamentalism is not a legitimate response to the excess of the Shah but a new and dangerous fascism that threatens all that liberal society holds dear. And then he issues an ultimatum to Teheran’s leaders: Release the captives or face a devastating military response.
When that demand is not met, instead of freezing Iran’s assets, stopping the importation of its oil, or seeking support at the UN, Carter orders an immediate blockade of the country, followed by promises to bomb, first, all of its major military assets, and then its main government buildings and residences of its ruling mullocracy. The Ayatollah Khomeini may well have called his bluff; we may well have tragically lost the hostages (151 fewer American lives than the Iranian-backed Hezbollah would take four years later in a single day in Lebanon). And there may well have been the sort of chaos in Teheran that we now witness in Baghdad. But we would have seen it all in 1979—and not in 2001, after almost a quarter-century of continuous Middle East terrorism, culminating in the mass murder of 3,000 Americans and the leveling of the World Trade Center.

The twentieth century should have taught the citizens of liberal democracies the catastrophic consequences of placating tyrants. British and French restraint over the occupation of the Rhineland, the Anschluss, the absorption of the Czech Sudetenland, and the incorporation of Bohemia and Moravia did not win gratitude but rather Hitler’s contempt for their weakness. Fifty million dead, the Holocaust, and the near destruction of European civilization were the wages of “appeasement”—a term that early-1930s liberals proudly embraced as far more enlightened than the old idea of “deterrence” and “military readiness.”

So too did Western excuses for the Russians’ violation of guarantees of free elections in postwar Eastern Europe, China, and Southeast Asia only embolden the Soviet Union. What eventually contained Stalinism was the Truman Doctrine, NATO, and nuclear deterrence—not the United Nations—and what destroyed its legacy was Ronald Reagan’s assertiveness, not Jimmy Carter’s accommodation or Richard Nixon’s détente.

As long ago as the fourth century b.c., Demosthenes warned how complacency and self-delusion among an affluent and free Athenian people allowed a Macedonian thug like Philip II to end some four centuries of Greek liberty—and in a mere 20 years of creeping aggrandizement down the Greek peninsula. Thereafter, these historical lessons should have been clear to citizens of any liberal society: we must neither presume that comfort and security are our birthrights and are guaranteed without constant sacrifice and vigilance, nor expect that peoples outside the purview of bourgeois liberalism share our commitment to reason, tolerance, and enlightened self-interest.

Most important, military deterrence and the willingness to use force against evil in its infancy usually end up, in the terrible arithmetic of war, saving more lives than they cost. All this can be a hard lesson to relearn each generation, especially now that we contend with the sirens of the mall, Oprah, and latte. Our affluence and leisure are as antithetical to the use of force as rural life and relative poverty once were catalysts for muscular action. The age-old lure of appeasement—perhaps they will cease with this latest concession, perhaps we provoked our enemies, perhaps demonstrations of our future good intentions will win their approval—was never more evident than in the recent Spanish elections, when an affluent European electorate, reeling from the horrific terrorist attack of 3/11, swept from power the pro-U.S. center-right government on the grounds that the mass murders were more the fault of the United States for dragging Spain into the effort to remove fascists and implant democracy in Iraq than of the primordial al-Qaidist culprits, who long ago promised the Western and Christian Iberians ruin for the Crusades and the Reconquista.

What went wrong with the West—and with the United States in particular—when not just the classical but especially the recent antecedents to September 11, from the Iranian hostage-taking to the attack on the USS Cole, were so clear? Though Americans in an election year, legitimately concerned about our war dead, may now be divided over the Iraqi occupation, polls nevertheless show a surprising consensus that the many precursors to the World Trade Center and Pentagon bombings were acts of war, not police matters. Roll the tape backward from the USS Cole in 2000, through the bombing of the Khobar Towers and the U.S. embassies in East Africa in 1998, the first World Trade Center bombing in 1993, the destruction of the American embassy and annex in Beirut in 1983, the mass murder of 241 U.S. Marine peacekeepers asleep in their Lebanese barracks that same year, and assorted kidnappings and gruesome murders of American citizens and diplomats (including TWA Flight 800, Pan Am 103, William R. Higgins, Leon Klinghoffer, Robert Dean Stethem, and CIA operative William Francis Buckley), until we arrive at the Iranian hostage-taking of November 1979: that debacle is where we first saw the strange brew of Islamic fascism, autocracy, and Middle East state terrorism—and failed to grasp its menace, condemn it, and go to war against it.

That lapse, worth meditating upon in this 25th anniversary year of Khomeinism, then set the precedent that such aggression against the United States was better adjudicated as a matter of law than settled by war. Criminals were to be understood, not punished; and we, not our enemies, were at fault for our past behavior. Whether Carter’s impotence sprang from his deep-seated moral distrust of using American power unilaterally or from real remorse over past American actions in the cold war or even from his innate pessimism about the military capability of the United States mattered little to the hostage takers in Teheran, who for some 444 days humiliated the United States through a variety of public demands for changes in U.S. foreign policy, the return of the exiled Shah, and reparations.

But if we know how we failed to respond in the last three decades, do we yet grasp why we were so afraid to act decisively at these earlier junctures, which might have stopped the chain of events that would lead to the al-Qaida terrorist acts of September 11? Our failure was never due to a lack of the necessary wealth or military resources, but rather to a deeply ingrained assumption that we should not retaliate—a hesitancy al-Qaida perceives and plays upon.
Along that sad succession of provocations, we can look back and see particularly critical turning points that reflected this now-institutionalized state policy of worrying more about what the enemy was going to do to us than we to him, to paraphrase Grant’s dictum: not hammering back after the murder of the marines in Lebanon for fear of ending up like the Israelis in a Lebanese quagmire; not going to Baghdad in 1991 because of paranoia that the “coalition” would collapse and we would polarize the Arabs; pulling abruptly out of Somalia once pictures of American bodies dragged through the streets of Mogadishu were broadcast around the world; or turning down offers in 1995 from Sudan to place Usama bin Ladin into our custody, for fear that U.S. diplomats or citizens might be murdered abroad.

Throughout this tragic quarter-century of appeasement, our response usually consisted of a stern lecture by a Jimmy Carter, Ronald Reagan, George H. W. Bush, or Bill Clinton about “never giving in to terrorist blackmail” and “not negotiating with terrorists.” Even Ronald Reagan’s saber-rattling “You can run but not hide” did not preclude trading arms to the Iranian terrorists or abruptly abandoning Lebanon after the horrific Hezbollah attack.

Sometimes a half-baked failed rescue mission, or a battleship salvo, cruise missile, or air strike followed—but always accompanied by a weeklong debate by conservatives over “exit strategies” and “mission creep,” while liberals fretted about “consultations with our allies and the United Nations.” And remember: these pathetic military responses were the hawkish actions that earned us the resignation of a furious Cyrus Vance, the abrogation of overflight rights by concerned “allies” such as France, and a national debate about what we did to cause such animosity in the first place.
Our enemies and Middle Eastern “friends” alike sneered at our self-flagellation. In 1991, at great risk, the United States freed Kuwait from Iraq and ended its status as the 19th satrapy of Saddam Hussein—only to watch the restored kingdom ethnically cleanse over a third of a million Palestinians. But after the murder of 3,000 Americans in 2001, Kuwaitis, in a February 2002 Gallup poll (and while they lobbied OPEC to reduce output and jack up prices), revealed an overwhelming distaste for Americans—indeed the highest levels of anti-Americanism in the Arab world. And these ethnic cleansers of Palestinians cited America’s purportedly unfair treatment of the Palestinians (recipients of accumulated billions in American aid) as a prime cause of their dislike of us.

In the face of such visceral anti-Americanism, the problem may not be real differences over the West Bank, much less that “we are not getting the message out”; rather, in the decade since 1991 the Middle East saw us as a great power that neither could nor would use its strength to advance its ideas—that lacked even the intellectual confidence to argue for our civilization before the likes of a tenth-century monarchy. The autocratic Arab world neither respects nor fears a democratic United States, because it rightly senses that we often talk in principled terms but rarely are willing to invest the time, blood, and treasure to match such rhetoric with concrete action. That’s why it is crucial for us to stay in Iraq to finish the reconstruction and cement the achievement of our three-week victory over Saddam.

It is easy to cite post-Vietnam guilt and shame as the likely culprit for our paralysis. After all, Jimmy Carter came in when memories of capsizing boat people and of American helicopters lifting swarms of panicked diplomats off the roof of the Saigon embassy were fresh. In 1980, he exited in greater shame: his effusive protestations that Soviet communism wasn’t something to fear all that much won him the Soviet invasion of Afghanistan, while his heralded “human rights” campaign was answered by the Ortegas in Nicaragua and the creation of a murderous theocracy in Iran. Yet perhaps President Carter was not taking the American people anywhere they didn’t want to go. After over a decade of prior social unrest and national humiliation in Vietnam, many Americans believed that the United States either could not or should not do much about things beyond its shores.

As time wore on and the nightmare of Vietnam began to fade, fear of the Soviet Union kept us from crushing the terrorists who killed our diplomats and blew up our citizens. These were no idle fears, given the Russians’ record of butchering 30 million of their own, stationing 300 divisions on Europe’s borders, and pointing 7,000 nukes at the United States. And fear of their malevolence made eminent sense in the volatile Middle East, where the Russians made direct threats to the Israelis in both the 1967 and 1973 wars, when the Syrian, Egyptian, and Iraqi militaries—trained, supplied, and advised by Russians—were on the verge of annihilation. Russian support for Nasser’s Pan-Arabism and for Baathism in Iraq and Syria rightly worried cold warriors, who sensed that the Soviets had their geopolitical eyes on Middle East oil and a stranglehold over Persian Gulf commerce.

Indeed, these twin pillars of the old American Middle East policy—worry over oil and fear of communists—reigned for nearly half a century, between 1945 and 1991. Such realism, however understandable, was counterproductive in the long run, since our tacit support for odious anti-communist governments in Saudi Arabia, the Gulf States, and North Africa did not address the failure of such autocracies to provide prosperity and hope for exploding populations of increasingly poor and angry citizens. We kept Russians out of the oil fields and ensured safe exports of petroleum to Europe, Japan, and the United States—but at what proved to be the steep price of allowing awful regimes to deflect popular discontent against us.

Nor was realpolitik always effective. Such illegitimate Arab regimes as the Saudi royal family initiated several oil embargoes, after all. And meanwhile, such a policy did not deter the Soviets from busily selling high-tech weaponry to Libya, Syria, and Iraq, while the KGB helped to train and fund almost every Arab terrorist group. And indeed, immediately after the 1991 Iraqi takeover of Kuwait, U.S. intelligence officers discovered that Soviet-trained Abu Nidal, Abu Abbas, and Abu Ibrahim had flocked to Baghdad on the invitation of the Baathist Saddam Hussein: though the Soviet Union did not interrupt Western petroleum commerce, its well-supplied surrogates did their fair share of murdering.
Neither thirst for petroleum nor fear of communists, then, adequately explains our inaction for most of the tumultuous late 1980s and 1990s, when groups like Hezbollah and al-Qaida came on to the world scene. Gorbachev’s tottering empire had little inclination to object too strenuously when the United States hit Libya in 1986, recall, and thanks to the growing diversity and fungibility of the global oil supply, we haven’t had a full-fledged Arab embargo since 1979.
Instead, the primary cause for our surprising indifference to the events leading up to September 11 lies within ourselves. Westerners always have had a propensity for complacency because of our wealth and freedom; and Americans in particular have enjoyed a comfortable isolation in being separated from the rest of the world by two oceans. Yet during the last four presidential administrations, laxity about danger on the horizon seems to have become more ingrained than in the days when a more robust United States sought to thwart communist intrusion into Arabia, Asia, and Africa.

Americans never viewed terrorist outlaw states with the suspicion they once had toward Soviet communism; they put little pressure on their leaders to crack down on Middle Eastern autocracy and theocracy as a threat to security. At first this indifference was understandable, given the stealthy nature of our enemies and the post–cold war relief that, having toppled the Soviet Union and freed millions in Eastern Europe, we might be at the end of history. Even the bloodcurdling anti-American shouts from the Beirut street did not seem as scary as a procession of intercontinental missiles and tanks on an average May Day parade in Moscow.

Hezbollah, al-Qaida, and the PLO were more like fleas on a sleeping dog: bothersome rather than lethal; to be flicked away occasionally rather than systematically eradicated. Few paid attention to Usama bin Ladin’s infamous February 1998 fatwa: “The rule to kill Americans and their allies—civilians and military—is a sacred duty for any Muslim.” Those who noticed thought it just impotent craziness, akin to Sartre’s fatuous quip during the Vietnam War that he wished for a nuclear strike against the United States to end its imperial aspirations. No one thought that a raving maniac in an Afghan cave could kill more Americans in a single day than the planes of the Japanese imperial fleet off Pearl Harbor.
But still, how did things as odious to liberal sensibilities as Pan-Arabism, Islamic fundamentalism, and Middle Eastern dictatorship—which squashed dissent, mocked religious tolerance, and treated women as chattel—become reinvented into “alternate discourses” deserving a sympathetic pass from the righteous anger of the United States when Americans were murdered overseas? Was it that spokesmen for terrorist regimes mimicked the American Left—in everything from dress, vocabulary, and appearances on the lecture circuit—and so packaged their extremism in a manner palatable to Americans? Why, after all, were Americans patient with remonstrations from University of Virginia alumna Hanan Ashrawi, rather than asking precisely how such a wealthy Christian PLO apparatchik really felt about the Palestinian Authority’s endemic corruption, the spendthrift Parisian Mrs. Arafat, the terrorists around Arafat himself, the spate of “honor killings” of women in the West Bank, the censorship of the Palestinian press, suicide murdering by Arafat affiliates, and the lynching of suspects by Palestinian police?

Rather than springing from realpolitik, sloth, or fear of oil cutoffs, much of our appeasement of Middle Eastern terrorists derived from a new sort of anti-Americanism that thrived in the growing therapeutic society of the 1980s and 1990s. Though the abrupt collapse of communism was a dilemma for the Left, it opened as many doors as it shut. To be sure, after the fall of the Berlin Wall, few Marxists could argue for a state-controlled economy or mouth the old romance about a workers’ paradise—not with scenes of East German families crammed into smoking clunkers lumbering over potholed roads, like American pioneers of old on their way west. But if the creed of the socialist republics was impossible to take seriously in either economic or political terms, such a collapse of doctrinaire statism did not discredit the gospel of forced egalitarianism and resentment against prosperous capitalists. Far from it.

If Marx receded from economics departments, his spirit reemerged among our intelligentsia in the novel guises of post-structuralism, new historicism, multiculturalism, and all the other dogmas whose fundamental tenet was that white male capitalists had systematically oppressed women, minorities, and Third World people in countless insidious ways. The font of that collective oppression, both at home and abroad, was the rich, corporate, Republican, and white United States.
The fall of the Soviet Union enhanced these newer post-colonial and liberation fields of study by immunizing their promulgators from charges of fellow-traveling or being dupes of Russian expansionism. Communism’s demise likewise freed these trendy ideologies from having to offer some wooden, unworkable Marxist alternative to the West; thus they could happily remain entirely critical, sarcastic, and cynical without any obligation to suggest something better, as witness the nihilist signs at recent protest marches proclaiming: “I Love Iraq, Bomb Texas.”

From writers like Arunhati Roy and Michel Foucault (who anointed Khomeini “a kind of mystic saint” who would usher in a new “political spirituality” that would “transfigure” the world) and from old standbys like Frantz Fanon and Jean-Paul Sartre (“to shoot down a European is to kill two birds with one stone, to destroy an oppressor and the man he oppresses at the same time”), there filtered down a vague notion that the United States and the West in general were responsible for Third World misery in ways that transcended the dull old class struggle. Endemic racism and the legacy of colonialism, the oppressive multinational corporation and the humiliation and erosion of indigenous culture brought on by globalization and a smug, self-important cultural condescension—all this and more explained poverty and despair, whether in Damascus, Teheran, or Beirut.

There was victim status for everybody, from gender, race, and class at home to colonialism, imperialism, and hegemony abroad. Anyone could play in these “area studies” that cobbled together the barrio, the West Bank, and the “freedom fighter” into some sloppy global union of the oppressed—a far hipper enterprise than rehashing Das Kapital or listening to a six-hour harangue from Fidel.

Of course, pampered Western intellectuals since Diderot have always dreamed up a “noble savage,” who lived in harmony with nature precisely because of his distance from the corruption of Western civilization. But now this fuzzy romanticism had an updated, political edge: the bearded killer and wild-eyed savage were not merely better than we because they lived apart in a pre-modern landscape. No: they had a right to strike back and kill modernizing Westerners who had intruded into and disrupted their better world—whether Jews on Temple Mount, women in Westernized dress in Teheran, Christian missionaries in Kabul, capitalist profiteers in Islamabad, whiskey-drinking oilmen in Riyadh, or miniskirted tourists in Cairo.

An Ayatollah Khomeini who turned back the clock on female emancipation in Iran, who murdered non-Muslims, and who refashioned Iranian state policy to hunt down, torture, and kill liberals nevertheless seemed to liberal Western eyes as preferable to the Shah—a Western-supported anti-communist, after all, who was engaged in the messy, often corrupt task of bringing Iran from the tenth to the twentieth century, down the arduous, dangerous path that, as in Taiwan or South Korea, might eventually lead to a consensual, capitalist society like our own.

Yet in the new world of utopian multiculturalism and knee-jerk anti-Americanism, in which a Noam Chomsky could proclaim Khomeini’s gulag to be “independent nationalism,” reasoned argument was futile. Indeed, how could critical debate arise for those “committed to social change,” when no universal standards were to be applied to those outside the West? Thanks to the doctrine of cultural relativism, “oppressed” peoples either could not be judged by our biased and “constructed” values (“false universals,” in Edward Said’s infamous term) or were seen as more pristine than ourselves, uncorrupted by the evils of Western capitalism.

Who were we to gainsay Khomeini’s butchery and oppression? We had no way of understanding the nuances of his new liberationist and “nationalist” Islam. Now back in the hands of indigenous peoples, Iran might offer the world an alternate path, a different “discourse” about how to organize a society that emphasized native values (of some sort) over mere profit.

So at precisely the time of these increasingly frequent terrorist attacks, the silly gospel of multiculturalism insisted that Westerners have neither earned the right to censure others, nor do they possess the intellectual tools to make judgments about the relative value of different cultures. And if the initial wave of multiculturalist relativism among the elites—coupled with the age-old romantic forbearance for Third World roguery—explained tolerance for early unpunished attacks on Americans, its spread to our popular culture only encouraged more.

This nonjudgmentalism—essentially a form of nihilism—deemed everything from Sudanese female circumcision to honor killings on the West Bank merely “different” rather than odious. Anyone who has taught freshmen at a state university can sense the fuzzy thinking of our undergraduates: most come to us prepped in high schools not to make “value judgments” about “other” peoples who are often “victims” of American “oppression.” Thus, before female-hating psychopath Mohamed Atta piloted a jet into the World Trade Center, neither Western intellectuals nor their students would have taken him to task for what he said or condemned him as hypocritical for his parasitical existence on Western society. Instead, without logic but with plenty of romance, they would more likely have excused him as a victim of globalization or of the biases of American foreign policy. They would have deconstructed Atta’s promotion of anti-Semitic, misogynist, Western-hating thought, as well as his conspiracies with Third World criminals, as anything but a danger and a pathology to be remedied by deportation or incarceration.

It was not for nothing that on November 17, 1979—less than two weeks after the militants stormed the American embassy in Teheran—the Ayatollah Khomeini ordered the release of 13 female and black hostages, singling them out as part of the brotherhood of those oppressed by the United States and cloaking his ongoing slaughter of Iranian opponents and attacks on United States sovereignty in a self-righteous anti-Americanism. Twenty-five years later, during the anti-war protests of last spring, a group called “Act Now to Stop War and End Racism” sang the same foolish chorus in its call for demonstrations: “Members of the Muslim Community, Antiwar Activists, Latin-American Solidarity Groups and People From All Over the United States Unite to Say: ‘We Are All Palestinians!’ ”

The new cult of romantic victimhood became gospel in most Middle East departments in American universities. Except for the courageous Bernard Lewis, Daniel Pipes, and Fouad Ajami, few scholars offered any analysis that might confirm more astute Americans in their vague sense that in the Middle East, political autocracy, statism, tribalism, anti-intellectualism, and gender apartheid accounted for poverty and failure. And if few wished to take on Islamofascism in the 1990s—indeed, Steven Emerson’s chilling 1994 documentary Jihad in America set off a storm of protest from U.S. Muslim-rights groups and prompted death threats to the producer—almost no one but Samuel Huntington dared even to broach the taboo subject that there might be elements within doctrinaire Islam itself that could easily lead to intolerance and violence and were therefore at the root of any “clash of civilizations.”

Instead, most experts explained why violent fanatics might have some half-legitimate grievance behind their deadly harvest each year of a few Americans in the wrong place at the wrong time. These experts cautioned that, instead of bombing and shooting killers abroad who otherwise would eventually reach us at home, Americans should take care not to disturb Iranian terrorists during Ramadan—rather than to remember that Muslims attacked Israel precisely during that holy period. Instead of condemning Wahhabis for the fascists that they were, we were instead apprised that such holy men of the desert and tent provided a rapidly changing and often Western-corrupted Saudi Arabia with a vital tether to the stability of its romantic nomadic past. Rather than recognizing that Yasser Arafat’s Tunisia-based Fatah organization was a crime syndicate, expert opinion persuaded us to empower it as an indigenous liberation movement on the West Bank—only to destroy nearly two decades’ worth of steady Palestinian economic improvement.

Neither oil-concerned Republicans nor multicultural Democrats were ready to expose the corrupt American relationship with Saudi Arabia. No country is more culpable than that kingdom in funding extremist madrassas and subsidizing terror, or more antithetical to liberal American values from free speech to religious tolerance. But Saudi propagandists learned from the Palestinians the value of constructing their own victimhood as a long-oppressed colonial people. Call a Saudi fundamentalist mullah a fascist, and you can be sure you’ll be tarred as an Islamophobe.

Even when Middle Easterners regularly blew us up, the Clinton administration, unwilling to challenge the new myth of Muslim victimhood, transformed Middle Eastern terrorists bent on destroying America into wayward individual criminals who did not spring from a pathological culture. Thus, Clinton treated the first World Trade Center bombing as only a criminal justice matter—which of course allowed the United States to avoid confronting the issue and taking on the messy and increasingly unpopular business the Bush administration has been engaged in since September 11. Clinton dispatched FBI agents, not soldiers, to Yemen and Saudi Arabia after the attacks on the USS Cole and the Khobar Towers. Yasser Arafat, responsible in the 1970s for the murder of a U.S. diplomat in the Sudan, turned out to be the most frequent foreign visitor to the Clinton Oval Office.

If the Clintonian brand of appeasement reflected both a deep-seated tolerance for Middle Eastern extremism and a reluctance to wake comfortable Americans up to the danger of a looming war, he was not the only one naive about the threat of Islamic fascism. Especially culpable was the Democratic Party at large, whose post-Vietnam foreign policy could not sanction the use of American armed force to protect national interests but only to accomplish purely humanitarian ends as in the interventions in Haiti, Somalia, and Bosnia.

Indeed, the recent Democratic primaries reveal just how far this disturbing trend has evolved: the foreign-policy positions of John Kerry and Howard Dean on Iraq and the Middle East were far closer to those of extremists like Al Sharpton and Dennis Kucinich than to current American policy under George W. Bush. Indeed, buffoons or conspiracy theorists like Noam Chomsky, Michael Moore, and Al Franken often turned up on the same stage as would-be presidents. When Moore, while endorsing Wesley Clark, called an American president at a time of war a “deserter,” when the mendacious Sharpton lectured his smiling fellow candidates on the Bush administration’s “lies” about Iraq, and when Al Gore labeled the president’s action in Iraq a “betrayal” of America, the surrender of the mainstream Democrats to the sirens of extremism was complete. Again, past decorum and moderation go out the window when the pretext is saving indigenous peoples from American oppression.

The consensus for appeasement that led to September 11, albeit suppressed for nearly two years by outrage over the murder of 3,000, has reemerged in criticism over the ongoing reconstruction of Iraq and George Bush’s prosecution of the War on Terror.

The tired voices that predicted a litany of horrors in October 2001—the impassable peaks of Afghanistan, millions of refugees, endemic starvation, revolution in the Arab street, and violations of Ramadan—now complain, incorrectly, that 150,000 looted art treasures were the cost of guarding the Iraqi oil ministry, that Halliburton pipelines and refineries were the sole reason to remove Saddam Hussein, and that Christian fundamentalists and fifth-columnist neoconservatives have fomented a senseless revenge plot against Muslims and Arabs. Whether they complained before March 2003 that America faced death and ruin against Saddam’s Republican Guard, or two months later that in bullying fashion we had walked over a suddenly impotent enemy, or three months later still that, through incompetence, we were taking casualties and failing to get the power back on, leftist critics’ only constant was their predictable dislike of America.

Military historians might argue that, given the enormity of our task in Iraq—liberating 26 million from a tyrant and implanting democracy in the region—the tragic loss of more than 500 Americans in a year’s war and peace was a remarkable sign of our care and expertise in minimizing deaths. Diplomats might argue that our past efforts at humanitarian reconstruction, with some idealistic commitment to consensual government, have a far better track record in Germany, Japan, Korea, Panama, and Serbia than our strategy of exiting Germany after World War I, of leaving Iraq to Saddam after 1991, of abandoning Afghanistan to the Taliban once the Russians were stopped, of skipping out from Haiti or of fleeing Somalia. Realist students of arms control might argue that the recent confessions of Pakistan’s nuclear roguery, the surrender of the Libyan arsenal, and the invitation of the UN inspectors into Iran were the dividends of resolute American action in Iraq. Colonel Khadafy surely came clean not because of Jimmy Carter’s peace missions, UN resolutions, or EU diplomats.

But don’t expect any sober discussion of these contentions from the Left. Their gloom and doom about Iraq arises precisely from the anti-Americanism and romanticization of the Third World that once led to our appeasement and now seeks its return. When John Kerry talks of mysterious prominent Europeans he has met (but whose names he will not divulge) who, he says, pray for his election in hopes of ending George Bush’s Iraqi nightmare, perhaps he has in mind people like the Chamberlainesque European Commission president Romano Prodi, who said in the wake of the recent mass murder in Spain: “Clearly, the conflict with the terrorists is not resolved with force alone.” Perhaps he has in mind, also, the Spanish electorate, which believes it can find security from al-Qaida terrorism by refuting all its past support for America’s role in the Middle East. But of course if the terrorists understand that, in lieu of resolve, they will find such appeasement a mere 48 hours after a terrorist attack, then all previously resolute Western democracies—Italy, Poland, Britain, and the United States—should expect the terrorists to murder their citizens on the election eve in hopes of achieving just such a Spanish-style capitulation.

In contrast, George W. Bush, impervious to such self-deception, has, in a mere two and a half years, reversed the perilous course of a quarter-century. Since September 11, he has removed the Taliban and Saddam Hussein, begun to challenge the Middle East through support for consensual government, isolated Yasser Arafat, pressured the Europeans on everything from anti-Semitism to their largesse to Hamas, removed American troops from Saudi Arabia, shut down fascistic Islamic “charities,” scattered al-Qaida, turned Pakistan from a de facto foe to a scrutinized neutral, rounded up terrorists in the United States, pressured Libya, Iran, and Pakistan to come clean on clandestine nuclear cheating, so far avoided another September 11—and promises that he is not nearly done yet. If the Spanish example presages further terrorist attacks on European democracies at election time, at least Mr. Bush has made it clear that America—alone if need be—will neither appease nor ignore such killers but in fact finish the terrible war that they started.
As Jimmy Carter also proved in November 1979, one man really can make a difference.



Is Arnold Going Wobbly?
April 12, 2004; Page A18
WSJ Editorial

Aides to Arnold Schwarzenegger insist that his opposition to raising taxes in California remains as firm as ever. But in recent comments to the press, the Governor sounds an awful lot like a politician hedging his bets.

"At this point I hope we don't have to go there," he told the Sacramento Bee, adding, "That doesn't mean that later on someday you cannot go there." In a separate interview with the Los Angeles Times, he said that closing the state's budget gap without tax hikes might be "wishful thinking." And when asked whether his administration is conducting polls to feel out voters on tax hikes, the Governor becomes evasive.

The left coast press corps isn't known for its kindness to Republican pols, so maybe part of this can be dismissed as fishing for news where there is none. That said, those statements don't sound like the same person who repeatedly insisted on the campaign trail last year that nothing short of an earthquake or a terrorist attack would get him to raise taxes.

We miss the old Arnold, the one who railed against Sacramento's tax-and-spend culture en route to a convincing recall victory in October. As he stares down the task at hand -- a $14 billion deficit and mid-year budget negotiations with the liberal Legislature that created it -- the Governor might want to keep in mind why he was elected in the first place.

California's economic recovery on whole has lagged behind the rest of the country's. Personal income growth in the third quarter of last year -- the most recent data available -- was 31st in the nation, according to the Bureau of Economic Analysis. And the Golden State's 6.2% unemployment rate continues to exceed the 5.7% national average.

But there are also signs of a turnaround. California's manufacturing sector remains the largest in the U.S. The state is a big exporter to the rest of the country, and sales, particularly in the technology sector, are rising as evidenced by higher stock valuations. California is also seeing a return of the IPO market, which has been all but dormant for the past three years. And an increasing number of private equity funds are being developed for investment in start-ups.

Tax hikes are a good way to retard these trends. Businesses, especially in a period when start-ups are being considered, can always choose to locate in tax-friendlier states. A permanent tax increase to finance a permanently higher level of government spending would only make it more difficult for California to create new businesses and keep old ones from fleeing.

Arnold's approval ratings are currently in the stratosphere, and the temptation is to use some of this ample political capital to give in to Democrats and close the budget gap with higher levies. But if California voters wanted the problem solved that way, they would have left former Governor Gray Davis in office. It's pretty clear that Mr. Schwarzenegger was hired to cut spending, not raise taxes.

Just last month voters reiterated their aversion to more tax-and-spend solutions by approving a balanced-budget requirement and soundly rejecting a ballot measure that would have made it easier for lawmakers to raise taxes. If the Governor can take the necessary steps to get state finances under control without raising taxes, he'll be rewarded with even more political capital, which in turn could be used to take on other pressing problems in California, such as the anti-jobs workers compensation system and a steeply progressive tax code that results in wild revenue swings.

To equivocate on taxes now would irk voters who want politicians to keep their word. And it would reward state lawmakers who are trying to make permanent the exorbitant spending levels put in place in the 1990s with windfalls from stock options and capital gains. The message from voters seems to be that they've had their fill of Sacramento-styled "progressivism." There was a time when Arnold shared their sentiments. We hope he still does.



This note came from Pat Toomey's campaign manager. Though it IS just a generic message sent to all on their mail list, the important point is that TOOMEY HAS THE MOMENTUM! In past weeks' he's gone from a managable 12 point defecit, to within 6 points. He clearly has the BIG MO. Let's just hope he's got another card up his sleeve and that he can carry this thru election day!!!

Dear Friends,

The results of the newest SURVEY USA poll, released on April 6, show that among those Republicans who are certain to vote on April 27, Congressman Toomey has cut liberal Arlen Specter's lead to six points (46% to 40%)! You may recall that the SURVEY USA poll taken back in mid-March showed that Congressman Toomey had cut Specter's lead from 23 points to 9 points. So these latest poll results showing continued, strong momentum come as excellent news for the Toomey campaign!

Senator Specter's campaign knows it is in trouble, thus it is running dishonest negative advertisements. Remember, for the truth on Congressman Toomey's record and positions, as well as the latest campaign news and on to www.pattoomey.org. As the campaign comes down the home-stretch, Congressman Toomey will speak at a number of grassroots rallies around PA. Below is a schedule for all the planned rallies. Please help get the word out!

To Victory!

Mark Dion
Campaign Manager