Washington Notes from last week

(1/9/2005)

Spent two days in Washington last week meeting with people I trust in the Administration and congress. Here are a few of the things I learned:

Don't expect a kinder, gentler President Bush in his second term. He is going all out for tort reform, private social security accounts, and tax reform. Not a good idea to bet against him.

Tort Reform: A dumb name for an important problem. Lawsuits are out of control. The President wants to change that, as he told a room full of doctors and nurses in Madison County, Illinois yesterday. Why Madison County? Because it is the Blue Light Special of legal jurisdictions. Lawyers from all 50 states have filed class action suits in tiny Madison County, where the judge has never meet a lawsuit he didn't like.

Anyone who runs a business or a professional practice knows this is a huge problem, but don't expect the proposed remedy--moving jurisdiction from local to federal courts--to make it go away. To make that happen we need a law that makes the suing party pay if they lose the case.

Social Security Reform: Gonna happen. We are going to see private social security accounts this year. This will be very positive for both stock and bond markets. But it will take all the political bullets the President has to make it happen. Expect a huge campaign against his plan in the press.

But it will happen. Why? Because social security reform is the only thing that will allow the people who are in or near retirement today to keep getting their checks. And because young workers don't believe the current system will pay them anything anyway. They are right. People are going to have to save their own money.

Most interesting thing about private accounts? 140 million workers and their families will have to learn how to invest their own money.

Tax Reform: The big talk with be about major reforms, like a flat tax or a national sales tax. Not gonna happen.

President Bush will succeed in making his tax cuts permanent. This is very important for small businesses who pay 80% of taxes collected at the top rate. Also have my fingers crossed for action on repealing the death tax, fixing the Alternative Minimum Tax, fewer tax rates, and a further cut in the dividend tax rate. Have to admit I'm skeptical on seeing tax simplification. Americans spent $100 billion last year having our taxes prepared, not counting the 3 billion hours (that's longer than the extended edition of Lord of the Rings) we spent ourselves filling out the forms. Every time Congress adds a page to the Federal Tax code, the cash register rings for lawyers and accountants across the country. They have lots of friends in Congress.

Together, these reforms could do a lot to reduce costs and improve the competitivness of American businesses. In case you haven't looked over your shoulder recently at the global economy; they're gaining on us.

Technology and Telecom: Can't end without mentioning the dog that didn't bark. Nobody in the adminstration is talking about our eroding position in technology and telecom network speed. Nobody in Congress either. They are both more worried about the politics of telecom reform than with investment and growth.

That's a problem, because service companies make up 85% of our economy and services travel the global markets at the speed of light over fiber optic networks. This is the source of future productivity growth. As the head of a congressional committee staff told me last week, we have to get this one right.

It will take action to make things happen. My bet is we will have a new boss at the FCC by April, and that the new chairman will do a better job working with both the White House and Congress. That Congress backs away from a full rewrite of the 96 Telecom Act, opting instead for a piecemeal approach. That Hollywood interests will have too much influence on intellectual property issues this year. And that we get some but not all of the things we need to kick-start tech and telecom capital spending.

Education: This is our most pressing problem and the one getting the least attention. This week the Department of Education released its new National Education Technology Plan. The same week the Fordham Foundation released The State of State Math Standards 2005, and The State of State English Standards 2005. Taken together, these reports are a chilling indictment of our performance in educating our children.

Technology can help by providing better instruction at lower cost than currently available. But only if we build it. Students in remote villages in India can study engineering today using video and audio images from a dedicated education satellite at very low cost. When they have mastered the material, they take examinations to qualify for receiving advanced degrees.

We need to stop talking about technology and start making it available to the kids so they can learn the things that will allow them to compete. Two ideas to make that happen. First, make the changes in law and regulations to unleash a flood of capital spending in high-speed communications networks. Second, wrest control of the accreditation process out of the hands of the existing institutions and the NEA, who have incentives to keep the cost of education high, and dramatically reduce the barriers to technology-based alternatives to the monolithic education system. Then allow parents and children to choose these alternatives to the current system, which would force schools to change to compete for students.

Iraq Elections: There will be elections in Iraq this month; boycotts be damned. Got to start somewhere. Too many outsiders meddling in Iraqi politics to wait for things to quiet down.