Chapter 9 was originally written for the first edition of this book. It set forth a series of financial reforms necessary to prevent another financial crisis. While some of those reforms were adopted, many were not. Moreover, some of those that were adopted led to unintended consequences such as negative interest rates and market illiquidity. Clearly, additional reforms are needed to address continuing problems such as pro-cyclical monetary policy, ineffective or non-existent fiscal policy, an unproductive tax code, shrunken military spending in the face of rising geopolitical threats, a broken immigration system, and a variety of other areas.

The United States is at a tipping point as it faces a global economy far more leveraged than on the eve of the financial crisis and a geopolitical landscape far more fractured and unstable than at any time since the end of the Cold War. America has a choice: It can continue to pursue failing policies or adopt new ones that will actually have a chance of solving the challenges staring it in the face.

The single most important economic problem facing the world—and the single greatest obstacle to future prosperity and stability—is the $200 trillion of debt that is crushing economic growth and sapping the world’s financial and intellectual capital. We are spending money we don’t have. The world economy cannot continue borrowing from the future without triggering another financial crisis in the near future.

As noted in Chapter 1, history teaches us that periods of economic stress and volatility lead to social instability. In a globalized and interconnected world, we must acknowledge the threat posed by runaway debt and deal with it before it hands humanity a mortal blow.

If policymakers continue to treat the symptoms of too much debt by creating more debt, which is all they’ve done since the financial crisis, there is no hope of setting the United States and the world on a more productive and stable course. Nothing less than radical policy changes are required to accomplish this. If it is not self-evident by now, it should be—current fiscal, monetary policies are responsible for drowning us in obligations that we can never hope to meet. We owe it to ourselves and our children to have the courage to change course.

The following are some additional policy changes that are necessary to achieve economic and geopolitical sustainability and recovery in the years ahead.

Monetary Policy

In the previous chapter, I called for countercyclical monetary policy on the part of the Federal Reserve. Such a policy would replace the pro-cyclical policies central bankers have pursued for decades that created the series of booms and busts that plagued the economy in the decades leading to the financial crisis.

It is increasingly apparent, however, that such a change is beyond the intellectual capabilities of our central bankers. The current Federal Reserve Open Market Committee is incapable of making such a change in policy because it is dominated by academic economists with little knowledge of how the real economy functions.

In order to change course, we need to place our monetary policy in the hands of people who understand how the real world works. The Federal Reserve Act should be amended to require that at least 50 percent of the members of the Federal Open Market Committee have worked in the private sector (excluding a university or academic position) for at least 10 years prior to their appointment. Individuals with experience in the real economy are far better qualified to understand how real people respond to economic incentives than academic economists who depend on abstract models. Until we end the tyranny of the professors, we have little hope of benefiting from a monetary policy that accords with reality.

In a 2014 speech to The Cato Institute, the brilliant financial writer and trenchant Federal Reserve critic James Grant warned:

My generation gave former tenured economics professors discretionary authority to fabricate money and to fix interest rates. We put the cart before the horse of enterprise. We entertained the fantasy that high asset prices made for prosperity, rather than the other way around. We actually worked to foster inflation, which we called “price stability” (this was on the eve of the hyperinflation of 2017). We seem to have miscalculated.¹

Miscalculated indeed. After maintaining short-term interest rates at zero for seven years while purchasing trillions of dollars of government debt in the years after the financial crisis, the Federal Reserve failed to accomplish virtually any of its policy goals. The economy remained mired in sluggish growth while debt increased to unsustainable levels. Rather than acknowledge failure and change course, however, the denizens of the Eccles Building continued to cling to their broken models and persist in error.

Over the past three decades, the body of academic economists entrusted with guiding the U.S. economy has steered it from one crisis to another. Since the end of the financial crisis, the Yellen-led Fed attempted to calibrate an exit from zero interest rate policy while trying to meet its dual mandate to maintain both low inflation and maximum employment. It did so by trying to day-trade a $20 trillion economy while relying on inflation statistics that have no relationship to real-world prices and confusing structural and cyclical employment trends. The odds of successfully exiting from years of crisis era policies while misinterpreting key data are virtually zero—actually, they are less than zero and guarantee another financial crisis in the near future.

Markets began to awaken to that reality in January 2016.

By leaving interest rates at zero for years and repurchasing trillions of dollars of government bonds, the Fed distorted and drained liquidity from the credit markets, destroyed the ability of markets to send accurate pricing signals, and facilitated massive misallocations of capital throughout the economy. While the Fed admittedly operated in a fiscal policy vacuum, its policies only made matters worse.

In addition to misinterpreting structural changes in the workforce as cyclical in nature, the members of the Federal Open Market Committee kept interest rates low based on the belief that low rates would incentivize consumers and businesses to increase their spending and borrowing. Instead, economic actors did the opposite because they interpreted emergency policy measures as a signal to act cautiously. While low interest rates may provide stimulus during a recession or a crisis, there was little chance they would do so in a post-crisis U.S. economy. Behavioral economists understand this; unfortunately, none of them influence monetary policy.

Based on the work of Atif Mian and Amir Sufi in their landmark book House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again,² we know that the huge build-up in household debt in the mid-2000s led to a collapse in household spending during the 2009–2010 recession. Between 2000 and 2007, household debt in the United States doubled to $14 trillion and the household debt-to-income ratio skyrocketed from 1.4x to 2.1x. This was the greatest increase in household debt since the Great Depression.

Both the Great Depression of the 1930s and the Great Recession of 2009–2010 were preceded by collapses in household spending. Mian’s and Sufi’s work as well as that of other economists³ demonstrate that large increases in private debt burdens tend to precede severe recessions. Mian and Sufi conclude that, “Economic disasters are almost always preceded by a large increase in household debt. In fact, the correlation is so robust that it as close to an empirical law as it gets in macroeconomics. Further, large increases in household debt and economic disaster seem to be linked by collapses in spending.”⁴ And sure enough, between the second half of 2008 and early 2013, household debt in the U.S. fell by a cumulative $940 billion as U.S. consumers severely retrenched.

The economy experienced what economist Richard Koo has termed in the context of Japan’s economy a “balance sheet recession.”⁵ In a balance sheet recession, corporations, and individuals focus on repairing their balance sheets by minimizing their debts rather than on spending or borrowing money. In the post-crisis period, this meant they didn’t respond to low interest rates by behaving as the Fed’s economists expected; instead they spent and borrowed less and focused on saving. The significant drop in U.S. household debt and a slow recovery in lending after the financial crisis should have told the Federal Reserve that consumers and businesses were following the script written by Mr. Koo.

Unfortunately, this behavior didn’t fit with the Federal Reserve’s preconceived understanding of how the economy works, so it continued to pursue zero interest rate and quantitative easing policies far too long. The credit crunch that hit the U.S. economy in the years after the crisis is typical of what happens in a balance sheet recession. U.S. consumers bolstered their balance sheets; having been burned by the financial crisis, they were reluctant to tempt fate again by increasing their borrowings even with interest rates at record lows.⁶

In contrast to the sharp post-crisis reduction in household debt (which actually began to reverse in the first quarter of 2013), the U.S. corporate sector saw record levels of borrowing since 2009. To a significant extent, the corporate sector has increased its debt load in response to incentives that reward corporate executives based on the performance of their companies’ stock prices. This led U.S. corporations to repurchase more than $2 trillion of their own stock since 2009, much of it with cheap borrowed money thanks to the Federal Reserve’s zero interest rate policy.

As a result, in 2014, U.S. net corporate debt was actually 40 percent higher than it was in 2007 according to the work of Société Générale economist Andrew Lapthorne.⁷ These higher debt levels were disguised by the low cost of borrowing in the post-crisis years. In addition to funding an unprecedented volume of debt buybacks, much of this debt was incurred to refinance higher cost debt that could not be paid off due to insufficient corporate free cash flow. Despite a raging bull market and high corporate cash balances, net corporate debt was higher than ever in 2014, a fact that was totally ignored by investors.

Both consumer and corporate behavior demonstrate that economic actors react to incentives; economic behavior is dynamic, not static. Unfortunately, monetary policy operates on precisely the opposite assumption—that behavior is static rather than dynamic. The Federal Reserve consistently fails to take into account that consumers and businesses alter their behavior in response to the incentives created by monetary policy and other factors in the economic environment.⁸ Low interest rates signal that the economy is struggling; zero interest rates—particularly zero interest rates for a prolonged period—signaled that the economy was in serious trouble. While lowering rates to zero was appropriate at the height of the financial crisis, keeping them at zero for seven more years signaled that the economy was struggling and that economic actors should take less risk, not more risk as central bankers theorized they would.

Among other consequences, low rates robbed savers of hundreds of billions of dollars of interest earnings on their capital and rendered it much more difficult for institutions such as pension funds to meet their future funding obligations. Unfortunately, institutions’ future liabilities are still rising at high single digit rates, leaving them increasingly (and terminally) underfunded. Low rates that were theoretically designed to make it easier to borrow money also made it much harder to save money or generate decent investment returns. As a result, they had outlived their usefulness as a tool of monetary policy and should have been put to bed much earlier.

Federal Reserve policy would be more effective if the Federal Reserve’s Open Market Committee included more members who understand how the real economy works. Fed apologists will no doubt object to imposing any requirements on the selection of Federal Reserve governors, but it is obvious that the current regime creates consistently sub-optimal policy. The public statements of numerous Fed officials in recent years demonstrate beyond a shadow of a doubt that they lack an adequate understanding of how the economy actually functions. There is more than sufficient evidence to demonstrate that economic actors have not responded to their policy initiatives as their models projected. Rather than persist in error, we should have the courage to admit that the current system is failing and change it.

Fiscal Policy and the Federal Deficit

Fiscal policy has long been a farce as Congress spends money like a bunch of drunken sailors. Both parties share the blame for failing the American people. The Obama years set a new standard for fecklessness when, largely due to the efforts of Senate Majority Leader Harry Reid, the Senate did not pass a working budget during the first six years of the Obama presidency. The stimulus bill passed early in Mr. Obama’s first term to deal with the financial crisis failed to fuel economic growth because it was badly designed and failed to direct capital to areas that could increase the productive capacity of the economy.

For the rest of Mr. Obama’s presidency, fiscal policy was paralyzed by the inability of both parties to work together to govern effectively, resulting in a failure to take any action to address a burgeoning entitlements crisis or an unproductive tax code while allowing military spending to drop in the face of rising global threats. The low point was the budget sequester, which substituted a spending freeze for the exercise of legislative judgment. This governance mess left the Federal Reserve as the only game in town, and it has not been up to the task intellectually or institutionally.

The situation is so bad that many observers are now celebrating the fact that the federal deficit is only half a trillion dollars a year (The Wall Street Journal’s editorial page is particularly guilty of this), suggesting a severe loss of perspective. This reprieve will be short-lived as entitlement spending (including ObamaCare) increases and profits from Fannie Mae and Freddie Mac taper off over the rest of the decade. It is time for Congress to start making responsible decisions about how to spend money again. By the end of the Obama presidency, the federal deficit will be nearly $20 trillion and will have increased over Mr. Obama’s two terms by a cumulative amount greater than all previous presidents combined. To say that the situation is unsustainable is to give understatements a bad name. The following are the areas that will need to be addressed to bring the deficit under control.

Entitlements

While annual federal budget deficits have dropped significantly from their trillion dollar-plus levels in 2009–2012, they are still running at half-a-trillion dollars a year and will soon increase sharply again unless entitlement spending is reformed (see Figure 10.1). In fiscal 2013, entitlement spending constituted roughly 57 percent of federal spending ($2.0 billion of $3.5 billion of outlays). Entitlements include the major health care programs, Medicare and Medicaid, to which we will start adding the full cost of ObamaCare after its architect Mr. Obama leaves office in early 2017, Social Security, and a variety of income security, government retirement, and veterans benefit programs.⁹

The government projects that the Medicare Trust Fund will run dry in 2030.¹⁰ The Social Security trust fund is scheduled to remain solvent a little longer, through 2034.¹¹ Social Security’s disability insurance program was slated to run out of money in 2016 largely due to a highly suspicious increase in the number of disabled Americans since President Obama took office and lowered eligibility standards. Shortly before publication of this book, however, it was saved by a budget deal that diverts funds from the main Social Security Trust (which holds not money but just IOUs from the government) to keep the disability fund solvent. In the words of the non-partisan Congressional Budget Office: “Throughout the next decade … an aging population, rising health care costs per person, and an increasing number of recipients of exchange subsidies and Medicaid benefits attributable to the Affordable Care Act would push up spending for some of the largest federal programs if current laws governing those programs remain unchanged.”¹²

The CBO is currently projecting deficits of between $400 billion and $500 billion for the 2016–2020 period based on a series of assumptions that are likely to prove optimistic. They don’t provide, for example, for the possibility of a sharp spike in interest rates; a mere 1 percent increase in interest rates would increase the deficit by $180 billion within a relatively short period of time since the average duration of U.S. debt is relatively short. They also don’t provide for any increase in spending due to natural disasters or unanticipated military needs, both of which could easily occur.

There are no easy answers, and certainly no politically painless ways, to deal with entitlements. But that’s why strong leadership is required to explain why the choice is between manageable pain today and unmanageable pain tomorrow. There are some obvious steps that should be taken immediately to start limiting entitlement spending before it consumes the federal budget in future years as Baby Boomers retire and the number of workers supporting these programs declines.

First, all entitlements should be means-tested; the era of sending Social Security checks or paying for routine medical checkups and procedures for people with annual incomes over $200,000 should come to an end immediately.

Second, the eligibility age for all entitlements should be raised to 70 to reflect rising life expectancies for Americans born after 1965.

Third, new workers should be offered alternatives to Social Security so that they can start saving for their own retirements early.

Fourth, standards for eligibility for disability payments should be tightened up. The explosion in disability payments since Mr. Obama took office in January 2009 and lowered eligibility requirements has created a culture of dependency and is unsustainable.¹³

The next step is to repeal the Affordable Care Act and replace it with a market-based system. We must disabuse ourselves of the myth that the Affordable Care Act reduced healthcare costs. Like President Obama’s promise that Americans would be able to keep their doctors, the mantra that ObamaCare bends the cost curve is demonstrably false. While the Obama administration claimed that ObamaCare would be revenue neutral or save money, estimates now place the cost at close to $2 trillion (conveniently incurred after Mr. Obama leaves office).

A new entitlement that offers free healthcare to millions of Americans—who have no concern about the cost of services for which they are not paying—is not going to lower costs. It is already apparent from rising healthcare premiums, skyrocketing costs for drugs, and the failure of nine of the 23 insurance co-ops set up under ObamaCare by late 2015 that a new effort is required to deal with reining in medical costs because the ACA failed miserably in this respect.

At this point, the law is providing healthcare to millions of Americans who need it (although as of July 2015 more eligible Americans had turned down coverage under the law than accepted it due to rising premiums and deductibles and more than 30 million Americans remained uninsured) but at the cost of grossly enriching the healthcare and pharmaceutical companies whose support the Obama administration bought off to pass the law. Regardless of the politics, the law is going to have to be fixed or else it will collapse under its own weight.

At some point, the Age of Entitlements is going to come crashing down on the heads of the Americans who voted for them. Americans (especially the young and minorities) are going to have to educate themselves to the fact that voting for politicians that offer them more free entitlements without asking for anything in return is not only a dead end but a profound betrayal of their own interests. This should have already dawned on the people trapped in West Baltimore or South Chicago and countless other failed communities who have been betrayed by 50 years of failed progressive policies. People don’t want hand-outs; they want to be empowered and that requires a government that values their contributions to society. The only way to accomplish this is to demand that recipients of government assistance lead responsible lives and contribute something in return (to the extent they are mentally and physically capable of doing so). Instead, the Obama administration demonstrated a deep disrespect for the very people it purported to be empowering by making it easier for them to depend on the government without demanding that they learn to do more for themselves. The result is a more arthritic and divided nation where the people at the bottom of the socio-economic ladder are deprived of the tools to improve their lives by a government that is crippling rather than empowering them.

Tax Reform

The tax code is the DNA of any economy. There is widespread agreement that the U.S. tax code requires an overhaul but there are many disagreements regarding the details. Nothing less than a complete tax overhaul will place the U.S. economy on a sufficiently productive path to pay its current and future obligations. Some may view the following proposals as radical, but they are necessary. Whether they are feasible depends on whether we can summon the political and moral courage to enact them.

Lower Individual Tax Rates and Tax Ordinary and Capital Gains Equally

• Ordinary income tax rates should be lowered and all individual deductions (with two exceptions) reduced or eliminated. The only tax deductions that should be kept in place are the charitable deduction, which should be capped at 20 percent of income annually, and retirement plan contribution deductions for taxpayers with income below $500,000 per year.
• Taxpayers with higher incomes should be permitted to contribute to these plans but their deductions should be capped.
• Businesses should continue to be able to deduct their ordinary and necessary business expenses (salaries, rent, etc. but not interest— see below) from their income to determine taxable income.
• Individual tax rates (including payroll taxes) should be lowered to 10 percent on all incomes below $100,000 per year, 20 percent on all income below $1,000,000 per year, and 25 percent per year for all income above $1,000,000.

• The lower capital gains tax rate should be eliminated; all income whether ordinary or capital in nature should be taxed at the same rate.

  People who rely on selling their labor are the most heavily penalized by high tax rates and would most directly benefit from lowering them. Inequality is exacerbated by taxing labor at a higher rather than capital because the wealthy are the only ones who are in a position to sell their capital in the first place. If the tax rate for ordinary income were the same as that for capital gains, it would level the playing field between those who earn their living by selling their labor and those who earn their living by selling their capital. The most effective way we can start to reduce income inequality is to stop taxing labor at a significantly higher rate than we tax capital. Furthermore, if the tax rate on ordinary income were lowered, it would increase incentives for businesses to invest.

  Eliminating the capital gains tax would also end the carried interest tax, which taxes labor as capital with no rational policy justification.

  These changes would broaden the tax base and promote tax fairness. Liberals like to argue that the way to promote “fairness” is to raise taxes: that type of thinking is the product of minds that understand little of economics and less about human nature. Lower tax rates benefit everyone but particularly those who aspire to the top of the economic pyramid. Higher tax rates discourage economic activity and encourage people to avoid taxes.

  The government is an inefficient allocator of capital. Higher tax rates reduce the return on capital, create disincentives for investment, and reduce the amount of capital available for investment in productive activities such as technology, education, building new factories and capital goods, and research and development. They also reduce the capital available to invest in raising labor productivity to enhance economic growth and income gains. Leaving more income in the hands of the private sector is the surest pathway toward economic revival.

Eliminate Deductions for Interest on Debt

• One of the biggest flaws in the tax code is that it creates enormous incentives to borrow money. This makes the U.S. government—which means the U.S. taxpayer—a partner in every debt transaction in the economy. Every time someone borrows money, he or she is subsidized by his fellow citizens. Is it any wonder that debt never stops growing? An essential step that must be taken to fix the tax code and strengthen the economy is ending the interest deduction for all debt—and that includes the hallowed home mortgage deduction. Once we start treating equity and debt equally, the foundation of the American economy will strengthen as equity replaces debt in individual and corporate capital structures. An appropriate period to phase-in this change (i.e., five years) should be provided, but we must bite the bullet and recapitalize our economy with equity.

End the Estate Tax

• The estate tax should be eliminated. First, this wealth has already been subject to income tax and taxing it a second time is fundamentally unfair and confiscatory. Second, the wealthy have numerous ways to avoid the estate tax including leaving their wealth to a foundation that can carry out their philanthropic goals rather than allowing the government to take half their wealth. More of the wealthy, especially technology entrepreneurs, are likely to pursue this path and play an active role in directing their philanthropy rather than let the government take their money. The estate tax collects a relatively modest amount of revenue but causes an enormous amount of resentment among successful people who spend their lives building businesses and legacies for their families. Rather than promoting tax fairness by confiscating the life’s work of the most accomplished people in society, the estate tax is a socialist relic that is easily avoided and accomplishes little. It should be given a decent burial and free up financial and intellectual capital for more productive uses.

Eliminate Retirement Plan Abuses

• In November 2014, the U.S. Government Accountability Office published a Report to the Chairman of the Senate Finance Committee entitled “Individual Retirement Accounts: IRS Could Bolster Enforcement of Multimillion Dollar Accounts, but More Direction from Congress Is Needed.” Widespread abuse of retirement plans by wealthy taxpayers deprives the government of much-needed revenues and should be eliminated. Such abuses include self-dealing and other prohibited transactions. While IRAs and other retirement plans were designed to give ordinary Americans an opportunity to save for retirement, some wealthy Americans are using them to finance their businesses, invest in hedge funds that they manage, and engage in other activities to shelter their income in ways that are both illegal and contrary to the intended purposes of such accounts. Such abuses, like the carried interest tax, further widen the gulf between rich and poor and corrupt the tax system and should be aggressively audited by the IRS. Serious consideration should also be given to limiting deductions to retirement plans for high income taxpayers, as suggested earlier in this section.

Lower Corporate Tax Rates, Stop Taxing Dividends, and Facilitate Repatriation of Foreign Income

• The U.S. corporate tax rate of 35 percent is among the highest in the world; it should be cut in half to 17.5 percent and applied to net income after all reasonable and necessary business expenses. Special tax breaks should be eliminated except where they relate to scientific or medical research. High U.S. corporate tax rates are placing American corporations at a serious competitive disadvantage because they make the United States an undesirable location for corporate headquarters and investment. Rather than criticize U.S. companies for taking advantage of perfectly legal strategies to reduce their tax burdens, Congress should lower these tax burdens and make it more attractive for U.S. companies to remain domiciled and invested in their own country. Corporations respond to incentives, and the U.S. tax code currently incentivizes them to get out of town.

Corporate dividends should no longer be taxed. When a corporation generates one dollar of income today, it is taxed at a 35 percent rate at the corporate level and a second time at a 23.8 percent rate (for taxpayers in the highest tax bracket) plus additional state income tax charges. This means that the federal government takes roughly half of every dollar of corporate earnings through taxation. Of course, few if any corporations pay the full 35 percent rate, so the actual take in many cases is less, but corporate earnings should not be subject to anywhere near this level of taxation.

Taxing corporate earnings twice reduces the amount of capital available for reinvestment while introducing unnecessary complexity into the tax code. It would be one thing if the government were a wise allocator of capital, but it is precisely the opposite because capital is allocated based on political rather than economic considerations. More capital should be left in the hands of the market and less should be delivered into the grasp of the government to misallocate. One way to do that is to give the government only one bite at the apple of corporate profits. Eliminating the taxation of dividends while eliminating the deductibility of interest as recommended above would also render equity financing significantly more attractive on its own terms and relative to debt financing, an important step in promoting an equity-based economy.

The system that taxes U.S. corporations on their world wide income should be modified to prevent abuses such as the shifting of income to shell corporations in low tax jurisdictions. The incentives for corporations to keep trillions of dollars of cash offshore also need to be eliminated. Funds currently held abroad should be repatriated and taxed at 10 percent (with full credits for any taxes paid to foreign jurisdictions on that income) and corporations should be prevented from avoiding taxes by keeping funds offshore. It makes absolutely no sense for corporations like Apple, Inc. and Microsoft Corp. among others to keep tens of billions of dollars offshore simply in order to avoid paying taxes on them in the United States. It makes even less sense for a company like Apple, which was sitting on over $200 billion of cash as of June 30, 2015, to borrow money to return capital to shareholders for the same reason. Policies that lead to such behavior need to end. Special attention should be also paid to creating incentives for U.S. companies to keep their intellectual property inside the United States rather than shifting it to other countries to lower their tax bills. It is hard to conceive of a tax code more poorly designed to encourage corporations to behave in ways that would benefit the U.S. economy.

Like monetary policy, tax policy suffers from the flawed belief that economic actors do not respond to incentives. Tax policy loses the forest for the trees; it focuses on tax rates rather than overall tax revenues. Each time tax rates were lowered, tax revenues increased because economic growth increased. It is common sense that taxpayers will spend less time avoiding taxes if they are required to pay lower rates and if they believe the system is taxing them fairly. If overall corporate tax rates were lower, more revenue would remain in the U.S. and more taxes would be paid here which, after all, is the point of the tax code in the first place.

Raise Sin Taxes

• Taxes should be raised significantly on cigarettes, alcohol, legal gambling and guns. In addition, if marijuana is legalized as it should be, it should be taxed heavily. All of these activities (with the possible exception of marijuana usage) contribute to higher healthcare costs and should be discouraged by the government that ends up paying for much of the damage they cause. The most effective and equitable way to accomplish this is by making those who use these products compensate society directly through higher taxes.

Domestic Policy

There are many areas of domestic policy that have an important bearing on the economy. The following areas are desperately in need of reform in order to promote economic growth in the United States.

Immigration Reform

• We need to enforce our immigration laws and defend our borders. There is something profoundly misguided about an immigration policy that deports highly educated legal immigrants to their home countries after they are allowed to study at an American university but refuses to defend the border to keep out uneducated and impoverished illegal immigrants. Yet that is precisely what U.S. immigration policy does today: It forces foreigners who come to this country to study for advanced degrees (usually in math and science) to return to their home countries while failing to properly police our borders or enforce our laws against illegal immigrants that burden the system. Millions of illegal immigrants remain in this country with impunity while no path is provided to legal status for themselves or their children. This state of suspended animation must end and a path to legal status provided. People who broke the law to come to this country, should not be rewarded with citizenship; legal status is sufficient to protect them and vindicate the rule of law. Immigration is the lifeblood of our economy, but our immigration policy is draining the life out of our economy. Illegal immigrants are straining our educational, healthcare, and law enforcement resources without any prospect of bringing these individuals into the tax base and providing them with a means of becoming fully productive and participating members of society. It is time to address this issue before it consumes more of our resources without giving us anything in return. Further, the policy of sanctuary cities must end; cities should not be permitted to violate federal immigration law with impunity. The Obama administration’s tolerance of sanctuary cities is unacceptable and unlawful.

Antitrust Enforcement

• On July 22, 2015, Dennis K. Berman, The Wall Street Journal’s Finance Editor, tweeted the following: “Competition in America, 2015: 4 airlines, 4 banks, 3 health insurers, 2 operating systems, 2 wireless carriers.” America has seen an unprecedented boom in mergers and acquisitions since the financial crisis that resulted in industries dominated by a much more limited number of large companies. This is true of virtually every industry but is most noteworthy in finance, transportation (particularly airlines), healthcare, energy, and telecommunications. But the truth is that any industry that wanted to merge did so with impunity under the Obama administration; antitrust enforcement has been virtually non-existent since the financial crisis. And on the rare occasion when deals were blocked, like the Comcast/Time Warner merger, it was based on highly questionable market and economic analysis. The argument supporting the boom in mergers is that American companies need to compete in a global world and require greater size and scale to do so. The problem is that more concentration inevitably leaves consumers facing higher prices and employees facing job losses while these transactions enrich shareholders and corporate executives. One of the major policy initiatives that unleashed an enormous merger wave was ObamaCare, which resulted in a series of mergers among health insurers, hospital chains, and pharmaceutical companies that were unopposed by antitrust regulators. While even paranoids have enemies, only the most naïve among us should ignore the obvious fact that these industries were bought off by the Obama administration in exchange for their support of its most highly cherished domestic policy achievement and were allowed to merge at will (while also raising their prices at will). A more highly concentrated economy will be more rigid and less responsive to a rapidly changing global economy. It will also lead to higher prices for consumers (something that is already apparent in higher airline fares and higher healthcare costs) and fewer choices. The next administration needs to restore genuine antitrust enforcement to its list of priorities.

Term Limits/Lobbying Ban

• Until we have term limits, this country will continue to be governed by an ossified and corrupt political class that serves its own interests rather than those of its constituents. Not that long ago, people entered public service in order to serve the public; today they enter public service to serve themselves and pave the way for lucrative private sector careers that would not be available to them without their public service. The spectacle of former government officials monetizing their government officials is destructive to faith in government. In order to put an end to this sorry regime, it is time for a constitutional amendment to change Congressional terms and impose term limits. The terms for members of the House of Representatives should be extended from two to four years with a two-term limitation (eight years in total) and Senate terms should remain at six years and be limited to two terms (12 years in total). Former members of Congress and their staff members should be prohibited from lobbying for a period of ten years after leaving office.

Legal System Reform

Our legal system is broken. It takes too much time and money for litigants to assert their rights because the system is abused by too many parties. The following reforms are urgently needed to improve the economy and the quality of life in this country:

• We should adopt tort reform with the “loser pays” rule to reduce frivolous litigation. The failure of ObamaCare to include tort reform neutered much of the law’s ability to lower healthcare costs. Medical malpractice claims are rife with abuse by ambulance-chasing lawyers of low character and intellect and clog the courts with frivolous claims that force doctors into practicing defensive medicine that imposes enormous and unnecessary costs on society. Tort reform alone would contribute to a significant reduction in healthcare costs and must be adopted immediately.
• The litigation privilege that allows litigants and their attorneys to lie with impunity in order to try to gain a tactical advantage in litigation should be eliminated. There should be no legal right to defame somebody and the legal system should not provide a shield to people who do. Lawyers who engage in such behavior should be disbarred and made personally liable for damages.
• The standards for filing frivolous lawsuits, which clog courts and harm litigants with legitimate grievances, should be tightened and the penalties for filing such lawsuits should be significantly increased against litigants and their attorneys. State bar associations fail miserably to police bad behavior by their members because they are controlled by other attorneys; they are, in a word, an organized fraud that protects lawyers but not the public. Self-policing of the legal profession should be terminated and taken over by the government. Attorneys who routinely violate the rules, abuse the system and cause enormous economic and systemic damage should be disbarred. There are too many attorneys and the legal system is a blight on this country (and I say that as someone with two law degrees from one of the finest law schools in the country).

Substantive Law Reforms

There are also several laws on the books that need to be changed in order to improve the quality of life and the economic trajectory of this country:

• While law abiding citizens have every right to own guns, gun control laws should be tightened to reduce access to guns by the mentally ill and those with criminal records. Further, the sale of automatic weapons that have no use other than killing multiple human beings quickly should be strictly limited. The Second Amendment does not provide a right to carry weapons of mass murder and the American people need to stand up to the bullying of the NRA on this issue. Finally, the so-called “gun show loophole” in the Brady Bill that allows private parties to sell guns without conducting a background check should be closed.
• We should legalize marijuana nationally (and tax it heavily) and stop prosecuting people for marijuana possession. It is absurd that people are allowed to drink alcohol but prohibited from smoking marijuana. To the extent marijuana usage leads to abuse of more dangerous drugs, the same can be said of alcohol. Several states have already moved in this direction and more will likely follow.
• We should eliminate prison sentences for non-violent drug possession (but not drug distribution offenses) where there is strong evidence that the offender does not pose a risk of committing a violent crime in the future and replace them with financial penalties and community service. American prisons do not rehabilitate anybody; sending the genuinely non-violent to prison for the possession of drugs significantly increases the likelihood that they will emerge with a much higher propensity and tolerance for criminal behavior in the future.

A little common sense would go a long way to improving our economy and quality of life. But in order for common sense to overcome special interests and ideology, men and women of good will must rise up and be heard. The political classes are destroying the world. The question you have to ask yourself is whether you are going to remain silent or stand up and be counted for change.