Social Security Is A Pyramid Scheme

San Diego — How many economist/lawyer authors create prose that sparkles, twinkles, zings, has you chuckling? Maybe only one: Solana Beach's Todd G. Buchholz, with degrees from Cambridge and Harvard Law School, whose books, such as New Ideas from Dead Economists, have enlivened discourse in the dreary field, often erroneously called "the dismal science" -- erroneous because economics is about as scientific as backgammon.

Now Buchholz -- whose wife Debby is general manager of La Jolla Playhouse -- has a new book out: Bringing the Jobs Home: How the Left Created the Outsourcing Crisis -- and How We Can Fix It. Whether your politics are left, right, or center, you will find this book thought-provoking. Only Buchholz could write an entertaining book on such a hot-button topic as exporting jobs abroad. The publisher is Sentinel, a unit of the Penguin Group specializing in conservative books.

Even liberals, the targets of Buchholz's invective, should appreciate many of his observations. For instance, in attracting immigrants, we should award points for education and work experience and possibly even impose an intelligence test, writes Buchholz. He labels Social Security what it is: a pyramid scheme headed toward bankruptcy that "is ripping off our children." Hollywood could rake in millions more bucks and create thousands more American jobs if it moderated the sex and violence obsession and wrote scripts that would sell in countries such as China and India. "The entertainment industry is tone-deaf to foreign cultures," he writes.

In many places, the book makes economic sense, but it often doesn't make political sense. It's based on this thesis: "The corporation is established to serve its shareholders and to generate the highest possible return on investment. Rather than tarring and feathering corporate bigwigs, we must tear down the obstacles to a stronger economy." In an interview, Buchholz confirms it: the only constituency of a board of directors is the shareholders. If a company gives money to the local opera or symphony, it should do so "to enhance a brand," or otherwise advance corporate interests, he says.

Unfortunately, it is this mentality -- which is at the heart of job outsourcing -- that plagues capitalism today. Corporate boards give lip service to other constituencies -- say, employees, the community, environmentalists -- but the obsession with a rising stock price has led to several cancers: phony accounting to boost profits, corporate welfare, and thumbing noses at employees and communities when jobs are shipped overseas. The chief executive who successfully pulls off these tricks gets rewarded with ridiculously high pay. (In the 1960s, chief executives made 60 times what the average employee made; now it's nearing 1000 times.) Thus, corporate America has lost the political capital it once had. Buchholz wants to lighten companies' load of taxes, entitlement payments, and other costs that make doing business in the U.S. expensive. But the corporate greed of the past 20 years makes such reforms unlikely (even though, admittedly, corporations did well in this month's national election and maneuvered $136 billion in new tax breaks into law right before the election).

Buchholz devotes many pages to the nation's dysfunctional public-education system. Few can argue the point. But one thing that worsens public education is corporate welfare. Any money that government funnels to corporations does not go to infrastructure and education. When a company wants to build a plant in the U.S., it takes bids: cities offer the company tax breaks, low-interest loans, and other inducements. Dwindling tax returns wallop jeducation. Pretty soon, the schools are so bad that the company can't get good executives to move there. The subsidized company may leave as soon as it legally can -- and sometimes earlier. "I'm against corporate welfare," says Buchholz in the interview, but he thinks it is only a small part of the education problem.

He acknowledges that if the U.S. institutes intelligence and skill requirements on immigrants, there could be a brain drain from other countries. Since foreign countries hold more than 40 percent of our Treasury debt, as well as significant percentages of other U.S. debt and equity, could they get mad and bomb our markets? "These countries have no interest in driving down the prices of assets they hold," says Buchholz, and he has a good point. Besides, several countries, such as India, have found that if some of their brighter people come here, "It has spawned a lot of economic activity back home."

American companies are harmed by oppressive Worker's Compensation laws, and Social Security, Medicare, and other taxes, says Buchholz. U.S. corporations' 40 percent effective tax rate is one-third higher than the rate of most other industrial nations, including France and Germany. Yes, but that's tax rates. According to a study by the General Accounting Office, more than 60 percent of American companies didn't pay taxes in the prosperous years between 1996 and 2000. Buchholz is not aware of that study but sticks by his position, which clearly has some merit. However, he goes too far in defending companies that move their headquarters offshore to dodge U.S. taxes.

But he does have a defensible point when he writes, "The United States sits in the middle of a struggle. We are blessed with entrepreneurs, many of them young and full of swagger, who believe in carpe diem, seize the day. On the other side, we've got government agents and bureaucrats who spend their lives living the motto carpe PER diem, 'Seize their money each day.' "

"Nearly one-fifth of jobs require a license," writes Buchholz, flaying barriers to entering certain businesses. "In New York one needs a license simply to fix a VCR so it stops blinking '12:00,' to work as an usher on Broadway, or even to sell tickets at a wrestling match," he writes. Most jobs requiring licenses aren't outsourced abroad, but "silly, expensive, and arduous licenses" keep "fresh and hungry young workers" from getting good jobs.

Buchholz correctly points out that lawsuit abuse hurts American companies. Excessive litigation costs give overseas companies a 3.2 percent cost advantage over U.S. firms, he says. With today's narrow profit margins, that's a lot. But Congress passed a bill in 1995 that restricted civil fraud suits, and corporate wrongdoing burgeoned. In the interview, Buchholz deplores "corporate greed in the board room -- those who feel pressured to create false earnings should be prosecuted," but he doesn't think the escalating corporate fraud of the late 1990s was related to the 1995 legislation restricting tort actions.

"Do we have incentives in place that lead to an excessive number of frivolous lawsuits? Yes," says Buchholz in the interview. "But we also have incentives that lead management to focus on the short term and line their pockets" through excessive chief executive pay, phony accounting, and obsession with running up the stock price, not running the company.

"I may very well write a book on corporate mismanagement and boneheaded boardrooms," says Buchholz.