FreedomWorks

The entrepreneurial gene is in my family’s DNA.  And it’s not just a business focus – it’s a way of life, a way of thinking.  We want to do things better, and we want to do it now.  We question why something is the way it is, and see possibilities to improve it.  We’re willing to risk our time and resources trying things, unafraid to fail because we understand temporary “failures” as learning opportunities which help us improve our attempts until we ultimately reach the goal we aim at.

There’s an intellectual side to being an entrepreneur, an eagerness to learn and absorb new knowledge.  Whether it manifests itself in reading the works of von Mises, Atlas Shrugged, Adam Smith and America’s Founding Fathers, or in scientific inquiry or in mechanical tinkering or in geographic exploration, we are driven by a quest for knowledge, an insatiable curiosity to figure out challenges.

There’s a people side to being an entrepreneur, a respect for others’ ideas and a desire to serve, to make things better for the group as a whole.  There’s a joy in being part of a team, helping our teammates achieve excellence.  There’s an eagerness to preach the blessings of freedom so everyone can enjoy the abundance God makes available to us through His creation.  There’s a spirit of enormous generosity, enabled both by the abundance our freedom enables us to produce and by the confidence that we can each achieve whatever we set our minds to.

There is also a courageous side to being an entrepreneur, both the tenacity and persistence to never quit, as well as the willingness to defend our freedom as the unalienable right God endowed in us.  We keenly understand how fragile is our freedom, that it can be torn from us by government run amuck – whether intentionally or through ignorance and indifference – so we are willing to speak up, to lead, to put our lives on the line in order to preserve our freedom.  Part of the courage is also evident in our willingness to think big, to dream and act on our dreams, to tackle huge challenges because we believe we can find a way.

My Dad invested with some friends right out of college in starting a company to make devices for measuring pressure.  They aimed it at an oilfield application and would up being most successful in an automotive application.  Dad went on (often with these same friends and others) to invest in a number of small service and retail businesses.  Some failed, more succeeded, and my sister and I learned by example about being an entrepreneur.  Dad’s “day job” was as a stockbroker, so we also got the big picture in conversation at the dinner table, economics and industry trends and financial statements.  We saw the people side in the socializing and entertaining Mom and Dad did to promote and maintain their network of friends and business contacts.

It took a few years before we really understood the generosity side of Dad as an entrepreneur, because he didn’t boast or seek the limelight.  He just lived by his principles day after day, and we gradually accumulated enough bits and pieces from stories and comments people would pass on that we assembled in our minds the picture of his generosity.  We still don’t know the full scope of it, but we know enough to be humbled and inspired by it.


My sister imported colorful vests from Guatemala as one of her early ventures, traveling there to recruit villagers to make them for her.  Oblivious to what the State Department would have considered the dangers of such a journey, she just went about her business and got it done.  She and her husband are now Baskin-Robbins franchisees, and she dabbles in a few other things.

As for me, I served as an infantry officer with the 1st Cav Division after college, defending our freedom.  While I performed well and built a good team with my sergeants – our platoon was the lead element for the whole division because we kept getting the job done - I also learned that senior officers aren’t particularly entrepreneurial, and declined to extend after my tour was up.  I would relearn this lesson many times (often painfully) in the corporate world, about senior officers not being particularly entrepreneurial, and have come to understand that it is very much a function of size.

Executives and managers in large organizations are focused on executing the agreed-upon plan, and that is a mark of both integrity and discipline.  It isn’t that they aren’t interested in new ideas, they just cannot divert any resources to developing new ideas because they are obliged to use their available resources to carry out the assigned plan that’s already been put on their plate.  Getting a new concept to the decision-makers by going through the chain of command is thus like a fish trying to swim up Niagara Falls!

For this reason, entrepreneurs are often found in small business where the owner can make a new decision immediately.  I also think this aspect of the chain of command is linked to the old saying about it’s who you know that’s important.  That doesn’t necessarily refer to favoritism, it may indicate the ability and/or need to use indirect channels to get ideas to the decision-makers since direct channels in the chain of command are so intently focused on carrying out the existing plan.

In my career as a CPA, I’ve helped many small businesses succeed and grow.  Two of the most noteworthy were a waterpark and resort business that I served as Corporate Controller for ten years, and a medical equipment supplier that I also served as Corporate Controller for five years.  We grew both revenue and profits, and earned numerous national awards.  My biggest contributions were as leader of special project teams that successfully tackled challenges to improve productivity and cash flow when the companies’ survival was on the line.

Along the way I also found time to launch a baseball statistics service which garnered a few engagements from Major League teams but ran out of cash before volume reached sustainable levels.  Commissioner Peter Ueberroth recognized me for contributing a suggestion which helped mediate the players’ strike in the mid-80’s, but that didn’t translate into any new orders!  In this period were also three self-published books that didn’t sell very well, and a real-estate venture that didn’t pay off very well.

All of which serves as the backdrop for my biggest entrepreneurial story, my lifelong quest to solve our Social Security and Medicare financing challenges, as well as our national debt.  It began in 1975.


While in college and looking at my paycheck, I recognized that the payroll tax rate we paid was far higher than necessary to fund the programs if we just used compound interest to do most of the work like any other retirement plan.  So I developed a plan for converting to a business model that uses compound interest, and submitted it as a plank to the 1976 Mock Convention at Washington & Lee.

After getting out of the Army and starting my career in public accounting, I updated the conversion plan.   Former Ways and Means Chairman Bill Archer knew I was working on the conversion plan (they were neighbors and friends and I grew up with his kids) and invited me to testify before the Social Security Subcommittee in 1981 when he was a ranking Minority Member.  They told me I was a great American and promptly moved on to the next item.

For the next 25 years I wrote books and made speeches about this solution and relentlessly proselytized business and government leaders, until in late 2006 a speech to the Rotary Club of New Braunfels began to get some real traction for the solution, sparking feedback that helped improve both the idea and presentation throughout 2007.  I finished out the Medicare and debt pieces of the solution, helped by what I learned about the importance of the balance sheet and cash flow in turnaround presentations while working on several turnaround projects.

In 2008, the Republican Party of TX adopted this solution at Precinct, then Comal County and State Conventions, changing the platform to call for immediate conversion.  After the State Convention in June, Mr. Archer and his son Reyn told TX Republicans in DC about it and Congresswoman Kay Granger arranged a breakfast briefing for the TX delegation in late September.  Attending were Members Granger, Carter and Burgess, along with staff from several more offices including Senator Hutchison's.

Mr. Archer took me around to meet the Social Security experts on Ways and Means staff, as well as John Tanner, a Democrat from TN who now chairs the Social Security Subcommittee.  We got favorable reviews all around, and they advised me to pitch the idea to Democrat friends to get help on language that could connect with a bipartisan audience (needed to better address the safety of markets issue).

In early December, grassroots Democrats at four separate Change Is Coming meetings embraced this solution wholeheartedly … and these were true believers who had been drinking the liberal Kool Aid for a long time!  They thought capitalism had failed, health insurance companies by definition were evil, and corruption in government began with Bush … yet they immediately saw the good sense of getting compound interest working for us.

In these meetings with grassroots members of both parties, they easily saw how this solution – which I call Annuitizing – overcomes the top three objections to earlier Privatization proposals:  these personal accounts won’t divert receipts away from paying current benefits – the assets in your account fully fund your benefits; individuals don’t take reckless stock market risks - we’ll own annuities in our accounts, with prudent consolidated investing done by scrutinized professionals; and we don’t increase actual liabilities –

the Social Security and Medicare benefit obligations already exist; indeed, issuing restitution securities creates a tool and schedule to eliminate our debt!

Then in January of 2009 I asked some professors at Washington & Lee to challenge their students to try and tear apart the Annuitizing concept for extra credit.  If they find a “deal-breaker” flaw, then I buy them dinner; if not, then they help advance the cause.  They didn’t take that challenge yet, but they did send me links to the scholarly papers from 1998 that shot down the earlier Privatization proposals and told me to answer those critiques.  That was a real blessing, to see the scholarly arguments I was up against.

It’s quite easy to distinguish Annuitizing vs. Privatization and see why the former works where the latter didn’t.  In Privatization individuals select their own investments and will not actually receive the higher return of equities because they will not want to risk picking a loser and having their retirement wiped out.  They will gravitate toward the “riskless” rate of return on intermediate term government bonds.  This in turn requires putting the whole FICA contribution into their accounts in order to reach the accumulated balance needed to pay the expected benefit.  That in turn requires new taxes to pay the transition debt of benefits to current and soon retirees, which will bear the market rate of interest because it is a new layer of debt on top of the massive debt Congress already cannot pay.  The burden of new taxes completely negates the gain from earning the riskless rate of return, and we are no better off under Privatization than the status quo.

With Annuitizing we still have private accounts, but what we own in those accounts is annuity contracts.  Investing is done at the portfolio level by the Annuity Issuers who have done this successfully for centuries through many ups and downs of the market, and they will earn the higher return of equities, a blended overall real return of 6.5% from 60/40 stocks/bonds vs. the 2.3% “riskless” rate.  They will absorb the occasional loser such as Enron or WorldCom, but will also enjoy the occasional big winner such as Intel or Microsoft, and over the long term will earn the broad market average of 6.5%.

They then credit every annuity contract supported by their portfolio with the same average rate of return, so that we individuals do receive the higher market return of equities, but under conditions which make it “riskless” to us!  That, in turn, enables us to accumulate the needed balance by putting just a third of the FICA contribution in our accounts, so two-thirds of the FICA we already pay is freed up to pay transition debt and no new taxes are required.  Being secured by payroll tax receipts, the transition debt will carry the “riskless” rate and cost much less than under Privatization so we are far better off with Annuitizing than the status quo … and that’s not even the whole story yet!

In dealing with the scholars’ critiques, we only addressed the Social Security piece because that’s what they limited their scope to.  But as an entrepreneur thinks, why solve just part of a problem and leave ourselves vulnerable to being clobbered by unfinished business on the Medicare side while we applaud ourselves for the piece we solved on the Social Security side?


So we include the Medicare piece and provide a complete solution.  We pay 21% of taxable payroll as the total cost of both programs today (15.3% statutory FICA rate plus general revenue transfers to Medicare plus beneficiary premiums and taxes on benefits).  If we convert to a business model using compound interest, the programs will only cost 31/4% of taxable payroll.  Again thinking as an entrepreneur, we propose to set aside 5% in workers’ accounts so we can boost benefits to 100% wage replacement and help sell the deal, and use the remaining 16% we already pay to pay the transition debt.  It all works, including paying off the entire national debt with a portion of that 16% dedicated to debt service.

You can see all aspects of the entrepreneur in this story:  Business Entrepreneur providing the goods or services that make our lives better, Grassroots Entrepreneur working to create earth-shaking social movements, Campus Entrepreneur going beyond his or her studies to change the world, and Legislative Entrepreneur finding new and innovative ways to foster a more free society, so others may prosper.  It combines the curiosity and drive to improve, the intellectual rigor to figure out solutions, the humility to learn from failure, the  tenacity and persistence to never give up, the social aspect of working with people and wanting to help them succeed, and the courage to dream big and go for it.

The story isn’t quite done yet, which is another trait of the entrepreneur – we’re never finished with either learning or improving!  I’m still seeking to partner with a champion who can tell the story so America realizes there is a fast, productive, Win-Win alternative to the prevailing gloom and doom.  It will also help on a number of other fronts in our battle to preserve freedom – every family in America will have over a million dollars of tangible proof (restitution bonds as secure assets in their retirement and health savings accounts) that Freedom, Capitalism and Limited Government are the best source of solutions.

They will know that this money wasn’t taken from them by eeeeevil corporations or greeeeeedy CEO’s, but by Congress.  Freedom and Capitalism enabled every family to earn this million at average wages – we worked for it, earned it, saved it and set it aside in what were supposed to be our retirement and health savings accounts.  But then Big, corrupt, wasteful, inept Government took it out of our accounts and spent it on other stuff.  With such a huge and tangible example, it will be easy to wean people off the rest of the Big Government teat as soon as that champion tells the story.

Come to think of it, FreedomWorks might be a pretty good fit for that champion role – how about it?