Free Markets, Free People


Health Care: “Special Interest Democracy”

It may be hard to believe [/snark], but it appears when Democrats speak of “fairness” they define it in their own special interest kind of way.

Take the talk about taxing your private health care benefits (something adamantly opposed by Obama during the campaign).

Originally it was going to be everyone. But other Democrats complained mightily to Senate Democrats who were considering such a tax to pay for the conservatively estimated 1.5 trillion necessary to pay for “health care reform” (PAYGO? HA!). So they modified it a bit – tax the “rich” – those who had the best of coverage. Always a popular populist fallback, Sen. Dems were sure that would work.

Alas it was soon discovered that a huge number of those holding “Cadillac” health care policies were unions. Yes, the special interest group in the pocket of the Dems (and vice versa) would be heavily hit by such a tax. As you might imagine, they were not happy.

Solution – drop this bad idea?

Of course not. Instead exempt the unions, you silly person:

Mr. Baucus officially floated his plans for a tax this week, only with a surprising twist: His levy will not apply to union plans, at least for the duration of existing contracts. In other words, Mr. Baucus intends to tax the health-care benefits only of those who didn’t spend a fortune electing Democrats to office. Sen. Ted Kennedy, who is circulating his own health-care reform, has also included provisions that will exempt unions from certain provisions.

The union carve-out is designed to allay the fears of many Democrats who remain outright hostile to a tax on health-care benefits, whether out of principle, political fear or union solidarity.

This is not your grandfather’s America. Pay czars who arbitrarily set arbitrary pay limits based on what they “think” (according to presidential spokesperson Robert Gibbs) is “fair”, a government appointed CEO for an auto company who admits he knows nothing about cars and the government hijacking of health care.

If you’re not concerned, you’re not paying attention.


Miranda and War

An interesting discussion broke out in the comment section of the Miranda post, which I’m hoping will continue. The primary issue (and I’m simplifying here) centers around just how detainees caught on a battlefield should be handled if they don’t fit the established parameters of soldiers under the Geneva Conventions. Although there appears to be agreement that reading detainees Miranda rights is a step (or three) too far, there is also wide agreement that we should be skeptical about allowing our government so much latitude as to hold anyone indefinitely. I think closing the gap on those parameters is the challenge to be met, but I don’t think it is possible to do so without understanding how war differs from law enforcement.

Clausewitz defined war as “continuation of policy with other means.” The crux of his definition is that “war” is simply a tactic used to further political goals. War is not waged as end in itself, but as a means towards other ends which, for whatever reason, could not be accomplished through non-violent tactics. There are always exceptions, of course, but certainly a rational state will not expend blood and treasure when the same goals can be accomplished without. Even an irrational state, with irrational goals, will not waste such resources if it understands that it does not have to.

The other tools in the box for continuing policy include diplomacy and capitulation. Once those are deemed exhausted or unacceptable (as the case may be) then the tool of war is likely to appear. In other words, if agreement cannot be reached between erstwhile enemies, and surrender by one side or the other is not acceptable, then actual battle will be necessary to decide whose policy will be continued. At that point all manner of understanding between the parties is dead and only victory or a credible threat thereof will allow the discarded tools to once again be used in the construction of policy.

In the absence of war, there is general agreement as to how competing parties will conduct themselves in the pursuit of their policies. Citizens may vote, senators may argue, special interests may agitate, and whole nations may barter. The agreements may deal with how citizens deal with one another, how governments deal with their citizens, or how violations of the agreements are handled (i.e. law enforcement). In the modern world those general agreements are reduced to treaties, constitutions, rules, regulations and the like, all of which may be considered law. The policies themselves may also be enacted into law, but without some understanding as to the mechanisms for peacefully deciding which policy will be followed, then war is the only tool available. A rule of law, which is only useful where there is broad agreement on it, obviates the need to use war to advance policy. All of the foregoing are the hallmarks of a civil society that depends on pursuing policies through peaceful tactics. To turn Clauswitz’s definition around, law is the continuation of war by other means.

To be sure, transgressors of law will be dealt with at times in violent ways, but there is at least a tacit agreement to the law’s authority to do so where the violator is operating from within the society and generally partaking of its benefits. If enough transgressors get together then the agreements have broken down, and civil war or revolution may occur. Therefore, war can be understood as the tactic that is used when the law has ceased to be of use. More simply, war is the absence of law.

Given the above, which is nothing more than a condensed version of my personal views on the subject, it is difficult for me to understand how legal concepts can be introduced into war. Opposing factions may agree with one another to fight under particular rules of engagement, or to treat enemy prisoners a certain way, but when those rules are broken there is no legitimate authority to enforce them. The Geneva Conventions represent a more elaborate attempt to impose limits on warfare, but even those were never intended to apply to non-signatories except in very limited circumstances (pre-Hamdan anyway). More importantly, it seems obviously ludicrous to apply laws outside such limited agreement to any of the parties involved in battle, because there would be no battle if such laws were being adhered to in the first place.

So while any number of parties may agree amongst themselves to fight under self-imposed rules, that does not give any of them authority to impose those rules on others. Furthermore, except where explicitly agreed to otherwise, such rules would not govern war between a party to such an agreement and a non-party. To look at it another way, if Mike Tyson and Evander Holyfield agree to fight under certain sanctioned rules, that does not mean that either fighter must adhere to the same rules if attacked by a third party on the way home from the match.

Accordingly, in a world of asymmetrical warfare, the basic principle that “war is the absence of law” seems to apply. In this context, the very idea of approaching war with terrorists in foreign countries under a rubric of law intended to govern domestic life appears absurdly out of place. Treating detainees captured on the battlefield to the luxury of legal niceties intended to protect the very citizens those terrorists seek to harm defies all logic. And pretending that reading any of them Miranda rights will do anything more than hamper our ability to defeat these cretins is an exercise in serious delusion. In short, law is a manifestation of the agreements underlying a peaceful community, and war is the means of protecting those agreements from those who seek to subvert them.

When considering just where the line should be drawn then, between reading enemies their “rights” and allowing the government to detain them indefinitely, I think it’s useful to understand that we are not really talking about a “rule of law.” Instead, we are talking about how best to utilize the tactic of war in furthering our policy of not allowing crazed radicals to murder our citizens. While I find great merit in placing the government (i.e. our instrument of war) on a firm leash, I don’t think it is at all useful to conflate the means by which we protect ourselves from an overbearing government with the means by which the government protects us from enemies bent on our destruction.

Sometimes A Picture …

Is definitely worth a thousand words.

Or a chart.

Arthur Laffer is not amused:

Here we stand more than a year into a grave economic crisis with a projected budget deficit of 13% of GDP. That’s more than twice the size of the next largest deficit since World War II. And this projected deficit is the culmination of a year when the federal government, at taxpayers’ expense, acquired enormous stakes in the banking, auto, mortgage, health-care and insurance industries.

With the crisis, the ill-conceived government reactions, and the ensuing economic downturn, the unfunded liabilities of federal programs — such as Social Security, civil-service and military pensions, the Pension Benefit Guarantee Corporation, Medicare and Medicaid — are over the $100 trillion mark. With U.S. GDP and federal tax receipts at about $14 trillion and $2.4 trillion respectively, such a debt all but guarantees higher interest rates, massive tax increases, and partial default on government promises.

But as bad as the fiscal picture is, panic-driven monetary policies portend to have even more dire consequences. We can expect rapidly rising prices and much, much higher interest rates over the next four or five years, and a concomitant deleterious impact on output and employment not unlike the late 1970s.

And what have those “panic-driven monetary policies” brought us? Well, first the picture:ed-aj638a_laffe_ns_20090609175213

The chart is certainly no laffer.

Remember, we’re being told by “experts” (*cough* Krugman *cough*) that we’ll be able to handle this with no problem, really, if we just manage it properly. A tweak here, a tweak there and bingo – no inflation.

Hmmm … let’s get a little context here, shall we?

The percentage increase in the monetary base is the largest increase in the past 50 years by a factor of 10 (see chart nearby). It is so far outside the realm of our prior experiential base that historical comparisons are rendered difficult if not meaningless. The currency-in-circulation component of the monetary base — which prior to the expansion had comprised 95% of the monetary base — has risen by a little less than 10%, while bank reserves have increased almost 20-fold. Now the currency-in-circulation component of the monetary base is a smidgen less than 50% of the monetary base.

So that means that what? Well Laffer goes into a good explanation of bank reserves and how they function, etc. etc. – bottom line, banks are going to be loaning a bunch of money, thereby injecting liquidity into the marketplace.


With the present size of the monetary base, and …

With an increased trust in the overall banking system, the panic demand for money has begun to and should continue to recede. The dramatic drop in output and employment in the U.S. economy will also reduce the demand for money. Reduced demand for money combined with rapid growth in money is a surefire recipe for inflation and higher interest rates. The higher interest rates themselves will also further reduce the demand for money, thereby exacerbating inflationary pressures. It’s a catch-22.

And what does that mean could happen? Well again, we’re in uncharted territory, but the last time we had anything even similar, eh, not so good:

It’s difficult to estimate the magnitude of the inflationary and interest-rate consequences of the Fed’s actions because, frankly, we haven’t ever seen anything like this in the U.S. To date what’s happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5% and inflation peaked in the low double digits. Gold prices went from $35 per ounce to $850 per ounce, and the dollar collapsed on the foreign exchanges. It wasn’t a pretty picture.

Yeah. I remember it well. And here we are again – on steriods. So now what?

Per Laffer, the Fed must contract the money supply back to where it was plus a little increase for economic expansion. And if it can’t do that, it should increase the reserve requirement on banks to soak up the excess.

But Laffer doubts that can or will be done:

Alas, I doubt very much that the Fed will do what is necessary to guard against future inflation and higher interest rates. If the Fed were to reduce the monetary base by $1 trillion, it would need to sell a net $1 trillion in bonds. This would put the Fed in direct competition with Treasury’s planned issuance of about $2 trillion worth of bonds over the coming 12 months. Failed auctions would become the norm and bond prices would tumble, reflecting a massive oversupply of government bonds.

In addition, a rapid contraction of the monetary base as I propose would cause a contraction in bank lending, or at best limited expansion. This is exactly what happened in 2000 and 2001 when the Fed contracted the monetary base the last time. The economy quickly dipped into recession. While the short-term pain of a deepened recession is quite sharp, the long-term consequences of double-digit inflation are devastating. For Fed Chairman Ben Bernanke it’s a Hobson’s choice. For me the issue is how to protect assets for my grandchildren.


Yes friends – we’re in the best of hands. I’m just wondering how the present administration is going to attempt the blame shifting when the inevitable happens.


Quote of the Day

It comes from James Delingpole of the UK Telegraph:

Modern China cares about as much about “anthropogenic global warming” as Chairman Mao did about providing his population with five-course steak dinners. AGW’s only use, as far as the Chinese are concerned, is as an ingenious device to suck up money and power from the gullible west.

There is the truth that “must not be spoken”. That is the bottom line and anyone who has followed this “debate” and hasn’t been able to discern precisely what Delingpole states as the truth hasn’t been paying attention.

China is not, let me repeat that – not – going to jeopardize its economic growth over something it flat doesn’t believe to be a problem. But it will seize every opportunity to “negotiate” free money and technology from the west – if we’ll pay for it, they’ll take it.

And the naive bunch we have running the show now, despite unheard of deficit spending, are more than willing to do precisely that – just watch.


We Have A “Winner”

Yes, friends, now we can all comfortably refer to the bevy of taxes sure to come on alcohol, sugary soft drinks and, well use your imagination and I’m sure you can rustle up a few more dozen items that would be perfect in this group.

The group name? “Lifestyle taxes”. Yes, in the land of the free and the home of the brave, if you choose the “wrong” lifestyle, you will pay for it in taxation.

Of course, as we’ve mentioned any number of times as we’ve talked about these sorts of taxes, there are no more regressive taxes than these (except for the quintessential “poor man’s tax”, the state run lottery).

An interesting little tidbit in the article this info comes from:

Soft drink and alcohol lobbyists have snapped into action, though so far their campaigns have been quiet compared to the blaring, multimillion-dollar battles that typify major showdowns.

Their low-key approach is due partly to committee leaders’ warnings to refrain from public attacks or be accused of sabotaging health care overhaul.

Key phrase? “[S]abotaging health care overhaul”. If you don’t think government, or at least the people writing this legislation, don’t have every intention in the world of dictating your “lifestyle” choices in the name of the health care costs they’ll be “managing”, you need to get out more.


Eternal Truths?

In 1942 a Presbyterian minister named William J. H. Boetcker issued these 10 statements (they’ve at times been incorrectly attributed to Lincoln):

1. You cannot bring about prosperity by discouraging thrift.
2. You cannot strengthen the weak by weakening the strong
3. You cannot help the poor man by destroying the rich.
4. You cannot further the brotherhood of man by inciting class hatred.
5. You cannot build character and courage by taking away man’s initiative and independence.
6. You cannot help small men by tearing down big men.
7. You cannot lift the wage earner by pulling down the wage payer.
8. You cannot keep out of trouble by spending more than your income.
9. You cannot establish security on borrowed money.
10 You cannot help men permanently by doing for them what they will not do for themselves.

Those all seem pretty self evident don’t they? Yet we seem to be engaged, at very high levels of government, in going against every one of them and thinking (at least among those pushing the agenda) we can succeed in making life better.


Health Care – “The Public Plan”

Ezra Klein discusses what has commonly become known as the “public plan” in the emerging “health care reform” legislation. Put simply it is “public insurance” which is supposed to compete with the private insurance industry and, as Paul Krugman claims, keep them “honest”.

Klein lays out the various flavors being floated out there concerning this option:

• The “Trigger” Plan: Olympia Snowe is pushing this compromise, as are some conservative Democrats. The basic idea is that the public plan would act as an invisible threat: It would be “triggered” into existence if the private insurance market was unable to offer, say, enough options in a particular region, or enough cost control. In addition, the public plan would only come into existence in this or that region, or this or that state. It would be effectively useless as an insurer. It could potentially have some competitive effect in that private insurers would still work to avoid its existence. Some have argued, however, that the conditions being mentioned in the “trigger” proposals have already been met.

• The Weak Public Plan: This is what people are talking about when they refer to a “level-playing field.” This incarnation of the public plan — first proposed by Len Nichols at the New America Foundation and later echoed by Peter Harbage and Karen Davenport at the Center for American Progress — would have no special advantages over private insurers. It couldn’t use the low rates that Medicare sets or access taxpayer subsidies. It couldn’t force its way into networks. It would simply be another insurer, albeit with different incentives than traditional insurers.

• The Strong Public Plan: This would be like Medicare for the rest of us. It could throw the federal government’s weight around. It could negotiate deep discounts with providers. It could muscle its way into networks. Outside groups like the Commonwealth Fund estimate that it would save the average consumer 20 percent to 30 percent. That would give it a massive competitive advantage over private insurers, and would probably result in tens of millions of Americans dropping their current coverage and entering the public plan to save money. A variant of this was in the draft of Ted Kennedy’s bill that was leaked last week.

While Blue Dog Democrats have come out in favor of the “trigger” option, liberals such as Klein and Krugman prefer the “Strong Public Plan” for the reasons stated (massive dropping of private insurance for “public” (i.e. government) insurance). And there’s a reason they both prefer that – they see it as a backdoor way to move health insurance to a single payer system.

And that is a distinct possibility with both the “strong public plan”. In fact it is a design feature. The “competition” touted would most likely be in name only as Greg Mankiw explains (quoting Krugman to set up his explanation):

What’s still not settled, however, is whether regulation will be supplemented by competition, in the form of a public plan that Americans can buy into as an alternative to private insurance.Now nobody is proposing that Americans be forced to get their insurance from the government. The “public option,” if it materializes, will be just that — an option Americans can choose. And the reason for providing this option was clearly laid out in Mr. Obama’s letter: It will give Americans “a better range of choices, make the health care market more competitive, and keep the insurance companies honest.”

It seems to me that this passage, like most discussion of the issue, leaves out the answer to the key question: Would the public plan have access to taxpayer funds unavailable to private plans?

If the answer is yes, then the public plan would not offer honest competition to private plans. The taxpayer subsidies would tilt the playing field in favor of the public plan. In this case, the whole idea of a public option seems to be a disingenuous route toward a single-payer system, which many on the left favor but recognize is a political nonstarter.

If the answer is no, then the public plan would need to stand on its own financially and, in essence, would be a private nonprofit plan. But then what’s the point? If advocates of a public plan want to start a nonprofit company offering health insurance on better terms than existing insurance companies, nothing is stopping them from doing so right now. There is free entry into the market for health insurance. If a public plan without taxpayer support would succeed, so would a nonprofit insurance company. The fundamental viability of the enterprise does not depend on whether the employees are called “nonprofit administrators” or “civil servants.”

The bottom line: If the goal is honest competition in the provision of health insurance, the public option cannot do much good but can potentially do much harm.

That is a critical point in this debate – there isn’t an insurer out there that has as deep pockets as the US Treasury. If there is public money backing the public option, then the talk of “competition” is a sham. It is being used to placate and fool those who oppose a government takeover of insurance, the result which would surely happen if what Mankiw’s concerns are true. And if you follow the reasoning process that Mankiw has laid out above, it should be pretty darn obvious what the intent of this “public plan” really is, all the happy talk Klein and Krugman throw out there notwithstanding.

Last, but not least, while the “strong public plan” is an obvious short-cut to single-payer government run health care, the other two plans simply delay that same eventual outcome for a while. While there are certainly reforms that could be made in the insurance industry and health care generally, anyone who believes that government can do it a) better and b) more efficiently has simply not been paying attention to the shape government finances are in right now or how large the deficit has grown as it has mismanaged its entitlement empire to this point.


SCOTUS Temporarily Halts Chrysler Sale To Fiat

And Ruth Bader Ginsberg granted the halt (I wonder if she issued the stay on empathetic grounds or legal grounds?).

The “greedy speculators” who requested the stay were somewhat happy:

Indiana Treasurer Richard Mourdock said the ruling was a small victory for Indiana pensioners, who brought the request for an injunction for fear of losing their stake.

But, like I said, this is a very temporary stay:

In order for the stay to have a more lasting effect, five justices need to sign on it. That has not happened, or at least not yet. The court may yet deny the emergency request or grant it and await arguments about why it should actually hear an appeal.

However, that should be more than enough time for the usual suspects to demonize the firemen, police officers, teachers and blue collar workers greedy speculators and their desire to destroy the UAW auto industry for their pension funds 20 pieces of silver.

In fact, it has already begun:

Rep. Gary Peters, D-Mich., whose congressional district is home to Chrysler world headquarters, said the state of Indiana pension funds’ attempt to stop the sale is an effort to prevent a swift emergence from bankruptcy in the name of a small sum.

Indiana’s pension funds would lose $4.8 million if Chrysler is allowed to emerge from bankruptcy, Peters said, while the state will lose more than $20.7 million in tax revenue if Chrysler is liquidated, as well as incur tens of millions in lost revenue, expenses and new unemployment claims.

“Other stakeholders, including other secured lenders and Chrysler’s autoworkers, accepted shared sacrifice because they recognized their interest was better served keeping Chrysler alive rather than forcing liquidation. Why the officials who decided to take their objections all the way to the Supreme Court can’t recognize this is beyond me,” Peters said.

IOW, Michigan’s greed is much more acceptable than is Indiana’s. And besides, the powers to be have already made up their mind that the “greedy speculators” in Indiana should just shut up and accept the rape of their pension funds because the interests of others are “better served” if they get screwed vs. Michigan.



Throwing the BS Flag (Update)

The usual suspects have blamed the usual suspects in the GM bailout:

Austan Goolsbee, a senior economic adviser to President Obama, said the administration’s options were sharply limited by President Bush’s handling of the auto industry, and accused the prior administration of running out the clock.

“They shook up the can. They opened the can and handed [it] to us in our laps,” Goolsbee said on Fox News Sunday.

“When George Bush put money into General Motors, almost explicitly with the purpose — how many dollars do they need to stay alive until January 20th, 2009, there was no commitment to restructuring, to making these viable enterprises of any kind,” said Goolsbee, who serves as staff director and chief economist of the Obama’s Economic Recovery Advisory Board.

All of that is probably true, but the BS flag is thrown at the implication that the Bush administration left them with few options such that it had to funnel more and more bailout money into GM.

There was a clear second option – back off, tell GM that bankruptcy and restructuring are the best option and let the system take care of it. But they didn’t. They made the case that GM was “too big to fail” and that the “downstream impact” in terms of unemployment was unacceptable.

The continued bailout had two outcomes that the Obama administration wanted but won’t admit. One – they got a majority equity stake in the company. And they manipulated the bankruptcy proceedings to preserve that majority.

Secondly, it saved the jobs of a favored special interest group, the UAW, until such a time they too could be handed an equity stake in the “new” company through the manipulated process.

Without the Bush administration’s bailout, none of that would have been possible. And, of course, previous to taking office, Obama had lauded the handling of the GM problem.

So the Goolsbee blame shifting is more than nonsense, it’s nonsense on stilts.

UPDATE: Keith Hennesy, a member of the Bush administration who dealt directly with this subject and the incoming Obama administration throws a very detailed BS flag of his own.  [HT: Rick Caird]


Wow, That Stimulus – Just What Was Needed! More, Please!

Another indicator that those in charge haven’t a clue about what they’re doing and anything they say or claim should be taken with a large grain of salt.



So let’s see, given the “logic” which has driven the “solution” thus far, what this calls for is more stimulus money, right?