Law Of Unintended Consequences
While the Fed tries to assure us that when the time comes it can wring the excess money it has pumped into the economy without driving it into the ditch, Paul Krugman and others want more spending, and we’re staring at 9 trillion in additional debt, the rest of the worldhas seems to be quietly deciding that the dollar has become an unstable currency in which they’d rather not trade:
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.
They’re talking about a whole range of different currencies to replace the dollar but the fact remains that the old buck ain’t what it used to be and those trading in oil are looking for a more stable means of trade.
The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold. An indication of the huge amounts involved can be gained from the wealth of Abu Dhabi, Saudi Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in dollar reserves.
Which explains some of the growth in the price of gold. Of course this transition will take time as the various countries carefully get rid of their dollar reserves over the coming years. However, if they are as committed to this transition away from dollar as the base trading currency for oil as this article indicates, then obviously the strength of the dollar will be adversely effected over that transition period and beyond as dollars are dumped. Couple that with the excess dollars we’ve pumped into the system these past few months and you can begin to understand the possible economic disaster this may end portend.
Ever since the Bretton Woods agreements – the accords after the Second World War which bequeathed the architecture for the modern international financial system – America’s trading partners have been left to cope with the impact of Washington’s control and, in more recent years, the hegemony of the dollar as the dominant global reserve currency.
The Chinese believe, for example, that the Americans persuaded Britain to stay out of the euro in order to prevent an earlier move away from the dollar. But Chinese banking sources say their discussions have gone too far to be blocked now. “The Russians will eventually bring in the rouble to the basket of currencies,” a prominent Hong Kong broker told The Independent. “The Brits are stuck in the middle and will come into the euro. They have no choice because they won’t be able to use the US dollar.”
Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years’ time. The current deadline for the currency transition is 2018.
We’ve been talking and hinting about this since it first began surfacing and warning of the dire economic consequences such a move would have. Of course it is the result of our own profligate spending and financial mismanagement, but I don’t think, for the most part people understand the implications of this move to replace the dollar. And it also doesn’t appear we have ability (much less a plan) to reverse this trend toward this change of the economic guard.
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David Warren, writing in the Ottawa Ciitzen, takes a look at some of the “Gorbachev/Obama” comparisons that some are doing and finds them wanting. But, he does find one thing the two men seem to share in common. Something he calls a characteristic of the post-modern liberal mind:
Yet they do have one major thing in common, and that is the belief that, regardless of what the ruler does, the polity he rules must necessarily continue. This is perhaps the most essential, if seldom acknowledged, insight of the post-modern “liberal” mind: that if you take the pillars away, the roof will continue to hover in the air.
Or a complete and utter disconnection from reality as it functions in this world. We tend to write that seeming disconnect off to arrogance or ignorance, or both. But in fact, it is a belief based in the following:
Gorbachev seemed to assume, right up to the fall of the Berlin Wall and then beyond it, that his Communist Party would recover from any temporary setbacks, and that the long-term effects of his glasnost and perestroika could only be to make it bigger and stronger.
There is a corollary of this largely unspoken assumption: that no matter what you do to one part of a machine, the rest of the machine will continue to function normally.
A variant of this is the frequently expressed denial of the law of unintended consequences: the belief that, if the effect you intend is good, the actual effect must be similarly happy.
Very small children, the mad, and certain extinct primitive tribes, have shared in this belief system, but only the fully college-educated liberal has the vocabulary to make it sound plausible.
Ok, I admit I laughed out loud at the final emphasized statement, especially given who we have here regularly trying to do exactly what Warren points out. The difference is it has never sounded as “plausible” as our commenter might think he’s made it sound.
But I think Warren is on to something here. When you confront those who believe as our current political leadership does, the “economic laws of gravity” have no real relevance to them. You get a blank stare and then an assurance that all will be well, just wait and see. In their ignorance, be it practiced or real, they actually believe that “no matter what you do to one part of a machine, the rest of the machine will continue to function normally” and thus continue to provide the rest of what we enjoy today.
So you can run the economy off the cliff with cap-and-trade and we’ll somehow survive and be “bigger and stronger”. Or you can use a health care model that has or is failing all over the world and because their intention is good, it will work differently here. The cosmic laws of economics that have only worked in a certain way since the world was formed will now work differently because their “intention” is good. Human behavior will modify itself once the people understand how wonderful the world they envision will be.
Suddenly the presentation of their version of reality, when based on the premise Warren identifies, makes a sort of cock-eyed sense, even if it has no actual basis in reality. That’s why the uninformed are susceptible to sales pitch. That “vocabulary” that only a “fully college-educated liberal” can bring to bear soothes them into believing that competent hands are at the wheel and all the nonsense they’ve heard about the laws of gravity and economics don’t apply anymore. The Hope and Change express sold that and the unassuming masses ate it up. It sounds wonderful. However they soon discovered (or will discover) the roof still falls in as the pillars are knocked away.
With an incredible rapidity, America’s status as the world’s pre-eminent superpower is now passing away. This is a function both of the nearly systematic abandonment of U.S. interests and allies overseas, with metastasizing debt and bureaucracy on the home front.
Given the dithering over Afghanistan and the naive game-playing with Iran and Russia, the 9 trillion in promised debt on top of the trillions already owed and the continuing and planned takeover of more and more of the economy by government, it is hard to wave off Mr. Warren’s point or insight.
The good news? Well Warren thinks we’re big enough and strong enough to shake the effects of our first post-modern president off, although what’s left won’t be at all like it is today:
And while I think the U.S. has the structural fortitude to survive the Obama presidency, it will be a much-diminished country that emerges from the “new physics” of hope and change.
“The ‘new physics’ of hope and change” – I love that phrase, but I’m not as optimistic as Warren. Unless we can stop the new physics of post-modernism in its tracks, I believe we will be less than a “much-diminished country” when this is all over with. We might be on our way to redefining “third world country” if we’re not careful. If the Democrats were at all competent, I’d bet on it.
No cap-and-trade. No government run health care. No Democrat majorities in 2010. Otherwise, “Katie bar the door”.
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That is if we’re committed to using science as the basis for our determination of whether or not the House or Senate versions of cap-and-trade are needed. And, as we’ve been pointing out for the last couple of weeks, the science of AGW is shaky at best and continuing to come apart at the seams.
But that hasn’t stopped ye olde sausage factory in the Senate from grinding out another version of CO2 emissions control. The Boxer-Kerry (BK) cap-and-trade bill has emerged with even more stringent caps on CO2 than the Waxman-Markey (WM) bill. BK calls for a 20% overall reduction of 2005 levels by 2020 (17% in WM) and 83% by 2050.
You can get an idea of how BK plans on administering the carbon offset market here. But, like WM, it targets those industries which fuel and power the nation (although unlike WM, it does give a nod to nuclear power and “clean” coal). However there is evidence that the administration is trying to hide the real impact of such legislation from the American people:
Meanwhile, the Competitive Enterprise Institute (CEI) today accused the Treasury Department of continuing to hide information on the cost of climate legislation. In a news release, CEI said it had notified the Treasury Department of its intent to sue over the administration’s “inadequate disclosure of documents” recently requested under the Freedom of Information Act.
Documents released by the Treasury Department two weeks ago show the administration believed climate legislation could cost as much as $300 billion per year, which was much higher than the government’s public estimates, and could result in companies moving overseas. Studies have shown that the Waxman-Markey bill could eliminate 2 million American jobs a year.
2 million jobs a year? See the post below. Add the cost of 300 billion a year and then try to imagine a manufacturer that is a heavy user of energy trying to justify staying here instead of going somewhere else where not only energy, but labor, are cheaper than here.
Thus far BK has about 45 Senators who’ve signed on. Kerry is giddy (this would most likely be his first substantial accomplishment during his Senatorial tenure and naturally it would do more harm than good) saying he thinks the bill has a good shot of passing. But a senior Republican says he knows of no Republicans who would support the bill as written.
Senator Lamar Alexander seems to represent the prevailing thinking of the Senate’s Republicans:
“The Kerry-Boxer bill has fancy, complicated words that add up to high energy costs that will drive U.S. jobs overseas looking for cheap energy,” said Lamar Alexander of Tennessee.
But John Kerry see’s it differently:
Kerry said the event was the “beginning of one of the most important battles we will ever face as legislators and citizens.”
For once, Kerry is right about something, but not for the reason he believes. It is the beginning of one of the most important battle we well ever face and the importance lies in the fact that if passed, this legislation will kill jobs, push companies out of the US and drive our economy off the cliff. That makes it very important in my book. And with Copenhagen’s climate talks coming up in December, Democrats are going to try to push this turkey through so President Obama doesn’t show up empty handed.
The short term goal should be to ensure he does show up empty handed and the long term goal should be to defeat this outright. It’s based on shaky science, it is an economy killer and it will cost us far more than it will ever accomplish in terms of the environment. A much more sensible course would be a comprehensive energy policy which begins to use nuclear power and natural gas as the basis of a transition to clean energy with viable renewable brought on line as they become available while continuing to use and exploit the resources we have available.
Instead we’re being threatened with legislation that’s real purpose is to create a multi-billion dollar revenue stream out of thin air which will cost us jobs, income and our standard of living.
UPDATE: Speaking of Copenhagen and the desire to show up at the climate conference with something positive, it appears that the Obama administration has decided it will act unilaterally instead of wait on Congress.
Unwilling to wait for Congress to act, the Obama administration announced on Wednesday that it was moving forward on new rules to regulate greenhouse gas emissions from hundreds of power plants and large industrial facilities.
But he has authorized the Environmental Protection Agency to begin moving toward regulation, which could goad lawmakers into reaching an agreement. It could also provide evidence of the United States’ seriousness as negotiators prepare for United Nations talks in Copenhagen in December intended to produce an international agreement to combat global warming.
“We are not going to continue with business as usual,” Lisa P. Jackson, the E.P.A. administrator, said Wednesday in a conference call with reporters. “We have the tools and the technology to move forward today, and we are using them.”
The proposed rules, which could take effect as early as 2011, would place the greatest burden on 400 power plants, new ones and those undergoing substantial renovation, by requiring them to prove that they have applied the best available technology to reduce emissions or face penalties.
Phaaa, Congress … who need’s them?
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Here’s the story from CNN:
Lisa Snyder of Middleville, Mich., says she takes no money for watching the three children for 15-40 minutes each day so that the neighbors can get to work on time.
The Department of Human Services, acting on a complaint that Snyder was operating an illegal child care home, demanded she either get a license, stop watching the kids or face the consequences, WZZM says.
Snyder calls the whole thing “ridiculous” and tells the Grand Rapids TV station that “we are friends helping friends!”
A DHS spokesperson tells the station that it has no choice but to comply with state law, which is designed to protect Michigan children.
She’s doing a neighborly thing – she accepts no money. She helps her neighbors by watching the kids while they wait for the bus thereby allowing the parents to get to work on time. She doesn’t feed them. She provides them a warm place to stay out of the weather until the bus shows up.
For that, the state claims she needs a license? And the state hides behind the law, or at least their interpretation of it to do so.
But if you think about it, couldn’t the same claim be made if mom drops off the kids with granny? Mom gets to work and granny keeps the kids until the bus shows up. Other than the fact that granny’s a relative, what’s the difference?
David Boaz makes what should be the obvious point:
This is what people mean when they warn that an ever-expanding government threatens the values of neighborliness and community. When the government provides services for free, or when it erects obstacles to individuals’ providing those services, it reduces private provision and simultaneously increases the demand for government services. If you make it illegal for neighbors to watch one another’s kids, you weaken ties of neighborhood and community.
But the need remains. So it leaves parents with fewer options and, as Boaz points out, it makes neighbors less likely to reach out and help.
Is that government’s role?
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Or in the words of almost any economist who knows his business – “I told you so.”
Essentially what has happened is precisely what most of them said would happen – the program, Cash For Clunkers, did nothing more than steal from future sales.
To paraphrase the Reverend Wright – the clunkers are coming home to roost:
Edmunds.com reports that “September’s light-vehicle sales rate will fall to 8.8 million units . . . the lowest rate in nearly 28 years, tying the worst demand on record. After the cash-for-clunkers program boosted August sales to their first year-over-year increase since October 2007, demand has plunged. In at least the last 33 years, the U.S. seasonally adjusted annual rate has only dropped as low as 8.8 million units once — in December 1981 — with records stretching back to January 1976.”
But fear not – Washington has learned its lesson:
Now NHTSA says that, despite burdening manufacturers with $60 billion in new costs, its new 35.5 mpg fuel mandate will stimulate the economy by boosting auto sales by 65,480 vehicles through 2016 because Washington “expects stronger consumer demand for fuel-efficient models.”
Yup, DC knows economics and it certainly knows the consumer’s mind doesn’t it? Centralized planning has always driven demand. Yessireee. That’s why the Soviet Union is such an economic powerhouse today.
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There are many, myself included, who believe the ’70s era Community Reinvestment Act was one of the key reasons for the financial meltdown we experienced since it required lending institutions to lend to unqualified borrowers.
Byron York reports that some Democrats in Congress refuse to acknowledge that and are now pushing to expand both the scope and power of the CRA:
This morning House Financial Services Committee chairman Rep. Barney Frank held a hearing on H.R. 1479, the “Community Reinvestment Modernization Act of 2009.” The bill’s purpose is “to close the wealth gap in the United States” by increasing “home ownership and small business ownership for low- and moderate-income borrowers and persons of color.” It would extend CRA’s strict lending requirements to non-bank institutions like credit unions, insurance companies, and mortgage lenders. It would also make CRA more explicitly race-based by requiring CRA standards to be applied to minorities, regardless of income, going beyond earlier requirements that applied solely to low- and moderate-income areas.
Barney Frank has never acknowledged the role of government in the collapse of the housing market. He’s refused to acknowledge the role of the CRA or Freddie Mac and Fanny Mae. And, apparently determined to act on his ignorance is now in the middle of trying to revive the program that was at least partly responsible for our financial woes. This makes absolutely no sense.
Republicans on the committee strongly oppose the plan. “Instead of looking to expand the number of institutions that must abide by Community Investment Act regulations,” California Rep. Ed Royce said in prepared opening remarks at today’s hearing, “I think we should reassess the role this and other government mandates played in the financial collapse and consider scaling it back.”
In private conversation, other Republicans were more emphatic. “There is clearly arguable evidence that the CRA is at the root of this financial meltdown,” says one GOP committee member. “So what do they do? They try to expand CRA.”
Republicans also made sure that the CRA’s connection to ACORN was made clear:
Republican critics point out that the Association of Community Organizations for Reform Now has used the CRA to pressure banks to pour money into ACORN and its affiliates, allowing ACORN to facilitate loans to clearly unqualified borrowers. Now, with ACORN under fire after a series of undercover videos showing ACORN workers in Baltimore, Washington DC, New York, and California openly encouraging prostitution, tax evasion, and other crimes, Republicans on the committee are citing the CRA-ACORN connection as yet another reason the Act should not be expanded.
ACORN is presently preparing to investigate itself. A clean bill of health is expected within a few weeks. In the meantime, the bill has 51 cosponsors among the most liberal members of Congress. As York points out, if Democrats in the House want to pass this they can. One wonders if the liberal caucus would be willing to trade the “public option” for passage of this expansion of the CRA and a promise treat ACORN kindly when the time comes. Of course, it would have to be approved by the Senate as well, and that’s a much more dicey prospect.
The point, of course, is this is sheer madness on the part of the Democrats in the House. The definition of insanity is doing the same thing over and over again and expecting different results. It appears that’s precisely what the liberal members of Congress are bound and determined to do.
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It appears at least some plan too. Dr. Alfred Bonati, who heads the American Society of Medical Doctors, says he plans to say “no” to accepting patients under a government run plan and, according to a poll he cites, so do an awful lot of other physicians:
Perhaps this is why a nationwide, nonpartisan poll of physicians this month found that a full 70 percent oppose the health care reform proposals under consideration by Congress. Sixty-six percent feel that a government-run health insurance plan would restrict doctors’ ability to give the best advice and offer the best care possible to their patients. Perhaps most importantly, 60 percent said they would not accept new patients covered by a government insurance plan.
His reasons are based in experience:
Nearly all the doctors polled have worked with Medicare. Most have likely been denied Medicare reimbursement, or given minimal reimbursement, for a course of treatment that they prescribed that best fits the needs of a patient and that patient’s family. They know that government coverage does not allow for flexibility, creativity, or, sometimes, even compassion.
I share the view of the 60 percent in the August poll — those doctors who are planning to “just say no” if government-run health coverage is implemented. Many of us already do not accept patients who are on Medicare or Medicaid because of restrictions those programs put on our decisions as doctors. It pains us to turn away a patient in need, but the narrow rules of government reimbursement programs stymie our ability to follow our oath, so we simply opt out and work with patients who are also in need but have more flexible, private coverage.
If a government option gains the popularity that is expected — after all, who would not choose the most affordable option available, and how could any option compete with one that is subsidized by taxpayers — millions of Americans will face severely limited options in choosing a doctor. As physicians reject working with a system that does not honor our oath, patients will be left opening their own checkbooks, or going into credit card debt, to get the treatment they need and deserve.
The law of unintended consequences again raises its head. The government may indeed put a public option in place – whether or not the citizens of the nation want it or not. And they may, through legislation, force insurance companies to take everyone without exception, but -at least not at this point- they can’t force doctors to accept patients under plans that don’t feel reimburses at a rate commensurate with the care given or doesn’t allow them to treat a patient in accordance with the oath they took.
Of course that then leaves that system with a problem and the government with a dilemma – does it then force MDs to take anyone who applies (as it will insurance companies) regardless of insurance plan? And if so, how do you suppose doctors and other health care providers will react?
It is these sorts of problems, dilemmas and unintended consequences that few are talking about in this great “debate”. What if it is doctors who become the Atlas that shrugs when all is said and done. What options would the government then have – in this land of the “free” and home of the brave?
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One of the little discussed but probable consequences of making health care both universal and less rewarding monetarily for doctors is an inevitable shortage of doctors. The UK has had such a problem for years. They recently raised compensation for doctors by 50% in hopes of attracting more (the average salary is now 108,000 pounds). They also hoped that the raise in pay would see more British doctors working the odd shifts and weekends.
Apparently the opposite has happened:
The NHS is having to rely on doctors from overseas because a lucrative new contract for British GPs has resulted in more than 90 per cent opting out of responsibility for their patients in the evenings and at weekends.
Consequently, one-third of the primary care trusts (PCT) are flying in foreign doctors (from Poland, Germany, Hungary, Italy, etc) to treat patients “off hours” and on weekends. That obviously drives up costs, and the exhausted doctors have been killing patients, unfortunately.
So there’s a lot of hand wringing going on about the use of foreign doctors. But for anyone who has studied markets, what has happened there is a natural reaction to centrally imposed salaries. If the average is now 108,000 pounds and it is a 50% raise, you can figure that doctors previously were making less than a good auto mechanic. Why spend the time and effort to become a doctor for such mediocre compensation?
Probably more interesting is the fact that the same doctors now making better money for their type of work, have opted not to participate more in “off hours” and “weekends” figuring they’re still not being compensated enough to do that. Call it a passive but effective way of protesting their wages.
The NHS feels that its increase in wages will help solve the problem of the internal doctor shortage:
A spokesman for the Department of Health said: ‘The NHS has always used professionals trained abroad because until recently we did not train enough for our own needs.
The phrase “until recently” implies that now they are. And it stands to reason the new wage will attract more to the profession than the old wage did. However, will they be “enough”? And will they too “opt out” of “off hours” and weekend care? If so, the problem remains – central planning will decide their work is worth “X”, the doctors will decide it is worth “Y” and until they get “Y”, they will continue to opt out.
That of course means the importation of foreign doctors will continue to grow as it has in recent years. The money that could be going to British doctors will go to the foreign ones. And British doctors will continue to refuse work on off hours and weekends while foreign doctors kill their patients.
A lovely system, wouldn’t you say?
The NY Times tells us this morning that we’re likely to get health care reform whether we want it or not.
Frankly I’m not sure why that should be a surprise to anyone. Democrats know that they have to pass something or they’ll effectively, to use Howard Dean’s phrase, “kill the presidency” of Barack Obama.
So it should come as no surprise, really, that Democrats are finally talking about whatever is necessary, to include completely ignoring Republicans, to get a bill through both houses of Congress for the president’s signature.
But the exclusion of Republicans doesn’t mean smooth sailing for Democrats. Numbers-wise they certainly have the majorities they need in both houses to pass legislation. This particular legislation, however, has become fraught with political danger. Many Democrats are very wary of it because of the demonstrated unhappiness of their constituencies and the probable 2010 impact that may have. This is especially true of more conservative Democrats, even those is primarily Democratic districts. And “Blue Dogs” who managed to win in historically red districts are terrified.
Certainly by cutting out the Republicans, they can write the legislation as they want it. But certain parts, such as the so-called “death panels” and “public option”, have little public support. And, in general, polls continue to make the point that a majority of Americans want this present attempt scratched and want Congress to “start over”.
On top of that, it appears the majority of Americans do not agree that “something” has to be passed quickly. Instead, it appears, the public wants an extended debate and believe that such a debate is just beginning.
That sets up the conflict of political interests the Democrats face. They believe, now that they’ve brought it up and the president has made it one of his signature issues, that unless they pass it (or something they can call “health care reform”) they’ll have set him up for failure. However, they are also coming to realize that passing something now despite a majority of Americans saying slow down and start over could be hazardous to their political health – and majorities.
As they finally did with George Bush and the Republicans, I believe Americans are again realizing not just the benefit but the necessity for divided government to keep both sides “honest”. Government needs a bit of competition too. And if Democrats ram health care reform legislation through, whether with our without Republican support, they’re most likely to see such “competition” become reality in 2010.
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The top 1 percent, those earning over $410,000, consists of 1.4 million taxpayers, while the bottom 95 percent contains 134 million.
In 2000, before the 2001 and 2003 tax cuts that some claim disproportionately benefited the rich, the top 1 percent paid less than 38 percent of income taxes while the bottom 95 paid almost 44 percent. Since the tax cuts, the top 1 percent’s share increased over 2 percentage points while the bottom 95 percent’s share decreased 5 percentage points. Those that argue the tax cuts solely benefited the rich are mistaken.
President Obama plans to raise the top 2 marginal tax rates on those making over $250,000 a year, and Chairman Charlie Rangel (D-NY) wants to slap a 6 percent surtax on top of that to partially pay for a government take over the health care system. These tax hikes, in addition to damaging the already badly weakened economy, will further shift the burden of the income tax to the highest earners.
In contrast, the bottom 40% of taxpayers pays no income taxes on average. In fact, they get money from the tax code well above anything they paid in because of refundable credits. And President Obama’s Make Work Pay credit, passed as part of the stimulus, will increase the money redistribute to these non-taxpayers.
So you have 1.4 million paying more in income taxes than the bottom 134 million. And 40 million of those 134 pay nothing and, in fact “get money from the tax code well above anything they paid in”, which, of course, would be any withholding.
Fair? Of course not. Additionally Democrats are interested in increasing the marginal rate by 2% on those making $250,000 a year (can you even begin to imagine how many small businesses that will impact?) with Rangel all for piling another 6% on top of that.
And yet the economic picture is looking up?
I’m emphasizing this story because of the impact it has on this obvious movement from less freedom and more welfare statism. This is directly out of that playbook. Like the old saying goes, the problem with, in this case welfare statism, is at some point you run out of other people’s money.