Free Markets, Free People

Dale Franks

Dale Franks’ QandO posts


Podcast for 29 Sep 09

In this podcast, Bruce, Michael, and Dale discuss the Obama Enigma, the current state of politics, and Iran’s progress towards nuclear weapons.

The direct link to the podcast can be found here.

Observations

The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2007, they can be accessed through the RSS Archive Feed.


The Kangaroo is Still Hopping

Today was one of those days when a couple of trends came together that should be making us think seiously about changing our current fiscal and monetary policies.

The first thing I was was this debt chart from John B Taylor that shows how our current policy will effect the national debt.

Projected national nebt as a percentage of GDP

Projected national nebt as a percentage of GDP

This what you call your unsustainable debt path.

Then, there was this:

Since the crisis began, the Fed has pumped more than $800 billon into the banking system, kept the federal funds rate near zero and purchased so many Treasurys and mortgage-backed debt that the amount of assets on its balance sheets has now swollen to $2.14 trillion.

“If you think the Federal Reserve had it tough devising a strategy to rescue the U.S. economy from of the worst recession in 70 years, just wait,” wrote Bernard Baumohl, chief global economist, at the Economic Outlook Group. “We think it is going to be hellishly more complicated this time to come up with a plan that encourages growth and keeps inflation expectations well anchored.”

All of which leads directly to this:

Chinese central bank governor Zhou Xiaochuan, who supervises more than two trillion dollars worth of dollar reserves, the world’s largest, raised the stakes by calling for a new reserve currency in place of the dollar.

He wanted the new reserve unit to be based on the SDR, a “special drawing right” created by the International Monetary Fund, drawing immediate support from Russia, Brazil and several other nations.

“These countries realize that they would suffer losses if inflation eroded the value of the dollar securities they own,” said Richard Cooper, a professor of international economics at Harvard University.

Here’s the problem.  Because we are on an unsustainable debt path, we will eventually accrue more debt than we can possibly repay.  There are many people who think that–since our debt, coupled with Social Security and Medicare obligations currently outstanding, are greater than the entire capital stock of the United States–we’re there already.  We ill be unable to pay the debt, so our choices are to repudiate it outright, or to destroy the value of the currency and inflate it away, both of which amount to essentially the same thing.  In doing so, the government will destroy the life savings of everyone in the country, save those that are in hard assets

The Chinese, whatever else they may be, are not stupid.  they know this, and they want a new worldwide reserve currency now, before everyone realizes that the dollar is in very serious danger of becoming worthless.  They don’t want to be stuck holding dollars when that happens–although their holdings in bonds will probably have to be written off.

I’ve written previously that China moved their gold reserves into the BoC a few months ago.  Some international trade deals are already being denominated in gold, tool.  It looks very much like the dollar’s days as the world reserve currency are numbered.  In fact, the dollar’s days may very well be numbered.

Federal Reserve Monetary Base. Click to enlarge.

Federal Reserve Monetary Base. Click to enlarge.

And we’ve let it happen.  Over the past 80 years, we’ve sat by and watched as the Fed–whose primary mission was supposed to be the stability fo the currency–has presided over a tenfold reduction in the dollar’s value.  For the last 30 years, we’ve watched as the debt has mushroomed–yes, even during Bill Clinton’s presidency–and we’ve refused to either cut spending or to raise taxes to a level commensurate with our increased spending.  In short, we’ve looted the system, and the looting is nearly complete now.

And now, with all the trumpetings of a coming economic recovery, the Fed has to try and figure out how to re-call the more than doubling of the monetary base we’ve engaged in in the past year without completely crashing the economy.  Failure to do so, of course, means serious inflation–which will further degrade the value of the dollar.

Hop.  Hop.  Hop.


Podcast for 30 Aug 09

In this podcast, Bruce, Michael  and Dale discuss the top stories of the past week.

The direct link to the podcast can be found here.  The link goes to BTR since my old computer is inexplicably dropping out of recording mode.

Observations

The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2007, they can be accessed through the RSS Archive Feed.


Podcast for 23 Aug 09

In this podcast, Bruce  and Dale discuss the top stories of the past week.

The direct link to the podcast can be found here.

Observations

The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2007, they can be accessed through the RSS Archive Feed.


Ducati Execs Do the Right Thing

It’s no secret that the recent worldwide economic downturn has seriously affected motorcycle sales, sending them plunging by a third.  Now here in the United States, it’s become a common thing to see executives at big firms take huge bonuses, even when the company isn’t doing so hot.  The most egregious example of this was when failed insurer AIG took billions of dollars in Federal money for a bailout of the company, then promptly paid off millions and millions in executive bonuses with it.

Apparently, things are different in Italy, where senior executives at Ducati, faced with slumping sales, did the right thing.

Senior executives at Ducati have taken a 10 per cent cut in their pay and will not receive any bonuses because of the decline, while [Ducati CEO] Mr [Gabriele] Del Torchio said he had taken a 20 per cent pay cut.

Let’s leave aside any legalistic or other arguments about whether the executives should be compensated or not.  At the end of the day, when you’re cutting production, and laying off staff, it seems only right that the pain should be shared by everyone else in the company, all the way to the top.

Kudos to Ducati for setting an example of shared sacrifice.


Podcast For 16 Aug 09

In this podcast, Bruce, Michael, Lance, and Dale discuss the furor over the Health Care bill, and the sate of the economy.

There is no direct link to this week’s podcast, since my computer went TU right in the middle of it.  You’ll have to listen at BlogTalk radio.

Observations

The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2007, they can be accessed through the RSS Archive Feed.


Straight Talk on Health Care

We need to face a few facts about health care reform.  Our current system of health care funding is broken.  It’s not broken because we have a free market in health care. It’s broken because we don’t.

Spending in the US health care system is essentially out of control.  The US spends almost 16% of GDP on health care.  Canada, our nearest neighbor, spends a bit more than 10%.  In western Europe, the figure is generally between 7% and 9% of GDP.  It’s something I addressed in my book a few years ago:

Why is spending so much higher in the US, with its supposedly free-market system?  Why is it, with all that spending, that regular medical coverage doesn’t exist for 40 million Americans, when, in the rest of the industrialized world, there is 100% health coverage?

Something is deeply wrong with the financing of the US health-care system.

Part of the problem is that we really don’t have a free market in health care. Individuals, by and large, don’t buy health care policies. Health insurance is employer-provided. In effect, however, this is underwritten by the US government by making health care premiums deductible for businesses, which results in billions of dollars in lost tax revenues. And then, of course, you have to throw in the $300 billion or so that the state and federal governments spend outright to provide health care.  And, of course, once you hit 65, you’re on the government’s health care gravy train, because you’ve got your Medicare, which also covers prescription drugs, now.

Why do we spend too much for health care in the US? The Heartland Institute, a public policy think-tank, has listed several reasons:

1) Government subsidies to health care increases demand by artificially lowering costs.

2) Favorable tax treatment of employer-provided health care has the same effect.

3) Lower-income people without health care must rely on emergency room health care delivery at substantially higher cost.

4) Health care buyers and sellers meet in a “market” that is heavily regulated by the government.

5) State governments increase health care costs by mandating benefit coverages.

6) State governments artificially reduce the supply of health care by requiring Certificates of Need before health care providers can expand services.

7) States interfere with the creation and operation of PPOs by fixing prices or the range of services they can offer.

So, really, we have what is, in many ways, the worst of both worlds. We have a market-based system, but one in which market incentives are minimized through regulation and subsidies. In effect, government policy bids up health care prices, while at the same time interfering with the market forces that keep a lid on prices.

It’s no wonder that more and more people are looking at single-payer, government-provided health care as an alternative to what we already have. At the very least, a single payer system would end the inefficient and fragmented ways by which health care is currently purchased.

This is not a situation we can afford to ignore for long.

We have ignored it, though–although that appears to have come to a screeching halt.

Because of various government intereferences, more than 1/3 of all health care spending is purely administrative.  By contrast, Canada’s administrative burden on health care funding is about 1%.  If we were to switch over to a single payer system, there is an excellent chance that we would, in fact, spend less money on health care than we currently do.

Are there horror stories about health care in Canada or the UK?  Sure.  There are horror stories about our system, too.  For instance, you can find stories of families that were denied coverage, and were forced in to financial disaster all the time.

Canada, of course, has the rather unique problem of being a country with 1/10 of our population being spread over an equal amount of real estate.  In that situation, if you don’t live near a major metropolitan center–and Canada only has about 10 of them, there’s a shortage of available services.  In Britain, there are terrible NHS hospitals, but there are also excellent ones.  But the same it true in the US.  If you live in, say, Houston, Ben Taub Hospital probably wouldn’t be your first choice for treatment.  M.D. Anderson, however, would.

The bottom line, however, is that a single payer system would, in fact, deliver an equal or better level of health care as we currently receive, and probably do so at a lower cost.

But there is a fundamental problem with our current debate.  We are arguing over whether we should keep the system we have, or move to a system that sets us on the path to a single-payer system.  But those aren’t the only alternatives. There is another option that is being lost in this debate.  The democrats don’t want to mention it for ideological reasons.  The Republicans don’t mention it because of…well…incompetent buffoonery, I guess.

The alternative, of course, is to make the case that our current system costs so much, and is so distorted, because of government interference.  We have a mixed system of health care funding in which the government’s intervention imposes a  wide range of unnecessary costs.  So our choice is not to keep what we have, or eliminate the administrative overhead by turning it all over to the government.  The third choice is to return to a free market in health care.

Eliminate state by state coverage mandates, which result in 50 different–and sometimes wildly so–regulatory regimes.  Eliminate federal and state laws that prevent insurers from creating nationwide plans and risk pools.  Eliminate employer health-care coverage, and personalize it, to make it personal and portable.

Here’s another idea:  allow people to buy health insurance.  That isn’t what we have now.  We have pre-paid health care.  The two things are wildly different.  For example, look at how auto insurance works.  Imagine how much your car insurance would cost if we expected our insurance to cover 80% of the cost of oil changes, tire rotation, wiper blades, new tires, regular service, etc.  But that’s precisely what we expect medical insurance to do.  And then we wonder why it costs so darn much.

We need to allow insurers to offer simple catastrophic care coverage, with varying deductibles.  That way, you can pick up the tab for your own doctor’s visits, but you don’t have to worry about bankrupting yourself if some idiot runs a stop sign and knocks you off of your motorcycle.  We need to allow anyone who wants to set up a medical savings account.  Heck, if we really want “the government” to finance it, we could offer a 100% tax credit for health care expenditures.

We don’t need the government to rescue us from the unsatisfactory state health care is in.  We can accomplish the same goals of universal coverage and lower cost, by getting the government out of health care as completely as possible.  There are so many ways we could use free markets to relieve us of the distress the current system of funding is in, that they’re almost impossible to enumerate.

And best of all, doing so would comport with the country’s traditions of freedom, and individual choice.

And one final thing.  With a real free market in health care, if there’s a problem, you’ll also get accountability.  You’ll get access to courts where you can sue a private insurer who defrauds you, or someone who gives you substandard care.  What you’ll get with a single-payer system is no recourse.  If the government turns down your procedure, or you don’t get the health care you should, or if you keel over before your slot on the waiting list comes up, there’ll be nowhere to go, and no one accountable, any more than there is now if the public schools fail to adequately educate your children.

But free market reform doesn’t even seem to be on the table.


Style Evolves

So, based on some comments throughout the day, I’ve made a revision to the site again.  What I see on my monitor is now red, dark blue, white, and taupe.  I don’t see the “olive green” any more.  If you still see olive green on your monitor, let me know, so that I can do some re-shading.

As far as the column widths go, the main content area is 1000 pixels wide.  A variable width template doesn’t work out for everyone.  Sorry, but that was one of the complaints with the old template, so If you use a really wide screen at 1900px wide, then this is something you’re gonna just have to deal with.

For everyone else, 1000px seems like a good compromise, although I can go wider.  I just don’t want to make people who are still using 1024×768 to have to scroll horizontally to see the whole page.


Style Evolves

Don’t panic!  You’re at QandO.  The only thing that’s changed is that I’ve been a busy little beaver, and have–finally!–changed to a new template designed specifically for QandO, instead of the quick and dirty one I slapped together when we switched to WordPress.

I think you’ll find this one easier to read, and easier on the eyes.


Podcast for 09 Aug 09

In this podcast, Bruce, Michael, and Dale discuss the furor over the Health Care bill.

The direct link to the podcast can be found here.

Observations

The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2007, they can be accessed through the RSS Archive Feed.