Free Markets, Free People

Government


Dead Ed, the Collapse, and eBay Saves Us All

My first reaction to Pres. Obama’s speech last night was depression.  Here were the Democrats giving the president standing O’s for completely converting the Republic into a social democracy.  I mentioned that on Facebook, and one of my readers said it reminded him of Amidala’s line from Star Wars Episode III:  “So this is how liberty ends…with thunderous applause.”

But on more careful review, I find that I am not, in fact, depressed over the long-term.  Indeed, last night’s speech seems to me not to herald the beginning of a new era for big government and socialism, but rather the last gasp of a dying ideology.

We are, I think, at the cusp of a new era, but it isn’t the one that Pres. Obama and his acolytes in the Congress are thinking it is.  Neither the Democrats nor the Republicans, it is clear, have any idea about what is happening.  Very few people do.  I am going to try and explain something very complicated, and do so very simply, and as briefly as I can.  So, with the realization that all simplifications are inevitably wrong in some particular, let me explain.

“Ed’s dead, baby.  Ed’s dead.”*

We stand now, I think, in a very historically similar position to the one described by Barbara Tuchman, in the beginning chapter of her monumental work on the outbreak of Word War I, The Guns of August:

20 May 1910:  The past passes in review

20 May 1910: The past passes in review

So gorgeous was the spectacle on the May morning of 1910 when 9 kings rode in the funeral of Edward VII of England that the crowd, waiting in hushed and black-clad awe, could not keep back gasps of admiration. In scarlet and blue and green and purple, 3 by 3 the sovereigns rode though the palace gates, with plumed helmets, gold braid, crimson sashes, and jeweled orders flashing in the sun. After them came 5 heirs apparent, 40 more imperial or royal highnesses, 7 queens, and a scattering of special ambassadors from uncrowned countries. Together they represented 70 nations in the greatest assemblage of royalty and rank ever gathered in one place and, of its kind, the last. The muffled tongue of Big Ben tolled 9 by the clock as the cortege left the palace, but on history’s clock it was sunset, and the sun of the old world was setting in a dying blaze of splendor never to be seen again.

Four years later, the world order of 1815-1914 was drowned in fire and blood.  The Age of Royalty was over, and the Age of Democracy had begun.  I believe that Pres. Obama’s speech of last night may very well be the historical equivalent to Edward VII’s funeral.

Ever since it began in late 2007, a blog called Fabius Maximus has been arguing that we are watching the decline and fall–indeed, collapse–of our current economic and financial system.  A précis of the argument can be found here, and a more comprehensive archive can be found here.  Just as the black-clad crowds lining the streets of the capitol of the British Empire on the morning of May 20, 1910 might have found it inconceivable that their generation would witness the collapse of both the European geopolitical regime, and, ultimately, the British Empire itself, so it may be inconceivable to us that we are witnessing the collapse of the Post-WWII economic and political regime.  But I believe it is nevertheless true.

“MONEY! Doesn’t it make you feel good just to say that, Jerry?”

Let me start by explaining what money is.  Money is a medium of exchange, that is, it is an object of some kind that I can exchange for goods and service, rather than trying to barter with people to obtain what I need.  It may consist of elaborately carved cowry shells, tiny beads painstakingly stitched to strips of leather, round pieces of metal with the image of guys named Julius or Claudius hammered into them, or little pieces of high-quality paper that say “Federal Reserve Note” on them.

But whatever it is, money has certain minimal characteristics.  It must be convertible, i.e., if I do a job for you, I have to be willing to accept it as payment, and whoever I buy bread or clothes from has to be willing to accept it in exchange, too.  It also has to be difficult to replicate, so that when I accept it, I am reasonably assured that it is the genuine article.

Get 'em while they last.

Get 'em while they last.

For nearly all of recorded history “money” has been synonymous with gold or silver.  And right up till the late 18th century, it was more or les the perfect money.  It was intrinsically valuable, in that raw silver or gold was as easily convertible as hammered or minted coins.  It was also practically impossible to counterfeit, the best efforts of alchemist to convert dross into gold notwithstanding.  It was also relatively rare, and it difficult to obtain new supplies of it without intensive–and extremely expensive–mining operations.

Additionally, there simply wasn’t much to buy.  Most people grew their own food, produced their own clothes from flax or wool, and built their own houses by hand.  Money was essentially a luxury, and it bought mainly luxury goods for fat cats.  Kings could raise and equip armies with it.  Merchants could buy nice clothes. But for the most part, money was a tool for use by the rich, and by the relatively few urban dwellers.  And, as such, gold or silver was perfect for that level of economic activity.

By the 19th century, though, there were lots more things to buy, and lots more city dwellers, and that trend was increasing rapidly.  Hard money became…problematic.  The thing about having a hard currency based in gold or silver is that, at the end of the day, whether you run a fully convertible gold standard, or some sort of fractional reserve system, the size of the money supply is always constrained by the amount of gold or silver on hand.

If the economy takes off on a tear, it’s extremely difficult to expand the money supply to meet the demand.  When the supply dries up, the economy just shudders to a quick stop, because nobody has enough spare money to fund more expansion.  So the economy collapses until it reaches equilibrium with the available money supply, and the cycle starts again.  Look at a chart of US economic activity in the 19th century and you see it’s a system of booms and busts, which were far steeper than any we’ve seen since the depression.  So the fundamental problem with a gold standard is that it’s relatively inflexible when used by a vibrant, diverse economy.  When everybody needs gold, and the demand is unpredictable, gold is very difficult to use unless you’re willing to live with severe booms and busts.

The Great Depression was the death knell for the gold-based world economic system.  Those nations that jettisoned gold the fastest, recovered the most.  Of course, WWII intervened in the depression, so it took a decade or so to get back to the business of commerce–as opposed to the business of building things to kill Nazis.   But, by 1944, everyone–on the Allied side, at least–had recovered enough breathing room to meet at Bretton Woods, NH, and hammer out a new economic system.

What they came up with was a system of fiat currencies, all freely convertible in the FOREX market.

Now, governments could adjust their money supplies appropriately by printing more money or less of it, and taxing their populations more leniently or more severely, as needed.  This is the system most of us have grown up with…and it’s dying.

It’s dying because of something innate in human nature that the gold standard was better equipped to deal with:  the urge to loot the system.

It’s an urge that has always been there.  Sometimes it has been the result of intentional government action to cheapen the currency.  If you were, say, the king of Persia, you didn’t need to consult the priests of Ahura Mazda to know that if you changed from using 10 grams of gold per coin, to using only 9 grams per coin, you could stretch your gold supply by 10%.  You could then take the extra gold, and buy yourself a nice hat.  Or use the extra gold to make one.  Whatever.

Of course, people would notice this pretty quickly, and items that used to cost 9 gold pieces would cost 10 pieces–inflation!–but because gold had an intrinsic value, the same weight of gold could be exchanged.  It was still pernicious, of course, but because gold had an intrinsic value–and because the supply of gold was relatively inflexible–it wasn’t usually seriously pernicious.

Sometimes, the urge to loot the system has been done by private individuals, who figured out that if they shaved a bit off the edges of their gold pieces, they could accrue enough gold shavings to buy themselves a nice hat, too.  This, by the way, is why when we began minting coins instead of hammering them out. They were minted with milled edges, making shaving attempts immediately obvious.

By the 19th century, the looting attempts became widespread, populist movements, like the “Free Silver” movement.  At the time, gold was real money.  If you took a bunch of gold to a Minting facility, the mint would return you an equal weight in gold coins–minus a nominal minting fee.  After huge silver deposits were discovered at places like the Comstock Lode, populist agitation began for minting silver in the same way, at a ratio of 20 ounces of silver for 1 ounce of gold.  The massive amount of silver floating around would, of course, have made this an extremely inflationary policy, and the farming and borrowing interests would have benefited by paying off bills for less than they had borrowed…enabling themselves to use the extra saving to buy a nice hat.

But during the First Age of Money, the looting was always constrained by the fact that gold had an intrinsic value, and that the supply of gold was inelastic.  There were, therefore built-in constraints to the looting impulse.

When the Bretton Woods Agreement launched the Second Age of Money, it solved the problem of the inelasticity of the money supply, and enabled monetary authorities to fine-tune the money supply in response to economic activity.  That was a good thing in the sense that it flattened–although did not eliminate–the business cycle fluctuations.

But the bad thing was that it completely removed any physical restraint on the money supply.  It depended on governments and monetary authorities to exercise self-restraint, rather than impersonal, externally imposed constraints.  The result has been 65 years of continually expanding credit, more or less constant inflation to a greater or lesser degree, and unrestrained spending and borrowing.

Governments–and their democratic (small “d”) constituencies quickly learned that they could loot the system.  Social insurance, medical care, military expansion…whatever the Big Idea of the minute was, we could have it.  And if we didn’t want to pay the taxes to the government to pay for it–and, mostly, we didn’t–we could simply borrow it.  We could obtain a whole bunch of little green pieces of paper now in exchange for a promise we’d pay back more little green pieces of paper sometime in the future.  In the meantime, we could buy all the hats we wanted!

But now, we are obligated to pay back various people about fifty trillion pieces of green paper.  Unfortunately, the entire household worth of everyone in the country is worth about forty trillion pieces of green paper.

How can the current economic and financial system possibly be considered solvent at this point?  How will re-expanding the cycle of debt re-invigorate it?

No, we’ve had our fun.  We got to loot the system for 65 years.  Now, the hat bill is coming due.

I suspect we’ll pay the hat bill the same way that Germany repaid their war reparations debt after WWI.  “Hey, you remember that reparations bill for 3 billion marks that we’re supposed to pay next week?  Yeah.  I just wanted to let you know that we’ve sent that order off to the printers, this week, and we should have that printed up for you by Tuesday.”

The result was massive hyperinflation, the collapse of credit, and 5 years of compete economic stagnation, serious economic pain, severe unemployment…and the ability to start over in the mid-20s with a clean balance sheet.  Clean enough, in fact, that by 1936 Germany had more or less completely emerged from the Great Depression, while the employment rate in the United States hovered at around 18%.

What Pres. Obama is proposing may result in nothing more than additional spending that helps bring about the collapse of the Post-WWII economic regime, while at the same time providing–temporarily–a social safety net that will provide some help as we pass through a difficult transitional period.

“I was there at the dawn of the Third Age of Mankind…”

OK.  Maybe it’s not that grandiose, but I think we are seeing the dawn of the Third Age of Money.

No one in the government realizes how the economic world is changing.  So their proposed solutions are likely to be exposed over time as ineffective and, perhaps even counter-productive.  The credibility of governments around the world is now invested in staving off an economic collapse.   When their failures become evident, and their “solutions” are exposed as fantasies, that credibility will collapse.  Who will want to buy government bonds, or use worthless government money?  Who will trust the governments who lead us into the economic abyss?

Unfortunately, rather that realizing that we are entering a transition, and trying to discover how to shepherd us through that transition, they are invested in preserving the dying system of government-regulated money supply and credit.  And even if they realized that we were in a transitional period, they would still do nothing about it because it would require voluntarily releasing their power over the economy.

Governments have always been in charge of money; determining what money is, how it will be exchanged, how new money will be created, etc.  In part, this is traditional, in that only government had the resources and ability to fund and oversee mining and exploration activities, regulate what legal tender consisted of, and all of the other monetary functions.  There simply were no other large organizations in existence to perform those tasks.

It wasn’t until the 17th century that organizations began to emerge that could begin performing those tasks, and not until the 18th century that it became practical.  Private money of various types began to sprout up everywhere.  18th-century America was, for a time, replete every decent-sized bank issuing its own currency based on deposits.

Eventually, the Federal government cracked down on that private money, not so much from jealousy of the government’s role as the issuer of currency, but because private banks suffered from the same tendency to loot the system, issuing more and more inflated currency until it was worthless, and they ended up wiping out their depositors in the collapse as their obligations came due.  There were some solid money banks of course, but the spectacular failures of so many private currency attempts led the government to tax them so heavily that private currency issuance became uneconomic. Governments may not have been perfect, but the constraints of the gold system meant that they didn’t fail as completely and spectacularly as private banks did.

What was missing in private currency of the time, and what has been missing in the current post-WWII financial system is feedback.  Yes, there is some, but it takes a long time to filter into the monetary authority, and is derived indirectly from statistics on economic activity, rather than by any sort of direct observation.  The Fed raises interest rates today, for instance, and it takes around eight months to observe the indirect effects of the monetary policy change.   This is why the role of the Fed, has often been described as steering a car by looking through the rear-view mirror.  Based on seeing where you’ve been, you make decisions about where you must go.  That may be a form a feedback, but it is so separated in time from the inputs that it’s an inherently unstable system.

By the same token, what killed depositors in banks that issued private money was a lack of feedback.  It wasn’t possible to see that bankers were looting the system in time to withdraw your money.

We call this lack of feedback asymmetrical information.  We’ve never been able to even approach the ability to have full information about what a bank or government is doing that may affect the money supply, or economic activity as a whole.  We’ve never been able to see all sides of the story, as it were.  So, we’ve had to more or less leave it in the hands of government, simply because governments have been the only organizations with the size and scope to reduce, even partially, the problem of feedback.

So, it seems pretty hopeless, doesn’t it?  The financial world we’ve grown up with is collapsing under the sheer weight of looting.  If governments can’t do it, and a return to the gold standard can’t do it, then where are we?  At the edge of another dark age?

Not quite.

I foresee the rise of private money once again, and returning in such force as to negate the government’s role in the economy.  In fact, the pieces for creating the Third Age of Money are already there.

Your new ATM

Your new ATM

The Internet will be the platform for the new money.  But it’s just the platform; the communications media.  The actual objects that make up the Third Age of Money will almost be located in cyberspace.

First, there is encryption.  In the not-too-distant future, you will go online with a persona, i.e., an online identity with a unique, highly encrypted digital signature.  No more logging in with different user names and passwords at 100 different web sites.  Your persona will be uniquely identified as you through the use of 4096-bit or 8192-bit public key encryption.  Your persona will be impossible to forge or duplicate.  It will be unique.  Your “bank” and your “money” will be similarly encrypted.

Second, is your ATM/debit card.  It won’t be exactly the same, of course.  It will be far more secure, probably through the use of biological identification systems to verify authorization, such as retinal scans.  It will be linked directly to your persona’s bank account.

Third, is the ability of all the major banks and credit card companies to do online transactions, and to convert one system of private money to another at a publicly known exchange rate.  So, you can pay directly to your account–or withdraw from it–in Discover Dollars, or MasterBucks, or Credit Suisse Francs.  Or perhaps there might even be a universally acknowledged unit of currency–the “Credit”–that all the private companies agree to use.

But, the most important element of creating a reliable private money system that is resistant to looting the system is feedback. The reduction of asymmetrical information.  And that exists, too.  eBay has been using it for years.  Indeed, in no small way, the system implemented by eBay may be a key element of our future.

Imagine a system where, every time I do business with your persona, I rate your reliability, and it doesn’t matter of the persona is an individual or a bank…or a government.  Every day, millions of people who do transactions in MasterCard can rate the reliability and value of the MasterBucks system.  Private companies like Standard and Poors or Moody’s would not only rate MasterBucks, but consumers would rate the reliability of S&P or Moody’s judgments.

And not only are the bank’s persona’s being rated, but your persona is as well, by every one who does business with it.

Put them all together and you have a secure form of private money that’s convertible, impossible to forge, and is subject to constant feedback about its value and performance.  Does MasterBucks have too high a debt ratio or too much exposure to non-performing loans at MasterCard?  No problem.  It’s instantly convertible to Credit Suisse Franks.  And the conversion rate lowers MasterBucks reliability ratings even more, signaling the company to correct its course, or lose its depositors.

Think of the implications this has for taxation, especially income taxation.  Keep all your money in Credit Suisse Francs, say, and the US government will never even be able to see a record of your deposits or withdrawals.  How will they track your income?  And who will want to pay governments that failed to prevent the collapse for…well…anything?  Who will accede to the demand for money by governments that repudiated their debts, and destroyed the life savings of millions?

I can foresee huge implications for the future that are very pro-liberty.  In the long term.  In the short term, though, if I’m right, and the current financial system is collapsing we will be in for a very rough decade or so.  Very rough indeed.

_________________

*Apologies to Quentin Tarantino.


Transparency Redefined

Perhaps you’ve heard about Joe Biden’s latest gaffe regarding his task of overseeing the Recovery Act:

How can the public know that the money is allocated correctly? That’s the question CBS’s Maggie Rodriguez asked.

“We’re going to put every bit of this transparently up on a website. You’re gonna know. You’ll be able to go on a website. Every single bit of this will be on a website,” he explained.

What website?

“You know, I’m embarrassed. Do you know the website number?” he asked looking offstage. “I should have it in front of me and I don’t. I’m actually embarrassed.”

He was able to get the website “number” from someone off camera.

“Recovery.gov. It’s Recovery.gov. It’s up and running,” he said with newfound confidence.

If that doesn’t inspire confidence, then maybe you should just go visit the “number” VP Joe suggested. Before you do, however, keep in mind that, from far to wide and low to high, the Obama administration has been touting not just the need for transparency,

Orzag said the two goals are to spend stimulus money “quickly” and “wisely,” adding, “We have to go beyond normal procedures to a higher level of transparency.”

But also on the determination and ability of the administration to deliver it:

“I [Pres. Obama] am also proud to announce the appointment of Earl Devaney as Chair of the Recovery Act Transparency and Accountability Board. For nearly a decade as Inspector General at the Interior Department, Earl has doggedly pursued waste, fraud and mismanagement, and Joe and I can’t think of a more tenacious and efficient guardian of the hard-earned tax dollars the American people have entrusted us to wisely invest.”

Apparently, the whole point of Recovery.gov is to show where your tax dollars are going, and what they are being spent on. So let’s have a gander.

On the front page, my eyes were immediately drawn to the large graph dominating the left side of the page:

Recovery.gov breakdown of what the $787 Billion is going to

Recovery.gov breakdown of what the $787 Billion is going to

Wow! According to that chart, the largest expenditure by far ($288 Billion) is going to tax relief. Heck it’s twice as much as the next category of State and Local Fiscal Relief which is only get a paltry $144 Billion. That’s fantastic news. I feel so bad now for thinking that the bill was nothing more than a huge wealth transfer and goodies giveaway. Tax relief is always a good idea when it comes to pulling ourselves out of a recession.

But wait? What’s that asterisk? I click on the chart and am taken to a lovely bubble graph that displays the same information. But with more bubbles, which are always nice. And bubble are transparent too, right?

Recovery money.  Now in bubble form!

Recovery money. Now in bubble form!

Yep. There it is again, that $288 Billion in tax relief, dwarfing all the puny spending bubbles. Of course, being an intelligent person, I know that you have to add all of the spending bubbles together to see how they compare to the tax relief, but it’s strangely comforting to see that giant, transparent bubble named Tax Relief making all the other bubbles seem, somehow, insignificant.

Unfortunately, that asterisk is still there as well. I follow it down to the bottom of the page where, in tiny print, I see these words:

* Tax Relief – includes $15 B for Infrastructure and Science, $61 B for Protecting the Vulnerable, $25 B for Education and Training and $22 B for Energy, so total funds are $126 B for Infrastructure and Science, $142 B for Protecting the Vulnerable, $78 B for Education and Training, and $65 B for Energy.

I think my bubble has burst. But that’s how government works now I guess: making bubbles bigger than they ought to be.


Thoughts On The Speeches

First the Obama speech.  My overall impression was that of a campaign speech.  High flying rhetoric, intentions hidden in comfortable rhetoric that Americans find more acceptable than other and contradictions which were so evident that I’m surprised the media let them pass (ok, not really, but I thought I’d jab them a little).  However, in reality, it was much more than that as I’ll cover a little further on.  But, as usual, very well delivered.  

The Jindal speech, on the other hand, suffered by comparison.  And, in fact, it suffered badly.  Whoever helped him put that together should have skipped the “folksy” stuff and gotten down to business.  By the time he finally got to the point, I was slack jawed with stupification.  Having just sat through a 45 minute Obama speech I wanted a quick “give it to me now” response.   5 minutes into the Jindal speech we still didn’t know where he was going with it.  My guess is by that time, most people who had thought about watching him had thrown up their hands,  hit the can and were raiding the liquor cabinet.

Back to the Obama speech.  As I thought about it more I realized he’d very carefully hidden the intention of his administration and the Democrats to convert this country into a cradle to grave European-style socialist country.  Seriously.  It’s all in there, but you have to carefully pick it out.   While he never came right out and said it,  he sure hinted around the edges.  Probably the closest he came to actually laying it out was this:

That is why it will be the goal of this administration to ensure that every child has access to a complete and competitive education –- from the day they are born to the day they begin a career. 

The same basic message was given concerning health care.  When speaking about the budget he made this statement:

 It includes an historic commitment to comprehensive healthcare reform –- a down payment on the principle that we must have quality, affordable healthcare for every American.

Two things to note – he didn’t say “health insurance” for every American. He said “health care”. And he also seems to have backed off of not making this mandatory.

He hit it again when talking about the two largest entitlement programs we have:

To preserve our long-term fiscal health, we must also address the growing costs in Medicare and Social Security. Comprehensive healthcare reform is the best way to strengthen Medicare for years to come. And we must also begin a conversation on how to do the same for Social Security, while creating tax-free universal savings accounts for all Americans. [So those "savings accounts" of old W's weren't so bad after all, huh? - ed.]

And here is where one of the glaring contradictions comes out. While claiming that the government’s version of health care will be much more efficient and less costly than the private version, he contradicts himself when he says we must get the spiraling Medicare and Medicaid costs under control. I’ll remind you of what we were promised Medicare would cost when it began, and I’ll further remind you that the real cost ended up at least 6 times that amount. I’ll also remind you that each year, that program has about 60 billion in waste, fraud and abuse. One of the efficiencies Obama claims will bring cost down is the elimination of that waste, fraud and abuse. That promise is as old as politics and still unfulfilled.

Last night, during the liveblogging, when Obama got to the auto industry, and started throwing “we” around, I asked “who is the ‘we’ he keeps talking about? Of course when you read the passage, I’m sure you will be able to figure it out:

As for our auto industry, everyone recognizes that years of bad decision-making and a global recession have pushed our automakers to the brink. We should not, and will not, protect them from their own bad practices. But we are committed to the goal of a retooled, reimagined auto industry that can compete and win.

I bet “we” are. The question is, will the “we” who are known as the public be willing to buy these autos designed and “reimagined” by government?

And, of course, the populist Obama was present as well . That’s a very old and tired political trick which still manages to work unfortunately. A method of creating an emotional distraction while you propose things which are much worse:

This time, CEOs won’t be able to use taxpayer money to pad their paychecks or buy fancy drapes or disappear on a private jet. Those days are over.

Just hearing a President of the United States say such a thing should send shivers up your spine. Instead it was one of the major applause lines of the night.

And this too should have caused those who love freedom to pause and understand the underlying promise of the words spoken:

A surplus became an excuse to transfer wealth to the wealthy instead of an opportunity to invest in our future. Regulations were gutted for the sake of a quick profit at the expense of a healthy market.

Transfer wealth to the wealthy? How by letting them keep more of their money? How is that a “transfer”? Well, it becomes a transfer if you believe it really isn’t theirs at all. And the spending spree the Democratic Congress and the Obama administration are embarking upon certainly makes that case. With the lie about “no earmarks” in the “stimulus” bill again given voice, and with a 410 billion omnibus spending bill with 9,000 earmarks and another trillion being thrown into the financial sector, not to mention the cost of health care “reform”, S-CHIP and the coming cap-and-trade system, there’s no question where the “transfer of wealth” will be going during the next 4 years is there?

~McQ


Schumer – Take It Or Leave It

Sen. Chuck Schumer has decided he, not the Constitution, should be final arbiter as to whether states take the stimulus money or not:

“No one would dispute that these governors should be given the choice as to whether to accept the funds or not. But it should not be multiple choice.”

So he sent a letter to the OMB Director, Peter Orszag in which he said:

As you know, Section 1607(a) of the economic recovery legislation provides that the Governor of each state must certify a request for stimulus funds before any money can flow. No language in this provision, however, permits the governor to selectively adopt some components of the bill while rejecting others. To allow such picking and choosing would, in effect, empower the governors with a line-item veto authority that President Obama himself did not possess at the time he signed the legislation.

Well, Chuckie, no language in there says they must accept it all either. And, btw, many governors do enjoy line item vetoes.

And then there’s that pesky 10th amendment.

~McQ


On Deck: Universal Health Care (Updated)

According to Ezra Klein, the Obama administration intends to finagle universal health care coverage out of its budget proposal, including an individual mandate:

I’ve now been able to confirm with multiple senior administration sources that the health care proposal in Obama’s budget will have a mandate. Sort of.

Here’s how it will work, according to the officials I’ve spoken to. The budget’s health care section is not a detailed plan. Rather, it offers financing — though not all — and principles meant to guide the plan that Congress will author. The details will be decided by Congress in consultation with the administration.

One of those details is “universal” health care coverage.

Some of you may recall that Obama, while in campaign mode, consistently denied that he wanted to introduce mandates as part of his health care package. Paul Krugman cited that opposition as the major difference between Obama and Hillary Clinton:

Let’s talk about how the plans compare.

Both plans require that private insurers offer policies to everyone, regardless of medical history. Both also allow people to buy into government-offered insurance instead.

And both plans seek to make insurance affordable to lower-income Americans. The Clinton plan is, however, more explicit about affordability, promising to limit insurance costs as a percentage of family income. And it also seems to include more funds for subsidies.

But the big difference is mandates: the Clinton plan requires that everyone have insurance; the Obama plan doesn’t.

Mr. Obama claims that people will buy insurance if it becomes affordable. Unfortunately, the evidence says otherwise.

Now that he’s been elected it’s presto hope’n change-o, and voila! Mandates!

Ezra Klein notes that the difference between the pre- and post-election plans is based on one word in the budget — “universal”:

That word is important: The Obama campaign’s health care plan was not a universal health care plan. It was close to it. It subsidized coverage for millions of Americans and strengthened the employer-based system. The goal, as Obama described it, was to make coverage “affordable” and “available” to all Americans.

But it did not make coverage universal. Affordability can be achieved through subsidies. But without a mandate for individuals to purchase coverage or for the government to give it to them, there was no mechanism for universal coverage. It could get close, but estimates were that around 15 million Americans would remain uninsured. As Jon Cohn wrote at the time, “without a mandate, a substantial portion of Americans [will] remain uninsured.”

In essence, unless everyone is forced to buy insurance, there is no “universality,” and the benefits of large participation in the insurance pool cannot be realized. An even shorter version is, if healthier people opt out, then sicker people can’t sponge off them.

The budget — and I was cautioned that the wording “is changing hourly” — will direct Congress to “aim for universality.” That is a bolder goal than simple affordability, which can be achieved, at least in theory, through subsidies. Universality means everyone has coverage, not just the ability to access it. And that requires a mechanism to ensure that they seek it.

Administration officials have been very clear on what the inclusion of “universality” is meant to communicate to Congress. As one senior member of the health team said to me, “[The plan] will cover everybody. And I don’t see how you cover everybody without an individual mandate.” That language almost precisely echoes what Senate Finance Chairman Max Baucus said in an interview last summer. “I don’t see how you can get meaningful universal coverage without a mandate,” he told me. Last fall, he included an individual mandate in the first draft of his health care plan.

The administration’s strategy brings them into alignment with senators like Max Baucus. Though they’re not proposing an individual mandate in the budget, they are asking Congress to fulfill an objective that they expect will result in Congress proposing an individual mandate. And despite the controversy over the individual mandate in the campaign, they will support it. That, after all, is how you cover everybody.

So it looks like you better start scarfing down those cheeseburgers, eating transfats, smoking cigarettes, or whatever it is you do that’s not considered healthy, because once the federal government pays for health care (which is what individual mandates essentially works out to), then it also has the power to determine what “healthy” means. After all, since everyone will be pulling from the same health care pot, and since each claim on that pot diminishes what someone else can get, then each claim must be a legitimate one as weighed against all the competing interests. Because the viability of the system depends on healthy people making much fewer claims than sick people against the collective health care resources, the government now has a vested interest in making people healthier, whether they like it or not.

Another way to put it is that we will have entered a Pareto optimal world where no one can change their position for the better (i.e. receive more of the pooled benefits) without hurting someone else. Whereas in a competitive market system, each person can get at least as much health care as he or she wants to buy and can afford, in a Pareto optimal world, we are competing for the same scarce resources (health care dollars), and our claims are granted based on a a third party’s (the government’) determination of worthiness. No longer can we get what we can afford, we get a predetermined portion of what the government decides to pay for. That, of course, is why there are 6+ month waiting lists for routine health care in places like Canada and the UK.

Possibly the most depressing result of yoking America with universal health care, is that we can pretty much kiss medical and pharmaceutical innovation good bye.

Government run health centralizes the risks of exploring new technologies, medicines, techniques, etc. Centralized risk translates into (i) observing a very cautious approach to advances, and (ii) the politicization of research … From a purely capitalist point of view, opportunites that might have been pursued otherwise, are foregone since those who accept the risks of pursuing them do not get to maximize their reward, so instead those advances must come from the government. With government as the sole innovator, there are now two types of risk (1) the risk of failure (i.e. spending gobs of money on something that does not deliver as promised, or that costs significantly more than the benefit), and (2) the political risks (i.e. what politicians face for advocating spending on projects that either fail or that don’t disproportionately benefit favored voters). The result is that risk is increased overall, and fewer innovations are realized.

America is pretty much the last industrialized nation to still have a (semi) private health care system, which should be understood to include the pharmaceutical industry (as a supplier of that health care system). What would happen to the growth and advances we’ve realized over the past few decades if (when?) we adopt universal health care? Where will the innovation come from? Who will take the risks? Without the proper incentives, and indeed with some of the worst possible incentives as the only driving force to creation, I fear that the scientific and medical Atlas will shrug.

I don’t mean to say that there will be no breakthroughs ever again, but the pace will be slowed dramatically. That’s because, one the government is in charge of paying for health care, it will also be in charge of paying for medicines. As we’ve already seen around the world, drug companies will be forced to sell their wares for much less than the (legal) monopoly prices they charge now. The result, therefore, will be much less risky and expensive research into new drugs that may never come to market, and much more emphasis on improving old drugs so as to continue to pay for further research.

Surely the federal government will pony up money for research into some diseases. But then the government will be in charge of picking winners and losers when it comes to whose diseases will get cures and whose won’t. To imagine what this would look like, just think back to how AIDS and breast cancer research dollars were successfully lobbied for, despite neither affecting anywhere near as many people as other deadly diseases.

In the end we will be left with less individual freedom, worse health care, and fewer prospects for any improvement in either. That is not the change I was hoping for.

UPDATE: Tom Maguire helpfully reminds us of how the health care debate progressed during the Democratic primary season:

For folks whose memories have blessedly erased any recollection of the endless Democratic candidates debates, let me toss in a brief reminder. Obama claimed that he would offer health insurance subsidies so generous that most folks would volunteer to sign up. Hillary mocked that, insisting that the young and healthy would decline to subsidize the rest of us, especially since they could not subsequently be denied coverage on the basis of pre-existing conditions; her plan included a mandate obliging everyone to buy health insurance, like it or not (as in Massachusetts). Hillary then diligently ducked the “or else” question of what penalties she would inflict on the young, helathy and recalcitrant who would prefer to hold off on buying insurance until they were sick. As a nostalgia piece here is a link to a lefty wondering why his party was so committed to forcing young, healthy members of the working class to subsidize the rest of us on health care; that seems like a good question but I am long resigned to not being smart enough to be a lefty.

Aww, Tom. You’re plenty smart enough. Just not angry, bitter or jealous enough.

As for the “or else” question, Obama and the Congress won’t be able to duck that one. I can only imagine what sort of sword they intend to dangle of recalcitrant ,comrades citizens who refuse to sign up for the program.


D.C. Voting Rights Bill — Still Unconstitutional (Updated)

I‘ve written about this issue before, and said all I think there is to say about it. The fact is that any bill coming out of Congress granting voting rights to D.C. sua sponte is plainly unconstitutional. What’s more, Congress is already well aware of this fact. The Congressional Research Service, the legislative analysis advisors to Congress, deduced the following about H.R. 328 (the most recent precursor to current D.C. voting rights bill):

… it is difficult to identify either constitutional text or existing case law that would directly support the allocation by statute of the power to vote in the full House to the District of Columbia Delegate. Further, that case law that does exist would seem to indicate that not only is the District of Columbia not a “state” for purposes of representation, but that congressional power over the District of Columbia does not represent a sufficient power to grant congressional representation.

In particular, at least six of the Justices who participated in what appears to be the most relevant Supreme Court case on this issue, National Mutual Insurance Co. of the District of Columbia v. Tidewater Transfer Co., authored opinions rejecting the proposition that Congress’s power under the District Clause was sufficient to effectuate structural changes to the federal government. Further, the remaining three judges, who found that the Congress could grant diversity jurisdiction to District of Columbia citizens despite the lack of such jurisdiction in Article III, specifically limited their opinion to instances where the legislation in question did not involve the extension of fundamental rights. To the extent that the representation in Congress would be seen as such a right, all nine Justices in Tidewater Transfer Co. would arguably have found the instant proposal to be unconstitutional.

Can Congress vote itself more members?

Can Congress vote itself more members?


During hearings before Congress on the constitutionality of the D.C voting rights bill, Deputy Assistant Attorney General John P. Elwood provided an excellent breakdown of how legal authorities had consistently found that the only way to grant D.C. citizens the right to congressional representation was through a constitutional amendment or by admitting D.C. as a state. Simply passing a law would not suffice.

Despite all the analysis presented, however, Congress continues to press forward with an unconstitutional bill:

Debate opened Monday on a bill to give the 600,000 people of Washington D.C. a full vote in the House. A new Democratic president, Barack Obama, and heftier Democratic majorities in Congress have improved the prospects for the decades-long effort that would certainly ensure another Democrat lawmaker in Congress.

Democrats outnumber Republicans by some 4-to-1 in the capital.

In a bit of horsetrading to offset the Democratic pickup, the bill would award a fourth House seat to Republican-leaning Utah, which narrowly missed getting that extra seat after the 2000 national census. With the two new seats, the House would have 437 representatives.

The time is ripe, said Ilir Zherka, executive director of the advocacy group DC Vote, to end a situation where “we are the only capital of a democracy on the planet that denies voting representation in the national legislature.”

The time is ripe because Democrats have a huge majority in both houses of Congress, and control of the White House. The fact that D.C. votes reliably, and overwhelmingly, for Democrats is the real reason for the bill’s support amongst that party, and one of the main reasons for many Republicans being against it. To overcome the opposition, therefore, Democrats have thrown a sop to Utah in the way of an extra representative, which would also appear to be unconstitutional without a census. Either way, the fact that the bill is plainly contrary to Article I, Section 2 of the Constitution seems to be merely a convenient excuse for some Republicans and a minor inconvenience to some Democrats.

Jonathan Turley has consistently echoed the above, and eloquently explains why Congress should not pass this law, and why the President should not sign it:

Like many, I believe that it is a terrible injustice for the District residents not to have a vote in Congress. As Justice Black stated in Wesberry v. Sanders: “No right is more precious in a free country than that of having a voice in the election of those who make the laws under which, as good citizens, we must live. Other rights, even the most basic, are illusory if the right to vote is undermined.” However, the great wrong done to the District residents cannot be righted through the violation of the Constitution itself.

This is not a debate about the ends of legislative action but the means. In a nation committed to the rule of law it is often as important how we do something as what we do. This is the wrong means to a worthy end.

[...]

[Our Constitution] is the world’s most successful constitutional framework because it is carefully balanced with limited powers between the three branches. It is a design that can be frustrating at times when injustices demand quick action. Yet, the very stability and integrity of our system demands that we remain faithful to its provisions, even when our principles stand in the way of our passions.

Just as there is no debate over the need for a vote for the District, there is no debate that such a vote can be obtained by other means. Indeed, there is no longer any claim to be made that the District (or the Democratic Party) lacks the votes needed to take a constitutional course. The political realities and expediencies that gave raise to this idea no longer exist. With control of both houses and the White House, the sponsors can secure a lasting and unassailable vote in the House of Representatives through either retrocession or a constitutional amendment. Indeed, some republicans have expressed their support for a constitutional amendment that would allow a voting House member for the District.

Like Turley, I am in favor of D.C. residents having a vote in both the House and the Senate. And also like him, I am fervently opposed to any extra-constitutional means of accomplishing that goal. Instead, let’s draft an amendment, or begin the process of retroceding D.C. back to Maryland. Let the Maryland officials be accused of wanting to oppress D.C.’s denizens for a while, instead of those of us who simply want to uphold the Constitution.

We know how to make it happen, and yet Congress insists on doing it the wrong way. Much of it, of course, is sheer laziness and want of expediency. But that is no excuse for elected officials to blatantly disregard their roles as stewards of the contract between the people and their government, and the very source of those officials’ power. Minor as some of these indiscretions may be, when Congress takes it upon itself to decide which parts of the Constitution are worth following and which are not, then we become a rudderless ship of fools.

However it’s done, I heartily agree that we start the process of welcoming our D.C. brothers and sisters to the circus known as Congress. In order to make that welcome worth something, however, I recommend that we go about it in the way that passes constitutional muster.

UPDATE: As it turns out, a bill has been introduced by Rep. Louis Gohmert (R-TX, 1st Dist.) to retrocede D.C. back to Maryland. Funny how this bill hasn’t received any news attention.


“Climate Change” And The Obama Administration – Huge Power Grab In The Offing

No doubt this will somehow end up being blamed on “global warming”:

A rocket carrying a NASA global warming satellite has landed in the ocean near Antarctica after an early morning launch failure.

The mishap occurred Tuesday after the Taurus XL rocket carrying the Orbiting Carbon Observatory blasted off into the pre-dawn sky from California’s Vandenberg Air Force Base.

“Orbiting Carbon Observatory”? It is apparently now the “Submerged Carbon Observatory”.

In other climate change news, it seems the new “Climate Czar” is ready to rock and roll on the question of carbon regulation:

President Barack Obama’s climate czar said Sunday the Environmental Protection Agency will soon issue a rule on the regulation of carbon dioxide, finding that it represents a danger to the public.

The White House is pressing Congress to draft and pass legislation that would cut greenhouse gases by 80% of 1990 levels by 2050, threatening to use authority under the Clean Air Act if legislators don’t move fast enough or create strong enough provisions.

Note that last line – certainly what one would expect an unelected “czar” to do, wouldn’t you say? Note also that the EPA intends to declare CO2 a “danger to the public”. Yes friends, the gas you exhale as a part of your respiration, the one that plants use in photosynthesis, is suddenly going to be a “danger to the public”.

Officially recognizing that carbon dioxide is a danger to the public would trigger regulation of the greenhouse gas emissions from coal-fired power plants, refineries, chemical plants, cement firms, vehicles and any other emitting sectors across the economy.

All those economic sectors and industries which are supposedly going to be engaged in our recovery via infrastructure improvement, providing critical power and fuel or on the list to be rescued by bailout funds. Does that make any sense at all?

Critics of putting an expensive premium on carbon say that such a schedule may be overly optimistic given the global financial crisis and the ramifications that putting a cap on greenhouse gases would have across nearly every sector of the economy. Tough action too fast, they say, not only could curb manufacturing and create an energy crisis by halting new power plant construction, but also could force a rapid migration of businesses overseas to cheaper energy climes.

But zealots don’t really care about such things – I mean, this is about “saving the planet” you know? And this isn’t just about Browner. She has some powerful backing:

Specifically, Obama wants an economy-wide law – instead of just some major emitting sectors – and to auction off 100% of the emission credits, which analysts say could exponentially increase the cost of emitting, as well as the pay-off for low-carbon projects.

So, given this, does anyone still doubt that we’re going to be in this recession for quite some time once the Czar throws the lever on this little power play (no pun intended)?

Wait, there’s more.  If you’re at all concerned with the expanded power this gives the federal government, you ain’t seen nothin’ yet:

Separately, Browner said the administration was also going to create an inter- agency task force to site a new national electricity transmission grid to meet both growing demand and the President’s planned renewable energy expansion. Siting has been a major bottleneck to renewable growth, and lawmakers and administration officials have said they’re likely to seek greater federal powers that would give expanded eminent domain authorities.

Hope and change.

~McQ


Searching the Omnibus

Good luck searching through the omnibus spending bill:

The $500 billion omnibus spending bill to fund the most of federal government for the rest of the year will be debated in the House this week. And it has now finally been posted online.

It’s a PDF of scanned pages, meaning it can’t be searched or parsed in any other way. All 1,133 pages of it. Same with the 1,845-page explanatory statement.

That’s placing form over substance, putting a bill online in a useless format.

The bill combines spending for several agencies. On parts of the bill posted on the House Appropriations Committee website, you can literally handwritten notes and crossed out lines on various pages of the legislation. You can see an example on page 9 on the section of the bill dealing with appropriations for “Agriculture, Rural Development, Food and Drug Administration, and Related Agencies.”

You can still go through and find the pork, but the lack of a tool to search the document makes it more difficult.


NYT Asks: “Why Can’t Cerberus Foot the Bill?”

Welcome to the club. I’ve been asking that question for some time now. Better late than never, I suppose:

Chrysler said the only reason it was back asking for more money so soon was that the car market was worse than it had expected two months ago.

This cavalier approach to the public purse raises a very big question. If Chrysler is really on track for a turnaround and all it needs is some financing to get over a bad patch in sales and debt markets, why doesn’t Cerberus Capital Management, which owns 80 percent of the company, put up the money itself? Why should taxpayers have to take the risk? That’s what private equity funds like Cerberus are supposed to do.

Cerberus and Daimler, which retained a stake in Chrysler, have promised to convert $2 billion in loans to Chrysler into equity, which should help reduce its debt. But Cerberus said giving fresh money would violate its fiduciary duty to investors, breaking company rules limiting how much it can commit to any given investment.

We suspect these rules would be more pliant if Cerberus deemed Chrysler to be a good deal.

It seems the secretive private-equity fund is willing to gamble on Chrysler’s survival with the taxpayer’s dime, but not its own.

The real question is, if it is violative of Cerberus management’s fiduciary duty to bail out its own company, why is it fiscally responsible for the federal government to do so?

And what does it say when the leader of liberal opinion has more qualms about a bailout than the federal government? Nothing good I would think.


What’s Just Like Death?

Taxes, as the saying goes, in that both are certain to come to us all. The corollary is that once government spending outpaces tax receipts by a significant enough amount, then taxes will inevitably rise. Or, at least, that should be the corollary.

We’ve already heard about calls for raising the top income rate to 90%. Now Marc Pascal, writing at The Moderate Voice, lays out a more comprehensive plan:

The first of several stimulus packages has just passed but it is just the beginning of our efforts to address our immediate and long-term economic problems.

After 2010, the federal operating budget will face trillion-dollar deficits as far as the eye can see. They have to be addressed for the long-term prosperity of our country and our future credit-worthiness in the world.

Eventually every American has to dig in and pay more taxes to help our country and our fellow citizens. We must put in place the laws and mechanisms to steadily increase taxes after 2010. We have to owe up to our massive public and private financial messes. Cutting federal earmarks and waste will not eliminate even half the annual deficits. The federal budget gap will require increasing taxes by over $500 billion by 2011. Fiscally irresponsible and spoiled children hate to hear this news but it’s our only choice for our collective long-term prosperity.

It is true that people don’t want to hear this, and I don’t think that is limited to “fiscally irresponsible and spoiled children.” Indeed, the inevitable raising of taxes was one of the arguments against the stimulus package, so I’m not sure to whom Pascal is referring.

A number of prominent publicly-minded millionaires and billionaires including Warren Buffet have recommended higher income taxes on themselves and their friends for several years. Certainly Mr. Buffet has been right more than most politicians and it’s time to effectuate his recommendations. Their altruistic economic view may simply be a rational response for their long-term preservation and that of the nation as a whole.

Actually, their view is not altruistic at all. The very rich, with the financial means to hire the very best in tax advice, are quite skilled at arranging their affairs so as to minimize their tax burden. When Warren Buffet clamors for raising taxes on the rich, you can be sure that he does not intend to pay as much as he possibly can to the federal government. However, those in the middle income brackets surely will. Buffet and brethren simply hope that those taxpayers will somehow be mollified by the fantasy that “the rich are paying their share too.”

On to the plan:

The Bush tax cuts should expire by their own terms by 2010 and marginal income taxes will return to the rate of 39% for incomes over $250,000. Additionally, and instead of capping executive pay, we should create a new marginal tax rate of 49% for earning over $1 million.

That is actually a somewhat more reasonable plan than some that have be floated, but still a pipe dream in terms of raising tax revenues to cover the trillions in spending contemplated (and as yet revealed) over the next four years. Even if the rich were to pay every possible penny of their income above $1 Million in taxes at that rate, how long to do you suppose they would do it for? If you had a choice of living quite comfortably and making around a million dollars, knowing that you’d keep something close to 70% – 75% of the money, would you really continue working hard enough to earn more than that if you knew you would only receive 50 cents on the dollar?

If there are any short-term tax cuts, they should be combined with long-term tax increases. The 2009 FICA payroll tax for social security is a 6.2% tax rate on every dollar earned up to a gross annual income of $106,800. For more than a decade, everyone has agreed that to save social security (without increasing the retirement age, the tax rate, or lowering the average monthly benefits of just under $1,000 per person) the best solution is to raise the taxable income limit so the wealthy contribute more to the entire system. We could provide both a short-term economic stimulus to the majority of Americans and save social security for the long term.

Let’s lower the FICA social security tax rate for rest of 2009 and all of 2010 to 5.5% but raise the income limit to $250,000. In 2011, let’s raise it to 5.75% and set the income limit to $500,000. By 2012, the rate would be 6% and the taxable income unlimited. This would simply parallel the 1.45% FICA tax for Medicare and Medicaid imposed on all earned income. Its rate will probably have to be raised to 2% after 2010 to pay for existing programs and any expansions of benefits.

Again, not an entirely unreasonable plan considering the alternatives. But what’s never mentioned when someone suggests raising the income level for FICA is that, while more tax revenue would be raised, federal liabilities would also be increased. That’s because the government is simply taking more money now and promising to pay more benefits upon retirement. That does nothing to reduce the burden of current spending, which was supposed to be the point of the tax increases.

As near as I can tell, this part of the plan would have the effect of hastening the looming entitlements crisis in exchange for perhaps pushing the current one off down the road a bit. The end result looks more like a perfect budgetary storm as the bills we’re racking up today and the entitlements we’ve promised in the future, begin to overlap.

Across the political spectrum, most people agree that our various transportation, water/sewer, and electrical grid infrastructures have been long neglected. Infrastructure spending is the best use of government stimulus money because more jobs are created both quickly and over the long term. Just to modernize our existing infrastructures systems will cost at least 2 trillion dollars over the next 10 years. Furthermore, we must also invest in new energy technologies, mass transit and high speed rail lines – all of which will cost billions more. We can’t put off such spending and we have to be honest about paying for them over the foreseeable future without resorting to further borrowing.

This is a part of the supposedly Keynesian argument that government spending provides a greater multiplier than private spending. Of course, as Bruce has pointed out before, if that were the case then why have private spending at all?

Furthermore, I really don’t understand how government spending on infrastructure and energy technologies creates jobs.

In the infrastructure realm, once a government project is done, then the job disappears. If the job is done quickly, efficiently and completed on time then it’s not government work the job just disappears that much more quickly. And after that? How does a brand new bridge create a job after it’s built? Even worse, what happens if the project turns out like the Big Dig in Boston (which seems to be much more likely)? Sure people will have jobs for longer, but the supposed benefit of the structure will shoved further into the future and the taxpayers will be on the hook for a lot more than they signed on for. How does that sort of project stimulate the economy?

With respect to new energy technologies, I’m all for it. But with the government choosing which technologies to fund, how do we know we’re getting the best there is to offer? That’s not typically the case where government picks winners and losers. And just because something is “green” does not mean that it is efficient, beneficial to the economy, and/or capable of saving anyone money in the short (or long) term. In fact, it probably means the opposite of one or all of those things. Instead, why doesn’t government get out of the way and allow nuclear power plants to be built, thus saving taxpayers billions of research dollars. That’s technology that we already have, and it’s green. Otherwise, these sorts of proposals are little more than a massive wealth transfer from one group of people to the politically favored few. There is nothing stimulative about that.

Across Europe, the average tax per gallon of gasoline ranges from $4 to $6. The U.S. federal gasoline tax is a paltry 18.3 cents per gallon with each penny raising $850 million to $1 billion per year depending upon how much Americans drive. Only when gasoline hit $4 a gallon during last summer did we start taking mass transit, buying hybrids, shunning gas guzzlers, demanding more energy-efficient cars and buildings, and seriously considering alternative solar, wind and nuclear power, and our own oil and gas reserves. The best and only way to ensure long-term energy independence is to have a serious financial incentive that hits everyone.

OK, if we accept the premise that less fuel consumption is better for Americans, then Pascal has a good point here. Of course, I’m not sure why gas station owners or truck salesman are any less deserving of being stimulated than other Americans, but that seems to be a staple of these plans. Moreover, Pascal’s plan doesn’t look all that much different than how transportation projects are already funded at the federal level.

While we should not enact excessive gasoline taxes, we can at least impose an additional and modest oil import fee on foreign barrels of oil.

More importantly, we should increase the federal gasoline tax from 18.3 to 75 cents per gallon, by monthly increments of about 5 cents per gallon over 12 months. The overall U.S. gasoline price per gallon by the end of 2010 should still be around $3.00 but the U.S. would have $70 billion a year to pay for our many needed transportation and energy infrastructure projects. This would be the responsible, mature, and intelligent solution for raising the necessary funds for these projects.

Presumably, Pascal means that we would charge this import fee to the American refiners who distribute gasoline in the country. And Pascal does suggest that he thinks this would be a tax on everyone, which in addition to the increased gas tax it would be. Strangely, this is the sort of protectionist measure one sees where domestic industries are beset by low-cost foreign competitors, yet domestic production is practically forbidden. Instead, Pascal wants to drive demand for gasoline down, so he advocates raising the costs of gasoline indirectly. Would that have the effect of increasing demand for more domestic oil? Perhaps. But it would certainly raise costs for all Americans, whether we all buy hybrids (which are much more expensive) or not, and again I don’t see how raising prices is stimulative.

Overall Mr. Pascal’s tax proposal is not altogether outlandish, and certain elements of it are almost certain to come to pass. What’s so horrible is that these sorts of plans are only necessary (and inevitable) because the government has been spending far more than it takes in for quite some time now. Even if you think that the Bush tax cuts “cost” the federal government money, you have to admit that the one thing that every administration has had in common, whether Republican or Democrat, is that federal spending never decreases. Regardless of whether tax-and-spend is better/worse than cut-taxes-and-spend, the situation we find ourselves in today is precisely because spending never seems to drop, not because tax rates go up and down.

To be sure, there is nothing evil per se about deficit spending. Whether it’s bad or not depends on where the money is going, and how the costs are intended to be recouped. But at some point the piper must be paid, and when that time comes one would hope that all the spending had created some wealth with which to pay him.

Stumulative bridge for sale

Stimulative bridge for sale

Obviously taking money from Peter and giving it to Paul (minus a transfer fee, of course) won’t accomplish that goal. And neither does building a new bridge from Paul’s house to Peter’s. Indeed, unlike people, the government can’t work harder in an effort to “do something” and create wealth, because that’s not what governments do. The only things that government is any good at is making rules and enforcing (some of) them. Although those two actions can protect wealth and the opportunities to create wealth, neither action actually creates wealth.

Thus, we’re left with the unshakable propositions that (1) government spending necessitates taxes, (2) deficit spending necessitates tax increases, (3) tax increases necessitate higher prices, (4) higher prices produce less consumer spending, (5) less consumer spending results in less business revenues, (6) less business revenues means fewer jobs and less wages, (7) fewer jobs, less wages and less business revenues means less tax dollars, and (8) fewer jobs, less wages, less business revenues and less tax dollars means … more government spending is necessary?

If you believe that last one, then I have a bridge I’d like to build you. It will be ready for use immediately upon the check clearing.