Friday, February 26, 2010

washington vs. wall street

Over the past year, Washington and Wall Street have been attacking each other. In his State of the Union address, President Obama attacked both. After a year into his administration, President Obama has hit a new tone: populism. With his ratings falling, and support of his policies dwindling, Obama is seeking to reenergize those who voted in change only 14 months ago. Yet his approach will only worsen the problems.

The attack on Wall Street might actually end up hurting the economy at a time when it is least needed. In a time of economic uncertainty, what is needed is a clear message so investors will know how to respond. Mixed signals are forcing investors to look elsewhere, unsure of what is going to be taxed or regulated. His populist appeal is elongating the capital freeze, which will only elongate the recession.

This uncertainty is because a lot of what he says simply doesn’t add up. The number one issue is jobs and helping the economy to recover, and a major part of the sluggish recovery is the credit freeze by banks. Yet his proposed bank tax will take the money banks could be loaned out to small businesses and transfer that to the government. In addition, he stated that he does not want to punish the banks, yet the tax is a punitive fee for “bad behavior.”

Then there was the attack on Washington. It is difficult for a citizen to hear a President talk about Washington as an outside after being in office for a year with a super majority in both houses. He said all this while referring to cynicism and distrust of Washington, citing reckless Wall Street and lobbyists as the cause while completely ignoring the backroom deals and closed-doors negotiations. He blamed Congress, calling out the Senate for not passing his financial reform bill. He even hammered on the Supreme Court for declaring parts of the McCain-Feingold Campaign Finance Reform unconstitutional.

His solution? Demand it. If Congress won’t approve a finance commission, he’ll issue an executive order. If the Supreme Court is going to shoot down finance reform, he’ll get a bill passed through Congress. Because the separation of powers is impeding his agenda, he sees it fit to circumvent these checks and balances. Apparently he is the only one with good ideas, and whatever he says should be what is done. This man does not seem to understand that perhaps everyone is opposing him for a reason; that perhaps people are dissatisfied with Washington because of what he’s trying to do.

Quite possibly the most pompous declaration of all, and a major contribution to the distrust of Washington, was that we Americans do not agree with healthcare reform because we do not understand it; that if we had known “what was in it for us,” we would be in support of his agenda. This is arrogant for two reasons: first, he assumes that he could not possibly be wrong, but the millions of Americans who oppose it are wrong. Second, he assumes that Americans actually think entitlements and handouts are good and should be pursued, when many of those who opposed his reform do so precisely for the reason that it is an entitlement and an expansion of federal authority.

This over-exertion of executive authority will only exaggerate American’s view of Washington. Obama is attempting to establish the presidency has the head of all three branches of government. Clearly, this is precisely the type of tyranny the framers of the Constitution tried to avoid.

Thursday, January 28, 2010

the budget freeze that isn't

edward lazear, chairman of the president's council of economic advisers from 2006 to 2009, writes an important article about the effect of the proposed budget freeze and other fiscal concerns.

Let us pay close attention to the president's message. But let us not be confused by promises of jobs, coupled with fiscally responsible sounding language that masks the underlying irresponsibility of budget decisions. Proposals that increase taxes and spending, even if they do not increase the deficit, will place a substantial burden on our recovering economy and on future economic growth.

full article

Wednesday, January 20, 2010

the tyranny of political paternalism

“We are our brother’s keeper!” With this as the battle cry, the Democrats resolved to provide health care for all individuals. It is our responsibility to help other people, so they saw it fit to turn responsibility into law. Yet in doing so they trampled on the very morality they claimed to uphold, and therein lies the paradox of political paternalism, or moral leadership. Paternalism is tyranny, and has become our modern-day King George from which we must declare our independence.

The central principle of paternalism is moral leadership. It is the notion that an authority can make a decision on behalf of another because it is in that individual’s best interest, regardless of what he or she desires. The recent health care legislation is a prime example of paternalism. Despite the fact that the majority of Americans were against the health care bill (42% for, 54% against), Congress felt obliged to pass it anyway. They declared that we have a moral obligation to provide health care to every individual. However, a government that acts with morality as its guide is illegitimate, as it leads to excessive expansion of federal powers.

The government cannot legitimately assume a moral position because first and foremost it is an amoral institution. It is a tool of the people, and tools cannot have morals. Rather, morality is derived from the conscience of the individual. Governments, lacking consciences, also lack a moral code. While there may be an absolute standard of right and wrong, it is up to the individual to discover and accept it. Moral principles can be taught, but they cannot be forced. In the words of Henry David Thoreau, “Must the citizen ever for a moment, or in the least degree, resign his conscience to the legislator? Why has every man a conscience, then?”

In addition, the government cannot legitimately enforce a moral code. An administration forcing individuals to act a certain way on the basis of morality is contrary to morality itself. Morality is entirely based on choice. Just like you cannot force someone to accept a moral principle, you cannot force another person to take a moral action. A moral action requires the agent to act because he deems it as “good.” When coercion is involved, the agent does not act under those pretenses, as he has no choice, and the action fails to be a moral one.

For example, the current administration claims that because “you are your brother’s keeper,” you have the responsibility to help others pay for health care. To help us fulfill that responsibility they legislate their moral code into law by mandating that every individual buys health insurance. However, when it becomes law the choice is no longer ours to make, which leaves us with no means of fulfilling our obligation. We act with no thought toward our fellow Americans or fulfilling our responsibility to them, for the choice to act has been made for us. Their entire reason for enacting the policy becomes void and contradictory, defiling the very morality they declare to uphold.

There are those who may be thinking, “But there still is the choice! They can choose to not buy health insurance!” First, this contradicts their notion that because everyone has a responsibility to help a universal mandate should be established. If it were the case that they should have choice, then there would be no reason to include this mandate. Additionally, if someone chooses to not buy insurance, he will be required to pay a fine which will be revenue to fund the health care of others. Either way, the choice has been made for him, and he will foot the bill. The remaining alternative, however, is more damning: that individuals shouldn’t have a choice. I can concede that there are legitimate taxes individuals should be required to pay in order to provide public goods, like the military. The difference is that individuals automatically receive benefits directly from these, whether they pay or not, and because they are receiving benefits they should be required to pay. On the other hand, individuals do not receive any sort of benefit from health insurance by the simple fact that the industry exists, and so there is no reason why they should pay. Unless, of course, you declare that freedom is insignificant.

You cannot accept this health care legislation without conceding that freedom is not valuable, or at least not as valuable as cutting costs. Yes, we may be able to save a few lives by increasing coverage. But it seems that we have long forgotten the words of Patrick Henry, “Give me liberty or give me death.” The time has come for America to choose, and the choice was made for us, contrary to our will. Unless we rise against this modern-day tyranny of paternalism, we do not deserve the liberty our forefathers fought to protect. We the people still hold the power, and can change the political climate. Already, the Arizona state legislature has passed a bill allowing a vote on nullifying federal health care reform, and the Texas Attorney General is preparing to file a multi-state lawsuit over the constitutionality of the legislation. Massachusetts essentially had a referendum against the legislation by voting in Scott Brown. As the states build resistance a political war will unfold. It appears that the fight is not over, but has just begun.

Sunday, January 10, 2010

scylla vs charybdis - why the senate bill passed

In passing the Senate version of the health care bill, the Democratic Party has committed political suicide. Don’t blame them, though; it wasn’t their fault. In fact, either passing or rejecting the bill would have been suicide. When President Obama made health care reform number one on his agenda, he set his party on a course between Scylla and Charybdis. The Senate then had two options: ram the bill through despite the lack of public support, or side with their constituents and vote the bill down. Yet either option would end in failure. It was a choice between losing a few Congressman or the entire party. Like Odysseus, Democrats opted for Scylla and indeed will likely lose Congressmen in the next round of elections. But in so doing, perhaps they will be able to keep the party as a whole afloat.

Abandoning the Senate bill could have been Charybdis, a whirlpool that would have destroyed the Democratic Party. With not much to show after nearly a year in office, Obama demanded legislation on health care reform. Failure to pass the bill would have resulted in a major blow to any confidence in the Democratic Party to get anything done. Pundits on the right would use this as firepower against Democrats as the party of “broken promises” and “do nothings.” Yet it would be those on the left who would be outraged, possibly abandoning the Democratic Party. This two-pronged attack might have been too much for the Party.

Scylla proved to be the enticing choice for Democrats. And indeed, a number of senators have fallen already. Senator Ben Nelson has lost support after a scandalous compromise with Senator Reid, essentially buying out his vote. In doing so, he voted against 67% of his constituents who opposed the Senate bill. 61% said they are less likely to vote for him when his seat comes up for reelection in 2012. Senator Dodd of Connecticut and Senator Dorgan of North have already chosen to not seek reelection. Undoubtedly, the Republicans will gain seats in both chambers, and current polls are an indication of that.

The ramifications go even further. Currently, the Attorney General from Texas is preparing to submit a multistate lawsuit against the health care reform, stating that the mandate to purchase health insurance is unconstitutional. Even if that goes under there is talk of nullification, in which a state rules to not accept a federal law. Arizona has already passed in both the Senate and House state legislatures, to put on the 2010 ballot a referendum which would override any law that requires individuals to participate in a particular health care system, prohibit fines for not purchasing health insurance, and overrule anything that prohibits the sale of private health insurance in Arizona.

Perhaps the biggest impact, however, is that this act shows the disrespect that Congress has for the opinions of their constituents. Only 42% of the American people supported the Senate bill the week it passed, while 54% opposed it. The week before only 36% supported the bill. A Congressman’s responsibility is to represent his or her constituents. Passing this bill more than shirked, but defied that responsibility.

When Congress votes contrary to the voice of the people it is because the voice of the people is not loud enough. Yes, there has been much screaming over the past six months, particularly from the right. We all recall the near-violent town hall meetings. But Congress is not listening. While their responsibility is to listen, it is our responsibility to make ourselves heard, in ways that they will listen. We the people need to come up with better solutions on how to hold our Congressmen accountable.

Tuesday, December 29, 2009

Health care reform? Or just more of the same?

Lawmakers are currently attempting to pass legislation that will lower costs. A simple lesson in economics will show how their reform will actually increase costs. There are three main reasons why healthcare costs are increasing: the care is getting better, we are getting richer, and the patients are getting unhealthier. The reform, rather than fixing each of these, actually exaggerates these reasons.

If you compare the miracle of modern medicine to its grandfather of decades ago you will notice the drastic improvement due to technology and innovation. Better coverage comes at higher costs; to think that hospitals should be able to operate at the same cost today as they did even ten years ago, with all the technological advances and high-tech equipment they have access to now, is madness. Better care comes at a higher cost. Cutting costs would stifle innovation in the field of medicine. It inherently implies lowering the rate of return on investment of pharmaceuticals and machinery, meaning that people would not get much back for medical breakthroughs. This lack of incentive is enough kill innovation, decreasing the quality of our healthcare for all. The same goes for not just capital but also those in the profession, as salaries are slashed in an attempt to cut costs. Attempting to cut costs through this reform can only lead to decreased quality.

Healthcare has an income elasticity of 1.6, classifying it as a luxury good. This means that as people’s incomes increase they will spend a higher percentage of their income on healthcare. As I’m sure you have noticed America is continuing to get richer with GDP, and thus income, increasing about 3.3 percent a year. Thus, as our incomes grow over time the demand for quality healthcare is going to increase as well, driving up the price. This is not the fault of greedy insurance companies, but merely the work of the invisible hand. The reform would force every American to have insurance. Mandating that all citizens buy insurance would drive up the price of private insurance because of increased demand, crowding out those who could have afforded it but no longer can. This squeezes more people out of private insurance into the public option. There is no “choice” or “competition” in that.

We as Americans do not live healthy lifestyles. Obesity alone accounts for ten percent of healthcare costs directly, and a much larger portion of it indirectly. We fail to eat our fruits and vegetables that contain the nutrition we need to prevent cancer and other diseases. Poor lifestyle choices equates to a higher demand for healthcare, and once again higher costs. The Wall Street Journal wrote, “The prevalence of obesity rose 37% between 1998 and 2006....Obese people spent 42% more than people of normal weight on medical costs in 2006.” In encouraging people to choose healthier lifestyles we must provide the right incentives. Insurance companies can do this by offering discounts to those who exercise and eat their fruits and vegetables. On the other hand, by the government establishing a public option in which one can receive coverage at minimal cost to himself would incentivize continued unhealthy living, which only increases the cost.

Healthcare must be reformed, but we must do it the correct way. If cutting costs and providing healthcare for all is the goal then we must look at ending employer-based insurance. This would allow employees to have an open market and choose their own insurance, establishing real choice and competition. Creating Health Savings Accounts, in which people could roll a percent of their paycheck into a fund used only for healthcare like an IRA, would provide portability and security that we desperately need, without the $1 trillion expense of a public option and squashing innovation. Tort reform will decrease costs significantly by caping malpractice suits. None of these are in the current bills.

Sunday, December 13, 2009

obama's incredible threat

In his address at West Point last Tuesday, President Obama announced the deployment of 30,000 troops in Afghanistan. He also outlined his administration’s war strategy, announcing troop withdrawal beginning July 2011. Through the course of the evening, Obama also addressed liberal and conservative concerns regarding the course of the war.

Explaining the necessity of a 30,000 troop increase, he answered questions from the left regarding the legitimacy of America’s presence there, specifically noting distinctions between this war and Vietnam. Referencing al Qaeda safe havens along the Afghani-Pakistani border, Obama declared that the war in Afghanistan is an issue of national security, and that he did not want Afghanistan to become a hot bed of terrorist activity. President Obama also addressed conservative hesitancy in establishing an exit strategy and timetable for the war, arguing that a timetable will push Afghanistan to step up and assume responsibility.

Yet a major concern remained unanswered: If conditions in Afghanistan remain static or degrade further over the next 18 months, will the armed forces proceed with his strategy and begin withdrawing troops in July 2011? The answer offers insight into the real purpose of the surge and the actual effectiveness of a timetable. If yes, and the plan is to cut and run in 2011, regardless of success, we should withdraw now—suffering fewer losses and achieving the same results. If no, the timetable becomes obsolete. Either national security is the real objective, in which case a retreat would be ineffective and the answer should be no, or national security is not the true objective, and we should not send additional troops.

If the answer is no, however, then Obama’s timetable, becomes an incredible threat—politically opportune now, but irrelevant come 2011. The purpose of the timetable, as stated by Obama, is to provide a sense of urgency, encouraging Afghanistan to begin to take control. Yet Afghanis have no need to rush if the government recognizes that, if it is not prepared in 18 months, American troops will likely remain to safeguard national security. They will not feel the pressure, and the status quo endures.

Obama did reference this briefly. He stated that the number of troops withdrawn will depend on ground conditions, implying that the answer to my question is no, and underscoring his empty promise to withdraw. Let us hope, then, for the security of our nation, that this question need not be answered, and that troops can be safely withdrawn after 18 months of success.

Monday, November 23, 2009

the coming deficit disaster

a former CBO director writes on the consequences of the current deficit, and how the health care reform will only aggravate this problem.

The planned deficits will have destructive consequences for both fairness and economic growth. They will force upon our children and grandchildren the bill for our overconsumption. Federal deficits will crowd out domestic investment in physical capital, human capital, and technologies that increase potential GDP and the standard of living. Financing deficits could crowd out exports and harm our international competitiveness, as we can already see happening with the large borrowing we are doing from competitors like China.

At what point, some financial analysts ask, do rating agencies downgrade the United States? When do lenders price additional risk to federal borrowing, leading to a damaging spike in interest rates? How quickly will international investors flee the dollar for a new reserve currency? And how will the resulting higher interest rates, diminished dollar, higher inflation, and economic distress manifest itself? Given the president's recent reception in China—friendly but fruitless—these answers may come sooner than any of us would like.

full article