After last year’s impressive win by Barack Obama, I wrote an article, “What the Republican Party must do now” in which I proffered the notion that it must return to conservative principles, in a principled manner.

Yesterday’s results are meaningful for two reasons, but not because Republicans won two state gubernatorial elections.  We still don’t know what Chris Christie believes and what he will do.  Rather, the results show that voters a) quickly tire with the false promise of omnipotent and benevolent government, no matter how they are temporarily seduced into trading their freedom for illusory protection; b) seek a return to wholesome family values, as demonstrated by Maine’s vote to overturn gay marriage laws.  60% of States now have rejected such unholy unions.

“Conservatism is too important to be left to the Republican Party”, says Richard Morris.  Unless a putative conservative party can recreate 50 state recruiting and funding machines, the Party is conservatives’ only hope.

One day after the swearing in ceremonies in New Jersey and Virginia the distinction between the two parties will blur again into torpor unless the GOP seizes this new opportunity. 

Now is the time to sharpen differences and shore up the foundation of liberty and capitalism.  Now is the time to become an incandescent beacon for the majority of Americans who seek refuge from cultural decadence and government enforced dissolution of the inalienable relationship between man and his Creator.  Now is the time to be stalwart in demanding of those we elect the highest standards of ethics and behavior expected of humble representatives and employees of the people.

In the prior article, I outlined nine policy recommendations derived from core conservative principles.  Here are post 2009 pre-2010 election refinements:

1. Smaller government: total public debt is rapidly approaching 100% of GDP, putting us in the class with banana republics.  This is the basis of an argument that is not only financial, but one that must be expostulated for the preservation of liberty; for individual freedom is inversely proportional to the size of government. 
2. An end to taxation of capital and the burdening of its productive use; otherwise we will surely have less of both.  There is, too, a seething discontent with incremental taxation at local and state levels on every sort of daily life from property taxes to usage fees on electricity, heat, telephone, and television, to surcharges on mass transportation, small business, and freelance work.  To become a party with nationwide appeal, national conservative voices must be raised against local threats to freedom. 
3. Fastidious respect for our Constitution and the beliefs on which it is written. We might start with limiting the power of the Executive by recalling all “czars” until they are confirmed by the Senate.
4. Free trade and fair trade: it is time to impose strict product quality compliance on Chinese imports, to give most favored nation status only to countries who agree to float their currency against the dollar, and to make the United States’ tax and regulation codes business-friendly to attract investment.
5. A stable and predictable monetary system.  The Fed’s power should be clipped such that it  can only protect against inflation or depression.  It should not be given regulatory responsibility as it does not report to any branch of government.  And permitting it to chase interest rates is giving too much power to too few.
6. Minimalist government intervention in the economy: an end to the “too-big-to-fail” fallacy, a repudiation of TARP and economic “stimulus”, and government’s divestiture of all private enterprise including AIG, GM, bank warrants, and Freddie and Fannie.
7. A strong national defense—and that must, now more than ever, start at the borders of the United States.
8. A respect for all life.  As President Reagan said, “Abortion is either the taking of a human life or it isn't.  And if it is—and medical technology is increasingly showing it is—it must be stopped.”
9. Zero tolerance for abuse of power.  It is time, again, to revisit term limits, or at least to end all corporate lobbying and campaign contributions—sources of fraud and corruption. Corporations are not people and should not be afforded the rights of an individual citizen.

This is the time for audacity, for courage, and clarity.  This is no time for diffidence, for moderation, nor ambiguity.

• Consumer spending turned up strongly. Spending on new cars and trucks was a big contributor, reflecting the federal “cash for clunkers” program, which was in effect in July and August.
• Housing increased for the first time in 15 quarters.
• Inventory investment, exports, and government spending also added to growth.¹

The BEA estimates that “motor vehicle output added 1.66 percentage points to the third-quarter change in real GDP” ²; that is, almost half of the increase.  When the government throws money at consumers, the GDP is boosted two ways by the definition: in this case 0.48% for government spending and 2.36% for personal consumption (including the 1.66% of vehicles) for a total effect of 2.84%.  The balance of the 3.5% GDP increase comprised investments, +1.22%, and net exports, -0.53% (imports exceeded exports, and the net reduced GDP).

The hypothesis that government incentive drove consumption in Q3 was confirmed by the data released a few days after the GDP announcement showing consumption declined 0.5% in September.  The Wall Street Journal reported, “The decline was largely attributed to reduced car sales a month after the ‘cash for clunkers’ program ended.  Spending on durable goods such as cars and other products designed to last more than three years fell 7%, more than erasing gains from a month earlier.” ³

Was the transitory cash for clunkers program worthwhile?  According to the Department of Transportation, the government spent almost $3 billion to help 690,000 consumers trade old vehicles for new ⁴.  The average increase in miles per gallon was 9.2.  Using the DoT’s numbers, on average we spent $4,170 per vehicle in order to help the owner save 278 gallons per year⁵ or, at $2.80/gallon, $778.  In aggregate we are saving 191.8 million gallons of fuel per year.  Sounds like a lot?  The U.S. consumes 378 million gallons per day⁶, which means that all these gymnastics save only half a day’s fuel annually.

Did the program help put a dent in oil imports?  Again the answer is ‘no’.  We import roughly 13 million barrels of oil per day ⁷.  At $80 dollars a barrel, we send about $1 billion overseas daily.  Those 191.8 million annual gallons saved by the clunkers exchange are equivalent to roughly 12,515 barrels per day ⁸ which equates to $1 million/day. This is a trifling one thousandth (1/1000) of our daily imports.  Put another way, these vehicle fuel savings will take eight years to cover the government’s borrowing $3 billion for the program ⁹.  And that does not include interest our children will pay on that debt.

Have we helped the automakers?  Again, according to the DOT statistics, ten of the top ten vehicles traded-in were American.  Of the top ten new vehicles bought, eight were foreign.  Music and dancing were heard on the streets of Tokyo and Seoul.

Secretary of Transportation Ray LaHood called the program a “win for the environment”, but is it?  According to the government’s web site, we emit 17 billion tons of greenhouse gases each year from our vehicles ¹⁰.  The fuel saved from the clunkers programs will save a nugatory 1.9 million tons/year: about one ten-thousandth (1/10,000) of the nationwide emissions ¹¹.

With the these indefeasible facts, one has to look at The White House paean to the 640,329 jobs “created/saved”—miraculously up from only 30,383 just a few days ago on Recovery.gov—with economist Alan Meltzer's skepticism, “One can search economic textbooks forever without finding a concept called ‘jobs saved’.“ ¹²

Evidently, there are a few other things one cannot find in those books.

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[1] GDP Rises 3.5 Percent In Third Quarter, “Advance” Estimate of GDP, Bureau of Economic Analysis http://www.bea.gov/newsreleases/national/gdp/2009/pdf/gdp3q09_adv_fax.pdf

[2] Gross Domestic Product: Third Quarter 2009 (Advance Estimate), Bureau of Economic Analysis
http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

[3] Consumer Spending Falls, Fueling Concerns About Recovery , 31 Oct. 2009, The Wall Street Journal, http://online.wsj.com/article/SB125690429096718435.html

[4] US Department of Transportation: http://www.dot.gov/affairs/2009/dot13309.htm

[5] a) $2,878M/690,114 vehicles = $4,170
b) Assuming 12,000 average miles driven/year/vehicle:
12,000/24.9 MPG (new vehicle) – 12,000/15.8 MPG (traded vehicle) = 278 gallons/vehicle

[6] Energy Information Administration: http://tonto.eia.doe.gov/energyexplained/index.cfm?page=oil_home#tab2

[7] Energy Information Administration: http://tonto.eia.doe.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbblpd_a.htm

[8] Using a DOE factor of 42 gallons/barrel of oil: (191.8 million gallons/year) / (42 gallons/barrel) / (365 days/year) = 12,511 barrels/day

[9] $3 B / ($1 M x 365 days/year) = 8 years

[10] FuelEconomy.gov, http://www.fueleconomy.gov/feg/climate.shtml

[11] 191.8 million gallons saved/year x 19.4 pounds of CO2 emitted/gallon / 2000 lbs./ton = 1.86 million tons

[12] "Stimulus Created/Saved 650,000 Jobs? There’s No Way to Know for Sure", 30 Oct. 2009, The Wall Street Journal, http://blogs.wsj.com/economics/2009/10/30/stimulus-created-or-saved-650000-theres-no-way-to-know-for-sure/

[1] “From Recession to Recovery: The Economic Crisis, the Policy Response, and the Challenges We Face Going Forward”, Christina D. Romer, Chair, Council of Economic Advisers, Testimony before the Joint Economic Committee, October 22, 2009 

[2] Romer, C. & Bernstein, J. “The Job Impact of the American Recovery and Reinvestment Plan”, 9 Jan. 2009, http://otrans.3cdn.net/ee40602f9a7d8172b8_ozm6bt5oi.pdf

[3] White House's Romer: Stimulus may pack more punch, 3 Mar. 2009, Reuters http://www.reuters.com/article/GCA-Economy/idUSTRE52233420090303

[4] Romer and Bernstein on stimulus, 10 Jan. 2009, The New York Times

http://krugman.blogs.nytimes.com/2009/01/10/romer-and-bernstein-on-stimulus/

 

The low dollar and high deficits are cognate for two reasons.  First, the Fed had to print money to increase liquidity in answer to credit markets drying up; a policy that has failed, incidentally, because, as any small business or home buyer will tell us, credit is still tight.  The central bank also has to print money to finance the national debt.  The resulting oversupply of dollars devalues the currency.

Second, as overseas investors weigh the risk of investing in the U.S. against other countries, they prefer to place bets in lower risk, higher return markets.  Part of that risk calculus is the cost of doing business in this country—wages, taxes, insurance, property taxes—and part comes from political and fiscal risk.  When the U.S. runs high debt, investors are leery of future taxes and fees to service the debt.  Thus money—and jobs—flow away from the US, putting downward pressure on the dollar.  The combination of a low dollar and high money supply eventually fuels inflation.  A sound fiscal policy, prudent control of debt, and a business-friendly environment will be reflected, therefore, in a stronger dollar while tempering the risk of inflation.

In an Op-Ed piece in The Wall Street Journal, economist Judy Shelton observed “the projected federal debt will continue to equal or exceed our nation's entire annual economic output through 2019 … The U.S. is thus slated to enter the ranks of those countries—Zimbabwe, Japan, Lebanon, Singapore, Jamaica, Italy—with the highest government debt-to-GDP ratio”.  Zimbabwe?  And if the US were a European country, it would be denied membership into the European Union because “countries wishing to adopt the euro must first limit government debt to 60% of GDP” ¹.

David Wessel observed in the Journal that we have overcome these problems before although, “When the economy began climbing out of the deep recession of the early 1980s, federal debt -- the sum of every annual budget deficit* -- amounted to less than 30% of the nation's GDP”².  With debt now at 90% of GDP, we in much deeper this time.

The Financial Times reported “The US budget deficit hit a record $1,400bn in the last fiscal year as the government tried to spend its way out of recession, slightly less than expected but still more than three times that of 2008.”  This one year deficit, fully 10% of GDP, is a result of “Government spending [rising] 18.2 per cent from 2008, in part because of Tarp and the $787bn fiscal stimulus package.”³

So how is that stimulus working out for us?  According to the government’s web site, Recovery.gov, we have created—get ready—a grand total of 30,383 jobs⁴.  With less than two-tenths of 1% of the 15 million unemployed in this country allegedly getting jobs through the “stimulus” the administration insists the program is a success.  "Thanks largely to the Recovery Act, alongside an aggressive financial stabilization plan and a program to keep responsible homeowners in their homes, we have walked a substantial distance back from the economic abyss and are on the path toward economic recovery," wrote Larry Summers⁵.

Substantial?  Recovery.gov, reports only $2 billion of the stimulus has been distributed in contracts. This amounts to roughly $66,000 spent for each of those jobs created.  Further, the site reports “jobs saved/created” ranges from 5.93 in Rhode Island to 4693.05 in Colorado.  It is unclear how The White House thinks it “saved” a job let alone measuring salvation with accuracy to the second decimal.

Against this backdrop of run away deficits, the Senate Finance Committe passed one of the largest tax increases in history under the guise of “health care reform” at a cost of over $829 billion.  In a canard, the Congressional Budget Office claims the bill, which no one has seen because Congress refuses to post it in this age of transparent government, will not increase the deficit; but the CBO's estimate is based on fuzzy accounting replete with unsubstantiated assumptions.  Move aside Zimbabwe and Jamaica, Congress just can't say "no".

Sen. Olympia Snowe of Maine, the sole Republican to vote for the bill, said she wanted to be part of history.  She did not elaborate whether she was thinking about the Hindenburg or the Titanic.

__________

*  [less payments made, plus accumulated unpaid interest – MA]

__________

[1] “The Message of Dollar Disdain”, 13 Oct. 2009, The Wall Street Journal, http://online.wsj.com/article/SB10001424052748704107204574470961505506386.html

[2] “Deficit Dilemma: How to Dig Out?” 15 Oct. 2009, The Wall Street Journal, http://online.wsj.com/article/SB125554787267585505.html

[3] “US budget deficit hit a record $1,400bn”, 17 Oct. 2009, Financial Times, http://www.ft.com/cms/s/0/92624ee8-baa2-11de-9dd7-00144feab49a.html

[4] Recovery.gov: Track the Money, http://www.recovery.gov/Pages/home.aspx

[5]  “Summers to GOP's Boehner: Recovery Act Is Working”, 12 Oct. 2009, The Wall Street Journal, http://online.wsj.com/article/SB125534918141780117.html

_____________

[1] “Sarkozy hands business €10bn tax cut”, 29 Sep. 2009, Financial Times, http://www.ft.com/cms/s/0/4c0da02a-ad0d-11de-9caf-00144feabdc0.html

[2] “Cruel September for Car Makers” 2 October 2009, The Wall Street Journal, http://online.wsj.com/article/SB125440186148556087.html

[3] McCullagh, Declan. “Chrysler Bankruptcy Exposes Dirty Politics”, 7 May 2009, CBS News, http://www.cbsnews.com/stories/2009/05/07/politics/otherpeoplesmoney/main4997900.shtml

[4]”Bank of America Chief Resigns Under Fire”, 2 Oct. 2009, The Wall Street Journal, http://online.wsj.com/article/SB125434715693053835.html

[5] UPI, http://www.upi.com/Real-Estate/2009/09/25/Freddie-Macs-Delinquent-Loans-Rise-for-28th-Month/4731253892039/

[6] “Subprime Uncle Sam”, 29 Sep. 2009, The Wall Street Journal, http://online.wsj.com/article/SB10001424052970204488304574428970233151130.html

[7] “World Bank Head Sees Dollar’s Role Diminishing”, 28 Sep. 2009, The New York Times, http://www.nytimes.com/2009/09/29/business/economy/29dollar.html

The amendment failed in Committee 15-8 and the public option seems to be dead in the Senate version of the health care reform bill.  But why let Smith-ideation go down with it?  The Democrat from West Virginia may be on to something. 

Certainly Adam Smith would not have “cooked up” any such thing as a public option.  The Heritage Foundation observes that Smith wrote, “The policy of Europe [for government chartered corporations] occasions a very important inequality in the whole of the advantages and disadvantages of the different employments of labour and stock, by restraining the competition in some employments to a smaller number than might otherwise be disposed to enter into them.” [2]

If Smith lamented a “smaller number than might otherwise be disposed” of competitors resulting from government meddling in private business, we might deduce his support for some greater number of competitors that a completely free market would dispose.  And that is precisely the idea that Republicans—perhaps now with Adam Smith’s newest fan, Rockefeller—should advance.   

Surprisingly—or perhaps not surprisingly, depending on your level of cynicism about Congress—nothing in the plans proposed by either chamber embrace free market solutions.  Each one seeks to increase demand for services by forcing the uninsured and poor into a health care system that is already stressed.  No proposal addresses cost stabilization by market competition in either the health insurance or health care markets.  What will happen, then, when 30 to 46 million new participants (depending on how one accounts for illegal immigrants) are given by largesse or start to buy services from a doctor population that now serves one in every 416 person as compared to one to 300 for France, Germany, Sweden, and Australia? [3]

No proposal addresses the 50 state-wide oligopolies that characterize the current health insurance market.  In 2006, The New York Times wrote, “The Government Accountability Office, an investigative arm of Congress, said that the largest insurer had 43 percent of the market for small group coverage in a typical state, up from 33 percent in 2002.  In nine states, the largest carrier — a Blue Cross and Blue Shield company — has more than 50 percent.” [4]  It sounds like state governments have already treaded where Federal government wishes to go, with the result of fulfilling Smith’s prediction. 

No proposal gives incentive to individuals and small businesses to buy insurance.  Rather, they impose an array of penalties and tax manipulations that add unnecessary complexity as they empower the IRS to enforce the reduction in individual freedom under threat of additional penalties and even incarceration.  Besides the lack of choice in insurance, the problem is a form of corporate welfare represented by the tax deduction given employers to buy insurance on behalf of their captive members.  In effect, those who do not work for large corporations are subsidizing those who do.  A Kaufman-RAND study found, “… between 2000 and 2005, the economic burden of providing insurance increased for employers, particularly for the smallest firms.” [5]  Why not, therefore, give the tax incentive directly to individuals and allow them to buy insurance from any provider, anywhere in the country.  Opening the playing field while leveling it allows markets to work efficiently. 

Finally, with the public option defeated, at least in Committee, where do we leave the poor?  No great nation can turn its back on the less fortunate and claim greatness.  Economist Arthur Laffer suggests we offer the poor vouchers for medical insurance that they may trade on the same open market (if we can open it) accessible to the rest of us, preferably through Health Savings Accounts. [6]

[1] Klein, Philip. "Rockefeller: Adam Smith Would Have Supported Government-run Health Care", American Spectator, 29 Sep. 2009,  http://spectator.org/blog/2009/09/29/rockefeller-adam-smith-would-h 

[2] The Heritage Foundation, 30 Sep. 2009, Would Adam Smith Support Government-Run Health Care? http://blog.heritage.org/2009/09/30/would-adam-smith-support-government-run-healthcare/

[3]OECD Health Data 2009, http://www.oecd.org/document/30/0,3343,en_2649_34631_12968734_1_1_1_37407,00.html

[4] Pear, Robert. "Loss of Competition Is Seen in Health Insurance Industry", The New York Times, 30 April 2006, http://www.nytimes.com/2006/04/30/us/30insure.html

[5] Kauffman-RAND Institute For Entrepreneurship Public Policy, 2008  http://rand.org/pubs/technical_reports/2008/RAND_TR559.pdf

[6]Laffer, Arthur. "How to Fix the Health-Care ‘Wedge’ ", The Wall Street Journal, 5 August 2009, http://online.wsj.com/article/SB10001424052970204619004574324361508092006.html

This innocuous statement seems to contradict other parts of the agreement that commit to free market principles: to “phase out inefficient fossil fuel subsidies”, “promote energy market transparency”, and “fight protectionism … toward a successful conclusion” of the Doha Round of trade liberalization talks.

Yet, contradictions abound.  Buried in the G-20 final communiqué are cryptic notions of “shared objectives”, “rebalancing” of growth, and “collective implications” with “mutual assessment” of national policies.  What all this means might be inferred from a letter that White House senior aide Michael Froman wrote to his G20 counterparts two weeks before the meeting2, "As private and public saving rises, the world will face lower growth unless other G-20 countries undertake policies that support a shift towards greater domestic, demand-led growth."   The administration seems to be exporting their apparent distaste for capital formation—the by-product of savings and investment—as the catalyst of economic growth.   It is one matter to keep these notions within the borders of one’s country; it is quite another to plead them as universal truths.

Two disquieting premises emerge from this faith in 20 governments’ ability to do collectively that which has eluded any single country.  First, in this concept of rebalancing lies the assumption that governments actually exercise control over their economic activity. Elsewhere in the communiqué the members reveal their exasperation that the contrary is true.  The best they could do, for example, to address future bubbles was to debate without conclusion the effect of bank capital, derivatives markets, and employee bonuses as contributing factors of crises.  Are such microeconomic concerns governments’ best tools to prevent overexposure to risk in a financial system, what they refer to in the communiqué as macro-prudential policy?  They seem, instead, to be admitting ignorance of the causes of the present crisis or impotence in preventing the next one. No mention was made of monetary policy or how the risk exposure of quasi-governmental agencies, like Freddie and Fannie, distort prudent decision making in the private sector.

The second troubling presupposition in the G20 Framework is that governments have the capability to share economic management as a group and then subject it to peer review.  Without having established the first premise, the second is obviously false.  Imagine Communist China, where the savings rate is as high as 40% and industry subsidized, assessing or being assessed by the United States where markets are freer but which only recently emerged from a negative savings rate and continually runs huge budget and trade deficits largely financed by China.  After the meeting, both China and the U.S. acknowledged the difficulty3.

In the late 50’s and early 60’s Robert Welch, head of the John Birch Society, posed a threat to the advance of the nascent conservative movement by his malevolent speculation about the motives of those whom he considered enemies of the state, including the Eisenhower administration.  Left unchecked, Welch's eruptions might have aborted Barry Goldwater’s nomination for the Presidency.  Welch claimed Eisenhower was a “conscious, dedicated agent of the Communist conspiracy”1.  Welch’s censure had to come from conservatives themselves if conservatism were to have grown by attracting thinking men and women.  With Goldwater’s blessing, William F. Buckley, Jr., in the National Review, exposed what he called the Birch fallacy: 

“The fallacy,” [Buckley said], “is the assumption that you can infer subjective intention from objective consequence: we lost China to the Communists, therefore the President of the United States and the Secretary of State wished China to go to the Communists.” 

Buckley called Welch’s views “far removed from common sense”, and Goldwater called for his resignation in characteristically deadly accurate words: “We cannot allow the emblem of irresponsibility to attach to the conservative banner.” 

Today, we have votaries on both the left and right displaying that same kind of divergence from common sense.   

On the right, if Party leaders leave unanswered the reprehensible parallels drawn between the President and 20^th century dictators, their political stature and moral authority to advance constructive proposals that should be rooted only in impeccable conservative logic will erode.  This principle should have motivated Republican leaders to distance the Party from Rep. Wilson’s disrespect of the President and his Office in a joint session of Congress, before the opposition could seize an opportunistic and transparently political moment to reprimand the Congressman.  To his credit, Sen. McCain took that hill, but when he turned around the troops were hiding in the trenches.  On these grounds of principled leadership, the Party should be all too eager to renounce those who express their passions without civility or in exaggerated tones.  Character in politics is doing the right thing when you are almost assured it will bring the scorn of your allies. 

On the left, Jimmy Carter made the case this week that there should be a law protecting the people from gross negligence by a former President.  Carter, who in lieu of leadership in the 70’s answered the misery index—the aggregate of high inflation and interest rates—with a somber and depressing lecture on American “malaise”, was never known for his ability to lift the country to the high ground.  But to be out front accosting sincere critics of the President and those who genuinely dissent  from his policies with "racism" is to display an ignominy akin to those on the right who liken Obama to evil statists.  Equally unfathomable is the pied-piper response from those in Carter’s Party who, in their hypnotic trance at the thought that he may have discovered the magic key that gives them license to ram any bill past the will of the people, expose their supine aversion to moral leadership.  Will the Party of Kennedy, Johnson, and King quench or fan the flames of bigotry? 

In a strange twist of history, Carter and his adherents are guilty of the Birch fallacy: the right opposes big government led by a black man; therefore the right must be racist.  The loud, but thankfully numerically insignificant, neo-Welchs claiming to be conservative are also committing that fallacy: Obama is centralizing economic power, therefore Obama is a closet dictator. 

Both are, in the words of Goldwater, irresponsible.  The corollary is that those first to call for civil, respectful discourse will lead their party and the country to what President Reagan, who vanquished malaise, called “morning in America".

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1- Buckley, Jr, William F. (March 2008). "Goldwater, the John Birch Society, and Me". Commentary.

Had he stopped after five minutes, we all would have signed up.  His eloquence was in top form for at least that long in his health care speech to Congress, even if he precipitated credit to his own policy for pulling our economy from the brink.  Who needs the Fed anyway?  Ignoring that minor self-adulation, the President correctly postulated [1]: 

- We are the only advanced nation that tolerates the loss of insurance and hardship of individual medical expenditures;

- Insurance prices rise too rapidly [true, in comparison to GDP or real wages];

-  If  “… you move, lose your job or change your job, you’ll lose your health insurance too”.

- “We spend one and a half times more per person on health care than any other country”  [actually, it is closer to two times as much];

- “Our health care system is placing an unsustainable burden on taxpayers [because it raises Medicare and Medicaid costs] …”

Now, if we would give this problem to an Economics 101 class, they might conclude (if Paul Krugman is not teaching the course) that demand must be outpacing supply in both the insurance and health care markets, that both markets may be non-competitive, or that the underlying costs of insurance and health care drive prices too high. 

They might come up with a system that conduces more competition in order to balance supply and demand, increases production and encourages greater choice to put downward pressure on prices, and minimizes all direct and indirect government contribution to structural costs issuing from regulation or institutionalized waste and fraud. 

Instead, the President proposed:

- No change in employer-provided health insurance; in other words, for 85% of Americans who have insurance and for their employers, the President’s plan offers no relief.  The practice of welfare for corporations in the form of the medical insurance tax deduction will prevail and continue to spread cost escalations throughout our economy.  Employers will still be permitted to pick their employee’s health insurance carrier instead of us allowing consumers to choose in an open market.  Carriers may continue to nominate “in-network” providers, thus maintaining a lid on supply.  There will be no competitive pressure to lower price or to reduce the component costs of health care.  And we certainly will not upset the munificent benefits unions negotiated—you know, the kind that forced GM to become part of the country’s investment portfolio.

-  For remaining the 15% who have no insurance [2] or for the entrepreneur starting a business, the President offers a “marketplace” of insurance products, although, curiously, not for another four years.  This may sound like a fillip, though there is nothing novel here.  As long as the present market remains oligopolistic, that is, as long as the number of insurance carriers is limited and inter-state contracts proscribed by states, simply selling insurance on the Internet cannot introduce efficiencies.  If those restrictions were lifted, private enterprise would create the necessary exchanges just as it has in other industries if left free by the government, provided the marketplace is open to all insurance companies and all insurance seekers, including the 85% whose sub-efficient, high cost plans are protected under the President’s proposal.  Although Obama sang a paean to ‘competition’, Senior Advisor David Axelrod later clarified the administration will do nothing to open the 50 state-regulated insurance markets.

- What is most odious about this plan, particularly the version in Senator Max Baucus’ Finance committee, who according to some should not be leading this effort because of his ties to insurers and pharmaceutical companies [3], is the maze of penalties and subsidies designed to direct consumer and small business behavior [4].  Behavior modification through economic policy comes with a heavy price: the invidious loss of freedom.  Obama and Baucus intend to oblige small companies and the “irresponsible” self-insuring young to purchase insurance … which insurance can only be government approved … which purchase will be subsidized with tax credits … which subsidies will be financed with surcharges on insurance companies and penalties on non-participating companies (take that you entrepreneurs) … which surcharges and penalties are to be defined by Congress … which … 

Only the left thinks in such convulsions. 

While Obama and the Democrats identified the problem correctly, and should be credited with focusing national attention on it, they are building their solution on the vaporous fantasy that government can direct human action with tax policy, penalty, and fiat.   

Their plan increases demand on insurance and health care by forcing 30 million new consumers into the system, but does nothing to increase supply.  It addresses less than one-fifth of the population, and ignores the structural costs driven throughout the system by the existing coverage of the other four-fifths.  It turns a blind eye to the absence of competitive forces that could otherwise fundamentally improve efficiency and lower costs in both markets.  And it expands government at the expense of our freedoms.   

The President and his Democratic Congress, unimpeded by a jaw-dropping 37% approval rating—the lowest in 20 years [1]—have been nonplussed by a uniquely cultural rebuke to their health care proposal which they may never understand: Americans are viscerally opposed to bigger government.

The majority of the country understands this about the otherwise abstruse proposals: extending government influence over 18% of our economy and our personal welfare will damage a health care system that is considered to be among the best in world, because it will disassemble the very aspects that have made it so advanced without addressing the deficiencies that cease further progress.

Health care needs improvement, there is no debate. What should be debated is how the reform is effected, because the “how” will either extend fundamental principles that have served our economy for two centuries, or it will supplant them with an irreversible forfeiture of our individual freedoms. There are ways to address the system’s shortcomings that are consistent with free market principles without disturbing what works or unleashing an unnecessary expansion of government. Here, then, are five reforms you won’t hear the President propose, but can foster meaningful debate and give the country real choice if consolidated into a counterposing plan.

1- To lower medical costs, increase supply. We have one doctor for every 416 persons as compared to 1 to 300 for France, Germany, Sweden, and Australia [2]. We need to encourage the licensing of more doctors, and allow portability of their license from state to state. If I can be licensed to drive in New York and get a traffic ticket in Oregon, why can’t a doctor licensed in Oregon practice in New York if that is where the demand is? Testing and licensing alternative forms of medicine that are widely accepted in other parts of the world will also help increase supply in the United States.

2- To lower insurance costs, make policies personal, portable, and open. There is no justification for individuals and families to buy health insurance through their employers. This anachronistic system penalizes smaller businesses, according to a Kauffman-RAND study [3]. Entrepreneurs, the driving engine of our economy, and their employees can accrue neither the tax benefits available to larger companies nor premium advantages of big groups. It is also uneconomic to restrict policy acquisition by state. Make the market for insurance more competitive by allowing individuals to buy insurance in an open, nationwide market, and offer the tax advantages directly to them rather than to the employer.

3- Allow derivative insurance products and financial incentives for maintaining good health. Start by allowing insurance coverage of licensed providers anywhere in the country—even in the world, as some companies are now exploring [4]. The artificial provider networks insurance companies created injure competition. Reinstating individual responsibility for one’s care and supporting the doctor-patient relationship, by making the patient responsible to pay his provider directly with the insurance proceeds, empowers the patient to manage both his health and costs. From there we might consider an annual build-up of cash value for unused policy benefits that can be applied to future premiums, to future medical expenditures, or even to long term care as we get older. The health savings account should be made as flexible, manageable, and survivable as an IRA. 

4- Limit liability in medical malpractice to all but the most egregious negligence. Direct expenditures on malpractice amount to 1% of health care costs, but the indirect costs are difficult to quantify [5]. There can be almost no doubt that we spend nearly twice per capita on health care as most industrialized countries [6] partly because of the endless battle we tolerate between doctors and lawyers. The ultimate payer of defensive medicine is the patient—in the form of increased premiums for both doctor and patient, increased medical fees, and redundant treatments. This extraneous demand for services drives costs up.

5- To help the poor and uninsured, encourage self-reliance and participation in the private system available to others. Economist Arthur Laffer recently took a page from Milton Friedman’s book and suggested we offer vouchers to the poor with which they may purchase medical insurance on the open market [7]. One wonders if, when faced with such alternatives to the “public option”, liberals will adhere more to the objective of helping the poor than to the unspoken pursuit of expanding government.

When an industry seems to have broken down or run out of control, we tend to think of all free markets as venal. Defenders of capitalism should not lose heart. Economic sectors fail their constituents to the extent they deviate from market forces, either by overregulation or self-accumulation of power. The counterargument to centralizing control over the economy is to recalibrate industry toward market and competitive forces. The antidote to bigger government is freer and greater choice for the consumer.

For more defense and celebration of capitalism: http://twitter.com/freecapitalism

[1] http://www.usnews.com/articles/news/washington-whispers/2009/09/02/poll-lowest-congressional-approval-in-two-decades.html

[2] OECD Health Data 2009

[3] http://rand.org/pubs/technical_reports/2008/RAND_TR559.pdf

[4] http://www.fastcompany.com/magazine/125/medical-leave.html

[5] http://online.wsj.com/article/SB125193312967181349.html?mod=googlenews_wsj

[6] OECD Health Data 2009

[7] http://online.wsj.com/article/SB10001424052970204619004574324361508092006.html

Somewhere just south of the Erie Canal, in a small suburb of Buffalo, where a Starbucks can hardly be found, the American pioneer spirit is alive and thriving.  I am not referring to the rugged individualism of exploration and development, nor to the blind risk taking and abiding optimism that we associate with economic gain, although these do exist in small clusters overshadowed by a city where shuttered steel mills and rusting plants fill block after block. 

Rather, meet Mother Jacquie.  She’s is not a religious Mother, like Mother Theresa, although her faith-based work might justifiably be compared to hers.  She is a mother with eight children who makes her living in an habilitation center for young adults with special needs.  Between her family and her job, one might think that Jacquie’s days are filled with about as much emotionally taxing endeavors as one person can handle.  Not so.  You see, Jacquie’s home becomes home to children who, by fate or the errors of their parents, are being dragged on a tumbril toward a slow decapitation of their hope and joy.  These are kids of drug addicts, or who are abandoned, or who were condemned by the state to a foster “care” that ends up betraying the loving and nurturing home it was intended to be.  When these kids have nowhere else to turn, when the foster system has failed them, when despair and the streets overwhelm them, their custodial agencies turn to Jacquie.  She takes them in and loves them, feeds and clothes them, educates and teaches them how to pray, and offers them hope and happiness.  They call her mother, she calls them children; and her natural children embrace them, too, as immediately as brothers and sisters embrace a newborn into the family.

When they turn 18, Jacquie sends each child to college.  They don’t question her.  They just accept her motherly directive: if you want a good life, you must get an education.  Infused with boundless optimism and self-confidence, they find a school of their liking, a course of study, and a way to pay for their education.  Yes, each of Jacquie’s eight children and the 15 to 20 she estimates were given her by other parents over the years completely pay their way through college.  With joy and gratitude they study hard, work hard, and eventually make their way into the world of business, medicine, and law.  And they never forget their roots.  Jacquie’s son, Dan, is somewhat of a daredevil.  He earns well into six figures dangling from and maintaining powerplants and communications towers.  Yet, each year he gives one month of his time without pay to help build housing for the poor.  “Mom,” he declares to Jacquie, “this is how you taught me.”  Her daughter, Mandi, a social worker, shares custody of babies of unwed teenage mothers to ensure that both grow on the right path.

Is the new President campaigning against Christianity or is he only trying to be inclusive and respectful of other faiths?  This is the question that discomfits Americans who had always learned and always believed in the Christian tradition and foundation of our country.  To respect all faiths is a laudatory grace; to deny the influence and spirit of a faith practiced by the overwhelming majority of the country one leads is disgraceful.

Consider that in June 2006 Obama said, “Whatever we once were, we are no longer a Christian nation – at least, not just. We are also a Jewish nation, a Muslim nation, a Buddhist nation, and a Hindu nation, and a nation of nonbelievers.”  (FactCheck; YouTube).  And in July 2007 he told CBN News, “America is no longer just a Christian nation”.

One might tolerate a candidate’s flirtations with studies in comparative religions, perhaps in recognition of the changing religious profile of the United States of late (largely due to a failed immigration policy), or one might rationalize his reaction to the doctrinaire and often unforgiving positions assumed by the evangelist wing of Christianity which for too long meddled beyond their mission to save souls to encumber the politics of the GOP.  But a President’s responsibility requires a supererogation in contrast to a candidate’s ambitions, and a requisite honoring of American history, tradition, and the realities of the super-majority Christianity comprises in our country.

Yet, as President, Obama recently carried his three year message while in Turkey, “ ‘One of the great strengths of the United States’ is that it does not consider itself ‘a Christian nation or a Jewish nation or a Muslim nation. We consider ourselves a nation of citizens who are bound by ideals and a set of values.’ ” (CNN)  No, Mr. President, the great strength of the United States is this: because we are a Christian nation we are tolerant of other faiths as long as they are bound by the same ideals and set of values.  Contrast our tolerance and acceptance with nations who are openly and predominantly non-Christian, something you might have done, diplomatically, during your European trip to reaffirm Western ideals.

Are we a Christian nation?  According to the American Religious Identification Survey 2008, 76% of the population identify themselves as Christian.  That is a number that can make even the most self-assured politician salivate.  The original colonies and territories of the United States, with the exception of Virginia, were settled by Europeans escaping persecution for Christian practices that were not tolerated in their home country.  And in a case before the Supreme Court, Church of the Holy Trinity v. United States, 143 U.S. 457 (1892), Justice David Brewer declared in a unanimous decision, “These, and many other matters which might be noticed, add a volume of unofficial declarations to the mass of organic utterances that this is a Christian nation.”  Brewer’s argument is replete with examples that firmly establish the Christian tradition in American political practice.

What about the oft-cited “separation of Church and State” in the First Amendment?  Nowhere in the Constitution do these words appear.  The exact language is, “Congress shall make no law respecting the establishment of religion, or prohibiting the free exercise thereof, …”  Secularist are all too eager to parse the phrase and conveniently leave out the second clause.  The original purpose was not to create a God-less society, but precisely the contrary: to protect free expression of faith.  Here is Thomas Jefferson, writing to the Danbury Baptists who were concerned about government intrusion into religion:

Believing with you that religion is a matter which lies solely between Man & his God, that he owes account to none other for his faith or his worship, that the legitimate powers of government reach actions only, & not opinions, I contemplate with sovereign reverence that act of the whole American people which declared that their legislature should ‘make no law respecting an establishment of religion, or prohibiting the free exercise thereof,’ thus building a wall of separation between Church & State.

Obama’s solicitous exclamations about America’s non-Christianity that contradict majority American practice and belief, combined with a misreading of the Constitution by the followers of the former Constitutional professor are tragically being manifested in outrageous demands, that violate at least the spirit of the free exercise clause.  Before Obama accepted an invitation to speak this month at Georgetown University, a Jesuit school, The White House requested signs and symbols of Jesus Christ be covered up  (NBC News).  What is more unconscionable than that request is Georgetown’s acquiescence in it.  Perhaps the Catholics who run Georgetown forgot the words of St. Paul to Timothy, “If we deny Him, He will also deny us.”

Denial of our Christian heritage, denial of history, denial of the very values about which the President bragged to his Muslim interlocutors … we have managed to allow a Christian nation—yes Mr. President, it is—to be turned upside-down by a small minority who understand neither faith nor American tradition.

Michael Avari

http://bloggernews.net/120552

http://americancivility.us

What do Milton Friedman, the late Conservative economist, and Robert B. Reich, a Liberal economist who served in the Clinton administration and who is an advisor to President-elect Obama have in common?  They both propose that business taxes be eliminated.

That the same proposal is advanced 45 years apart by two economists of otherwise contradictory philosophies confirms that at least its founding postulate is rooted in immutable principles.

Politicians ought to listen this time.  We are all too familiar with the conditions vitiating our economy and our future—the banking crisis now well into its eighth month, bailout after bailout, rising unemployment, danger of deflation, a weak dollar, poor world competitive stature, and a capitulation of gains in our personal investments earned in the last 10 years.

More than any other proposal, more than stimulus packages, more than personal tax cuts, more than bailouts, the Friedman-Reich proposal will almost immediately reverse these conditions and restore the economy to health.

Why should business taxes be zero?  Because we have in our country today a system of “double taxation”, meaning that every dollar that certain corporations make is taxed twice.  These are the corporations likely to be in your 401(k), IRA, 529, or other portfolio.  For example, you work for Starbucks and have some of your personal savings in their stock.  For every $100 Starbucks makes in profit, they pay $35 in taxes leaving $65 to be distributed to shareholders in dividend or capital gains.  Some economists argue that $35 comes in higher product prices or lower wages.  When you are paid dividend you are taxed again at your individual rate, or when you sell your stock you are taxed another 15% (currently) or $9.75 on the profit.   You, as a shareholder, are left with $55.25 in that $100 earned by your company less dividend taxes paid.

With a single taxation system, only the owners of the company, the shareholders, pay the tax on profits at their normal tax rate. If you pay taxes at the marginal rate of 25%, then your share of that $100 is $75 ($100 - $25). You [or your 401(k), IRA, and other investments] keep more of the business profits, which you will spend, save, or invest again in the economy.

Nobel prize winning economist Milton Friedman first recognized the inequity in double taxation in his book Capitalism and Freedom (The University of Chicago Press, 1962) and wrote about it in Free To Choose (Harcourt, 1990).  He wrote,

“The corporate income tax, too, is highly defective.  It is a hidden tax that the public pays in the prices it pays for goods and services without realizing it. It constitutes double taxation of corporate income—once to the corporation, once to the shareholder when the income is distributed.  It penalizes capital investment and thereby hinders growth in productivity.  It should be abolished.”

And recently in his book, Supercapitalism (Random House, 2007), Robert Reich came to the same conclusion:

“In reality, the corporate income tax is paid—indirectly—by the company’s consumers, shareholders, and employees.”, and concludes that “Abolishing the corporate income tax would … help capital markets work better.”

Reich extends his analysis and observes because corporations are not people they should not be afforded the opportunity to challenge laws in courts, nor to lobby government, and should be denied other rights and privileges reserved for citizens.  Subsidizing corporations would be unnecessary without a corporate tax.  And in this age of bailout-mania, eliminating the business tax would reduce or obviate the need for Washington to rescue companies with taxpayer money.

By ending double taxation, we will create an environment of capital formation, and with it business growth without the need for stimulus, bailout, subsidy, tax credit, tax deduction, tax loophole, or other gimmicks. We believe this is the way we can make our economy strong—permanently strong—and competitive, without deficits, Federal borrowing, and increased taxation.

Friedman-Reich will make unnecessary:

- bailouts
- stimulus packages
- tax loopholes
- government subsidies
- capital gains taxes
- corporate lobbying

Friedman-Reich will:

- attract capital to business
- make companies more competitive in the world economy
- halt layoffs and increase employment
- keep jobs here
- increase the value of retirement and other savings accounts
- make capital markets more efficient and relieve the credit choke
- ultimately increase government tax revenue

There is no better time to consider this proposal.   We have an economy that needs revitalization, a new President who has called for bi-partisan ideas, and a breakthrough concept with support from both sides of the political spectrum.  This is an idea started by a conservative and advanced by liberals.  And Mr. Reich is an advisor to President-elect Obama.  We believe we have therefore, at this moment, the perfect storm to advance a proposal that would redress systemic disadvantages our tax system imposes on businesses and capital markets, precisely at the time when both need help.

Please sign the Friedman-Reich petition.  We hope to present the petition to the new Obama administration and to Congress.

Michael Avari

http://www.americancivility.us/

President Bush shows no regard for the will of Congress or the majority of the American people. The Senate rejected the auto bailout. But that doesn’t stop Bush.

A few facts:
- The Big Three first wanted $25 B
- Then they asked for $34 B
- The bill that failed in Congress was for $14 B
- Bush is considering lending the auto makers $8 to $10 B from the Troubled Asset Rrecovery Program (TARP).

A few points:

1) Clearly the auto makers don’t know what they need and Washington is just throwing our money around with reckless abandon.
2) Neither Ford nor Chrysler need the money right away, so this is a GM bailout.
3) The Senate bill failed because the UAW would not assure lawmakers that they would make their labor rates “competitive” with those of Toyota, Honda, Hyundai, and Mercedes which manufacture in Sen. Shelby’s Alabama and with Nissan whose headquarters is in Sen. Corker’s Tennessee, where Volkswagen will build a 2000 employee plant.
4) The Fed, who has authority to lend to non-financial entities in an emergency refused to lend to the Big Three. And they are bankers!
5) Bernanke and Paulson, backed by Bush, came pleading to Congress and the American public to approve $700 for the banking industry otherwise the economy might fall into depression. If that money is not used by banks, it should be returned to the American people.
6) There is no provision in TARP to allow lending to non-financial enterprises.
7) Bush would have to get Congress to approve use of TARP funds outside its original scope or risk breaking the law.
8) Cheney said the administration did not want the Republican Party to be remembered as the Party of Hoover and allow an industry to fail.

Instead, it will be remembered as the party who, 20 years after Reagan, brought Socialism to America.