Easy Opinions

An Intellectual Program

2011-12-12T20:57:00.005-05:00

Intellectual: We must adopt policies ... any normative concept of a just society. [applause]

Mike: He must have a great mind. I didn't understand much of what he said, but I find myself agreeing with him.
Jim: He's not so great. Either he is intentionally confusing, or he can't figure out how to explain it to us.

02/15/07 - Elsewhere.Org

The following is an excerpt of a significant article. Don't spend time diving into the complexity, just get a feel for it.

The Rubicon of Reality:
Precultural Socialism, Socialism and Neomaterial Capitalist Theory
By Henry Wilsonaka the computer program Pomo, Department of Deconstruction, University of North Carolina
1. Consensuses of fatal flaw
In the works of Gibson, a predominant concept is the concept of textual art. It could be said that Baudrillard promotes the use of neostructuralist constructive theory to deconstruct capitalism. The subject is contextualised into a predialectic paradigm of expression that includes narrativity as a reality.
“Sexual identity is part of the meaninglessness of truth,” says Foucault; however, according to Cameron [1] , it is not so much sexual identity that is part of the meaninglessness of truth, but rather the rubicon, and subsequent stasis, of sexual identity. Therefore, Bataille’s model of textual nationalism holds that the raison d’etre of the writer is significant form. The characteristic theme of Prinn’s [2] critique of semiotic neotextual theory is the difference between class and society.

This article and about 5,400,000 others are significant because they were generated by the computer program Postmodernism Generator. It starts with a collection of authors and quotes, and writes them out in grammatical forms without knowing any meanings. It produces high class, random gibberish, allowing the reader to supply his own meanings and puzzle about the deep and intricate ideas which might lie within.

This is a neat trick. Even if you were fooled, you might think that true intellectuals would not be.

Alan Sokal is Professor of Physics at New York University. He wrote an article Transgressing the Boundaries: Toward a Transformative Hermeneutics of Quantum Gravity and submitted it to the journal Social Text, which accepted and published it in its Spring/Summer edition of 1996.

A few months later, Sokal explained that this paper was a parody.

Social Text describes itself: Social Text covers a broad spectrum of social and cultural phenomena, applying the latest interpretive methods to the world at large. A daring and controversial leader in the field of cultural studies, the journal consistently focuses attention on questions of gender, sexuality, race, and the environment, publishing key works by the most influential social and cultural theorists.

A Physicist Experiments with Cultural Studies

[edited] I tried a modest, uncontrolled experiment to test intellectual standards. Social Text is a leading North American journal of cultural studies. Its editorial board includes luminaries such as Fredric Jameson and Andrew Ross. Would it publish an article liberally salted with nonsense which sounded good and flattered the editors' ideological preconceptions? The answer, unfortunately, is yes.
Could the editors really not have realized that my article was written as a parody? Is it now dogma in Cultural Studies that there exists no external world? Or, that there exists an external world, but science obtains no knowledge of it?
In the second paragraph, without the slightest evidence or argument, I declare that "physical reality" is at bottom a social and linguistic construct. Not our theories of physical reality, mind you, but the reality itself. Fair enough: anyone who believes that the laws of physics are mere social conventions is invited to try transgressing those conventions from the 21st floor windows of my apartment.
I wrote the article so that any competent physicist, mathematician, or even undergraduate physics or math major would realize that it is a spoof. Evidently, the editors of Social Text felt comfortable publishing an article on quantum physics without bothering to consult anyone knowledgeable in the subject.
The fundamental silliness of my article lies in its dubious central thesis and the "reasoning" used to support it. Quantum gravity is a speculative theory of space and time applying to distances of a million billion billion billion'th of a centimeter. I claim that it has profound Progressive political implications.
I support this as follows. First, I quote some controversial philosophical pronouncements of the physicists Heisenberg and Bohr, and assert without argument that quantum physics is profoundly consonant with "postmodernist epistemology". Next, I assemble a pastiche of Derrida and general relativity, Lacan and topology, and Irigaray and quantum gravity, held together by vague rhetoric about "nonlinearity", "flux", and "interconnectedness". Finally, I jump to assert without argument that "postmodern science" has abolished the concept of objective reality.
Nowhere is there anything resembling a logical sequence of thought, only citations of authority, plays on words, strained analogies, and bald assertions.

Alan Sokal's paper was more outrageous than a computer generated one. So, it is amazing that it fooled the editors of Social Text. They didn't understand what they were publishing. They only seemed to care that it supported their political beliefs, no matter what the subject area.

Social Text refused to publish Sokal's explanation of his hoax, as not meeting its editorial standards.

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Alan Sokal's articles about the Social Text affair.

Thanks to Bill Quick for the link at Daily Pundit.

Workers Pay Unemployment Insurance

2011-12-04T23:15:00.002-05:00

Max: I'm going to take the summer off on unemployment.
Fred: Have fun on my nickel.
Max: Lighten up. The company will be paying through unemployment insurance.
Fred: My wage is lower because of that cost, and I need to keep working.
Max: Aren't you the busy bee.

About Unemployment Insurance
12/04/11 - The Money Illusion by Scott Sumner
Via Cafe Hayek

[edited]: The statistical evidence on UI is overwhelming significant. When UI benefits maxed out at 26 weeks, there was a spike in the number re-employed right after the benefits ran out.
That might be efficient if due to the income effect. But, it is hard to dispute that UI insurance affects labor supply and employment. Studies show those effects even in areas with double digit unemployment.
Many Western European countries such as France saw their natural rates of unemployment rise from around 2% in the 1960s to about 10% in the 1980s. The most plausible explanations have to do with labor market policies.

I comment at Cafe Hayek.

The irony. Employers pay cash wages and incur employment costs which include healthcare, taxes, unemployment insurance, and employment related legal entanglements. The employer correctly sees these employment costs as part of the total cost of employing the worker.

Competition and productivity determine the total which can be spent on a worker, and employment costs determine the cash wage which can be offered. Greater expenses for unemployment insurance mean lowered wages. Companies are writing the checks for unemployment insurance, but workers are paying for that “insurance” through lower wages offered.

People with jobs are paying for the people who supposedly were fired without cause. If they realized that, there would not be much support for giving 99 weeks of compensation to the non-working. At 3-5% of payroll for unemployment insurance, many workers are giving up ten days of paid vacation each year to support the unemployed.

Wall Street Was Not Bailed Out

2011-11-26T22:00:00.002-05:00

Occupy: The bailouts prove Wall Street bribed our government.
Mike: Wall Street received TARP loans and have paid them back.
Occupy: So who was bailed out?
Mike: Hundreds of small banks in every congressional district.
Occupy: Small banks own the government?
Mike: In a way. Small banks give political contributions to congressmen. And, hundreds of small bank failures would point blame at government's disastrous housing policies.
Occupy: Occupy Main Street!
Mike: Not quite. Try "Occupy Government".

Wall Street Was Not Bailed Out

11/26/11 - Power Line by John Hinderaker

[edited] In what sense were “Wall Street banks” bailed out? They weren’t in fact “given” any of our money. Most of the largest banks (which were perfectly healthy) were forced to take TARP loans so that there would be no stigma attached to the few large unhealthy banks, and the many unhealthy small community and regional banks which were saved by those loans.
Almost all large “Wall Street banks” have repaid their TARP loans with interest and in short order. Three-quarters of TARP went to hundreds of small regional banks, notoriously unstable, particularly from commercial real estate lending. It is exactly those small banks who who remain “bailed out”, who lent recklessly to the real estate developers who built the bubble housing.
Taxpayers will end up paying for the government policies which directed money into housing and to automobile worker's unions. Wall Street made 3% commissions. The rest of the bailouts have gone to Main Street, the 99%.

Insane Budget Savings

2011-10-15T21:47:00.003-04:00

Official One: The CLASS Act was intended to provide long-term care insurance to everyone. I'm sorry to report that we will not be implementing it. It is too expensive.

Official Two: Even worse, we won't be able to save $86 billion by implementing it.

Mike: Too expensive, but it was going to save money. Are you nuts?

The Wall Street Journal reports that the US Department of Health and Human Services (HHS) has abandoned a part of ObamaCare.

[edited]: The CLASS Act was intended to provide long-term care insurance for people who become unable to care for themselves.
HHS has re-examined the program as being too costly over the long run. It stopped implementation and reassigned the staff last month. HHS Secretary Kathleen Sebelius informed Congress that she does not see a viable path forward.

Fire Dog Lake explains more.

[edited]: The Obama administration always thought that this program would need taxpayer subsidies to operate in the long-term.
Cancelling the CLASS Act forfeits $86 billion in savings [?] in the Affordable Care Act. The CLASS Act was scored by the CBO as providing revenue in the ten-year window of the legislation, because it collected more in premiums than it paid out in the early years.
The CBO is the Congressional Budget Office. "Scoring" is its official determination of the costs and savings of legislation.
US Senator Judd Gregg (R. NH) had amended the law to require that CLASS be self-sustaining for 75 years without taxpayer funds. HHS had to work within those guidelines.

My ? above marks a contradiction. CLASS could only be implemented with government subsidies from taxes, but the CBO scores CLASS as saving $86 billion dollars. This contradiction illustrates an insane, dishonest, and immoral budget process. This budget accounting trick is so common that officials and the mainstream press don't give it a thought.

The Wall St Journal - The Definition of Insanity
Why Democrats won't repeal a program that everyone in Washington knows is a fraud.

[edited]: Democrats added CLASS to ObamaCare as a budget gimmick among many. These create an illusion that trillions of dollars of new spending will somehow reduce the deficit [save money].
CLASS was supposed to start in 2012. People who signed up would pay premiums immediately, but could not receive benefits for the first five years. Democrats planned to spend these premiums immediately on other things, as if the future payments to beneficiaries would never come due.
About $86 billion would have accumulated between 2012 - 2021 to help finance the rest of ObamaCare. CLASS would then go broke a few years later. That would be somebody else's problem.

The CBO estimates the revenue and cost of a proposed law over 10 years. This is usually adequate for a fair evaluation. But, social programs have a much longer life. Democrats routinely propose laws which collect money now to fund promises more than 10 years in the future. This shows up as a budget "savings" now, because it ignores promises due after the 10 year window.

Thankfully, Sen. Judd Gregg especially applied a 75 year evaluation period to CLASS. Team Obama could not work around this appeal to reality. Strangely, the zombie of the "savings" scored by the CBO still lives within the fantasy world of 10-year budget accounting.

So, HHS will not implement CLASS because it would cost too much money in reality. But, HHS will not officially kill CLASS because it is tied to a fantasy savings of $86 billion.

Immoral

The budget process is immoral. Democrats have passed programs into law which cannot be funded as advertised. This puts at greater risk any person who relies on them, and it prevents partial solutions from the private market.

A proponent might say "These plans give aid to the needy in the short run. That is good, even if the long run solution will require much larger taxes on everyone, and especially the rich".

I say that such programs involve a growing number of people who will rely on them until the time that they fail. A plan for the future is not "We will do this now, and then we will hope".

Our government (politicians) pretends that it is planning for the long-term, but it uses fraudulent accounting to justify short-term plans which are destined to fail in as little as 10 years.

Long Term Care Insurance

Private long-term care insurance (LTCI) is a variation on life insurance. The insurer enrolls a person who is not already in dire health and charges him a monthly fee (the premium) based on his current health and age. The insurer agrees to pay to him a monthly support payment for as long as he is disabled, after he suffers future ill health or an accident.

Private LTCI applies immediately after the person is accepted. For example, it would pay toward nursing home care after an accident which occurs a few days (or 20 years) after acceptance. No state would approve a plan with a five year waiting period such as CLASS.

LTCI is like fire insurance. Each participant pays in enough each month to pay for the costs of sudden disability for a few unlucky people like him, say from stroke or accident. Each person pays according to his own risk, averaged among people with the same risks as he has.

Note that he is not paying for the care of people who are much older or sicker, in the hope that younger people will pay for him when he is himself older and sicker. Voluntary insurance cannot force him to pay more in order to support people in higher risk categories. An insurer who tried this would find that other companies are charging lower premiums, attracting away new business and the insurer's healthy clients.

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CBO: Social Security Trust Funds
Feb 2011 - Easy Opinions

The accounting fraud in CLASS above is to spend "excess" premiums while ignoring future promises which justified those premiums. Sadly, Social Security is a much larger and more serious fraud of the same type.

There is nothing real in the Social Security and Medicare "trust funds" (or in any US Treasury trust fund). The special Treasury bonds in these "trust funds" are only a political promise to find the money somewhere.

The shortfall is about $66 trillion in today's dollars for the combined promises of Social Security, Medicare, and Medicaid. This is about four times the entire yearly income of everyone in the US. That promise is much more than what is recorded in the trust funds, which is itself only an unfunded promise. The trust fund bonds are a promise, but they don't help to pay for themselves.

The Social Security and Medicare trust funds are only a record of what was collected and then immediately spent for things other than Social Security and Medicare.

Reporters assume incorrectly that something called a "trust fund" must have something valuable in it. These "funds" were created and named by politicians. They only hold IOU's from the Treasury to itself. Call it a reminder of what the Treasury took out of the fund to buy other things and is supposed to put back someday.

Fooling the Future

2011-10-07T23:29:00.005-04:00

Government Planner: Our next stimulus plan is really, really targeted at creating jobs and prosperity.
Mike: What about the last stimulus plan?
Planner: That was only sort of, kind of targeted at creating jobs and prosperity. We were distracted.
Mike: How long will this new stimulus work?
Planner: For about a year, probably past the next election.
Mike: Then what?
Planner: We'll have another stimulus plan ready, to continue the good works of the last two.

Future Economic News:

Federal Reserve Chairman Ben Bernanke has announced that Quantitative Easing Eight combined with Stimulus Six has not achieved the results that "were expected by now-fired Fed analysts". This is despite recent reports of an IRS program to increase tax audits unless "businessmen borrow money and invest in job-creating expansion, like it or not".

Quantitative Easing plus Stimulus is the following strategy:

(1) Increased government purchases and salaries cause increased demand for filing cabinets and restaurant meals. This starts a virtuous cascade of money throughout the society, leading to an explosion of wealth and prosperity.

(2) Small businessmen with "more luck than brains" are fooled into investment and expansion by a six-month, 5% increase in business. They will naturally hire more workers, at least until the six-month government buying spree ends.

"It is mystifying that this plan has yet again failed" said Bernanke. "We have run out of traditional economic levers to pull. Very few businessmen have a degree from Harvard. Yet, manipulating money and credit is failing to fool the other businessmen in any significant way."

"We are now forced to use non-traditional methods. We are making huge ad buys in major markets. Our message is that it is patriotic to lose money, if necessary, by expanding business and hiring workers in the current environment of regulation, taxes, and medical mandates. That is the carrot."

"We accept that business owners are unhappy. We will make it clear just how much more unhappy business owners will be if they don't do what we say. We are fundamentally pro-business. We want businesses to prosper by doing exactly what we tell them to do. One for all and all for one. That is the stick."

Wags have unfairly and mindlessly compared government policy to the South Park cartoon Underpants Gnomes:
(1) Collect underpants. (2) ??? (3) Collect huge profits.

(See the video starting from 17:40. Sorry for the 30 second commercial.)

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Cause and Effect
EO -> 10/11/11 - Knowledge Problem by Michael Giberson
( Click the link above, then see the further link at the upper right. )
The oil price increases of the 1970s prompted politicians to raise interest rates in an attempt to control inflation. The economy slowed. Was this because of the oil price increase, or the result of the higher interest rate?
This seemingly simple economic question is actually hard, with uncertain answers, like most questions about the economy. Motto: We don't really know, but we are willing to guess.

Basic Principle of the New Deal

2011-08-28T22:00:00.002-04:00

President: We will now pivot and act resolutely to overcome the serious problems presented to us in these past months and years.
Reporter: What is your plan?
President: We will be resolute in our various policies.
Reporter: Can you give some examples?
President: Each problem will be solved as required, with a solution tailored to each situation.
Reporter: Then, what is your guiding principle?
President: Our principles will emerge as we solve each problem in turn.
Reporter: I see. You are a big picture, idea type of leader.
President: Yes. I would not want to limit our problem solving by committing prematurely to particulars.

"Liberal Fascism: The Secret History of the American Left, From Mussolini to the Politics of Meaning" by Jonah Goldberg (via Ed Driscoll)

[edited] Today in 2007, many liberals subscribe to the myth that the New Deal was a coherent, enlightened, unified endeavor encapsulated in the largely meaningless phrase “the Roosevelt legacy”.
This is poppycock. Raymond Moley was FDR’s right-hand man during much of the New Deal:
To look upon these programs as the result of a unified plan was to believe that the accumulation of stuffed snakes, baseball pictures, school flags, old tennis shoes, carpenter’s tools, geometry books, and chemistry sets in a boy’s bedroom could have been put there by an interior decorator.

Alvin Hansen was an influential economic adviser to FDR. He was asked in 1940 whether the basic principle of the New Deal was economically sound, and he responded, “I really do not know what the basic principle of the New Deal is.”

Free Ice Cream Cones

2011-08-02T22:00:00.002-04:00

Fred: You have a nice coffee maker there.
Mike: It's great. It was expensive, but they gave me a coupon for $40 off which I couldn't pass up.
Fred: But, you are not smiling.
Mike: Funny thing. I saw one later, just like it. No coupon, but the base price was even less than I paid in total.
Fred: Coupons are funny that way.

A political gathering in the US.

Politician on outdoor stage: May I first say that all of you are the most intelligent, beautiful, clear thinking, generous, patriotic, and deserving people that I have met, along with all of the other great people of your town, city, and state.

Voice in the Crowd: Yeah, whatever.

Politician: Unlike my opponent, I want to strengthen government in all of the right ways to help you in this life of woe.

Voice: What about the debt?

Politician: "Debt" is only a bad word for borrowing money. It is money that someone has little use for, which we will invest in our great country for your benefit.

Voice: What benefit?

Politician: Ice cream cones.

Voice: Are you nuts?

Politician: Which of you wonderful people would like a free ice cream cone?

Voice: [drowned out]

Crowd: [clapping] Me, Us, We do, Yeah, Great.

Politician: I will arrange for free ice cream cones, as many as you want, and other free stuff. Would you like that?

Voice: [drowned out]

Crowd: [loud cheers] Yay, Yes, You said it, Gimme, I can't wait.

Voice: [as cheering dies down] There is no such thing as a free lunch.

Crowd: [some booing]

Politician: My friends, the heckler is correct. But we are not talking about lunch. We are talking about free ice cream cones.

Crowd: [louder cheering]

Voice: [as cheering dies down] They will make us all pay more.

Politician: No, we will make the rich pay. They have lots of money. In these times, when we have fewer ice cream cones than we want, it is only fair that rich people and corporations put in their fair share, much more than they are putting in now.

Voice: [stands on park bench] Wait! You all will pay more.

Taxes on companies will appear as higher prices. Taxes on investments will slow company growth. You and your children will have fewer and lower paying jobs.

The politicians always take a big cut. Your retirement funds will not grow as fast, as everyone invests less. The same corrupt politicians who promise to tax the rich will make deals with the rich and pass the costs onto you.

This has always been the result of promising free stuff and promising to tax the rich. [he shouts louder] You are being asked to vote away your own prosperity!

Crowd: [some boos, and a stunned silence as people try to think]

Politician: My fellow citizens. I will get you free ice cream cones. We will all work together and contribute our fair shares. Keep your faith and vote for a better future.

Voice: [the man is pulled down from the bench] Stop that. Let go.

Crowd: [loud cheers toward the stage] Yes. You're the man. We're for you. We deserve the ice cream cones.

Keynes' Brilliant Moment

2011-08-01T18:13:00.002-04:00

Fred: Keynes proposed that everyone would have a job if the government would print more money.
Mike: If true, why would anyone work?

A lost recording, England 1932:

Keynes: There must be a way to end this depression. Along the way, we can show that government can be good, and business is bad.

Assistant: How to do it?

Keynes: I have it! There is not enough demand for goods and services. Something changed, and people stopped wanting enough stuff. They became suddenly and disastrously frugal, and no longer want to buy things.

Assistant: With a raise, I would buy more things.

Keynes: Forget the raise. If only we could find Martians who would buy more of our stuff, then people would work for the Martians. The increased demand would get money flowing, like a river, and we would all be rich.

Assistant: Sir, we had a long talk about the Martians. We have gone over that.

Keynes: OK, yes, no Martians. Where else can we get demand?

Assistant: How about the French and Germans?

Keynes: They are not rich enough. They are still progessing toward wealth through adaptation to Socialism, and they haven't yet adapted. They have this stupid notion that they should sell more of their stuff to us, not buy more stuff from us.

Assistant: If you and I both had more money, we could buy things and help to raise demand.

Keynes: More money? Eureka! The government can print up the stuff and spread it around. And, I can get more money by advising the government. The workers will chase those pieces of paper like catnip. They will become used to working again, instead of being lazy and stupid.

Assistant: More people may find work. But Sir, the value of money will fall and prices will go up. Everyone now working and saving will be silently taxed to employ those extra people. And, what will happen when the stimulus stops?

Keynes: First, we and our friends in government will all have more money. That has to be a very good thing. Second, in the long run we are all dead. Forget about tomorrow, it is in the future.

Assistant: So, I get my raise?

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Use Inflation to Fool People
Keynesian economists expect most people to be slow-witted and unable to make rational economic decisions. The government tries to fool people into working harder by inflating the currency to just the right amount. But, it doesn't work for long.

"Keynesian Economics" in The Political Dictionary
Understand politics by knowing the meanings of things.

Econ 201: The Myth of the Economic Multiplier
You don't create $40 in wealth by paying $10 to mow your lawn.

The Deadweight Loss of Taxes
Collecting $1 in extra tax kills $2 in production.

A Short Argument Against Stimulus
It isn't so stimulating when you know that it must be paid back.

Let's Counterfeit Our Way to Wealth
If Obama and Keynes are correct, that there is a 1.5 wealth multiplier on spending, then $100 in spending produces $150 in wealth, and we should all benefit from counterfeiting. It is not my fault that the belief in a multiplier is so outrageous that it leads to this outrageous result.

The Memory of Idiots

2011-07-16T18:08:00.005-04:00

Fred: I haven't seen you in a while. How are things?
Mike: (looks up information on tablet PC) Yes, Fred! Pretty good. Let's meet later to talk. Or, you could just review my tweets.

Future News:

A team of researchers at Columbia University [ed. what were their names again?] has used a unique perspective on home environments to conclude that most of us were raised by idiots, and probably are idiots ourselves. They pose the serious question about whether democracy should be replaced in the US by a "Platonic board of thoughtful intellectuals from Columbia".

The Team looked at original materials from homes where the mother or father cooked regularly. In almost every instance, they found dog-eared cookbooks and collections of food-stained recipe notes. "These people referred repeatedly to favorite recipes as indicated by wear and staining on the papers. Their dependency is revealed, in that they must have had these materials directly in hand while cooking."

What could explain adults repeatedly referring to written descriptions of favorite recipes? They conclude that these people could hardly remember anything. They were idiots, who spread their idiocy to their children. The implications are tragic and enormous.

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Is the internet negatively impacting our memory?
07/15/11 - RiehlWorldView by Sissy Willis
Inspiration for my sarcastic post above.

Marketing Capitalism

2011-07-10T22:00:00.002-04:00

Max: Corporate managers extract profits from the labor of the workers.
Fred: They are paid out of the production of the company, just as you are.
Max: They make undeserved profits. I make a well deserved salary.

There is a big marketing problem for the terms "capitalism" and "profit". "Capitalism" was constructed by Karl Marx to be negative (capital ruling over men), and profit has come to mean "excess costs which result in a higher price".

Someone noted that we eat pork, not pig, and we eat veal, not baby cow. Names matter.

We should say "a system of free exchange" instead of "capitalism", and say "net productivity" instead of "profit".

The statement "XYZ Company had an obscene net productivity in the past year under an outrageous system of free exchange" doesn't have the same Marxist zing as using the conventional terms.

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Are Hospital CEOs Overpaid?
07/05/11 - Insureblog

How much does CEO pay at hospitals affect the cost of care? Are non-profit hospitals always cheaper?

Police Academy

2011-07-09T17:51:00.005-04:00

Reporter: Tell me about the bank robbery.
Police Spokesman: The incident may have involved removing something from the bank, possibly money, or something else valuable, maybe. We are investigating, so don't hold me to any of this. The situation is fluid and epistemology is difficult. Officially, I don't really know anything.

Via Dr. Grumpy

Fireworks Accident in North Fargo
InForum - 07/05/11

[edited]: Hanson saw his neighbor set off a second round of a homemade or illegal artillery shell firework. Hanson heard a loud bang and saw a cloud of smoke. He walked to the scene and saw no head on his neighbor's body.

The police spokesman gave me a laugh.

[edited]: At this point, we don’t know if he was struck or if the munition blew up, but it appears based on the information we got during our investigation that it was caused by the fireworks in some manner.
The victim’s injuries included massive head wounds from what appeared to be caused by a mortar type firework.

The police bureaucracy is guarded and uncertain about a simple, horrible incident. We have no hope when we give bureaucracies power over more complicated situations.

High Prices and Low Pay Are Good

2011-05-26T16:43:00.003-04:00

Fred: I can't find work, and I am barely getting by.
Alice: Work is a rat race which literally burns resources. I am glad that you are now in accord with Gaia, rather than fighting her.

Why you should love $5 gas
05/25/11 - MSN Money (Via Instapundit)

The above article has insights which demand to be applied to unemployment (smile).

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Stop grousing about having a lower-paid job or not having a job. Your unemployment could be good for you and good for America. Here are some benefits, and I'm not serious about any of them.

Fewer people will die on the road, including you. The less you drive, the more likely you will survive. Driving to work is the single biggest reason that people risk their lives in a car. Would you rather be poor or dead?

Demand for high-mileage cars could grow. As you become hungry and lean, you will consider driving much farther to hold a job. A high-mileage car will be your only choice, maybe subsidized by the government. If that is still uneconomic, you can move to the central city for a service job. Public transportation is not as bad as you remember it, and there is no car to park or shovel out in the winter.

Shorter airport security lines. Airline traffic will be down. You certainly won't be flying.

Less pollution and less congestion. You will be doing so much less with the little resources you must live on. This not only cuts your polution, but the polution and congestion not generated by not supplying you with all of those once-necessary conveniences you were buying. You will be surprised how little it will take for you to barely eke by.

Less work leads to more work. It will soon become clear that you are part of a large, vocal group. Entrepreneurs will be attracted to the large pool of unemployed. The government may catch on and lower the minimum wage, providing the opportunity for everyone to be employed again.

More exercise. Remember walking? Without a car you will become familiar with the sights and sounds of your local neighborhood as you walk yourself to health. Master the few blocks around your apartment, and take walks with your new roommates. A sharp eye and heightened "street smarts" will lower the chance of you getting mugged.

No more war. Wars cost money. You will have no money, so you won't support conflict with the same gusto that you used to have for adventure. Finding a cheap hamburger will be all the adventure you will need.

Local businesses could profit. Walking around will introduce you to local businesses. They will adapt by offering cheaper goods. A win-win.

It's all about Democracy. You voted for the caring, giving politicians (mostly Democrats) who have arranged for a more fair and just society. You have had a job for so long, let some others have a chance. Do you want jobs under the cruel supervision of selfish capitalists, or a more just distribution of wealth under caring politicians? We know your choice already, because you are not selfish, and you have already voted your heart. Keep the faith; don't backtrack now.

Obama and the Guest Book Date

2011-05-26T13:11:00.000-04:00

Doctor: (patient seems disoriented) What is today's date?
Mike: May 24th.
Doctor: What year is it?
Mike: 2008.
Doctor: (concerned) Who is the President?
Mike: (sad expression) Barack Obama.

Barack Obama's Great European Adventure
05/25/11 - Examiner.com by Scott Paulson

[edited]: Obama signed a guest book at the Westminster Abby in London, England. He dated his signature as 24 May 2008, when in fact the date was 24 May 2011.

The day was correct; the year was wrong. Have you ever known anyone to get the current year wrong, by three years? I have dated checks in January using the prior year, but never three years ago.

If your spouse or parent did that, would you laugh, or have them evaluated for stroke?

Possibly a physician could comment. If you are evaluating the orientation of a patient, and they report the wrong year, by three years, what does that usually mean?

Family Budget

2011-03-28T22:00:00.012-04:00

Bob: Like the government, I have promised to help out my family members when they retire.
Mike: Why the grim face? How much did you promise?
Bob: About $1,500,000 above my after-tax income of $50,000, while I repay $210,000 that I have borrowed.
Mike: Just break it to them gently.

( This is Version 3 of this post. What changed?After clicking this link, you can come back here with the "Back" button of your browser. )

Spending Cuts of 1.8%

Republicans have approved cutting $61 billion from government spending of $3,500 billion this year, a 1.8% cut. The government accounting year 2010 (the 2010 fiscal year) is the 12 months ending September 30, 2011.

The numbers are huge and hard to grasp.

	$2,200 billion	in taxes received
+	$1,300 billion	of borrowing (the deficit)
=	$3,500 billion	in government spending

The government borrows 60% above its income of $2,200 B.
The government spends 1.6 times its income.
The proposed cut is 4.7% (1/21st) of the borrowed money.

For your reference,

$1 billion =	1,000	× $1 million
$3,500 billion =	3,500,000	× $1 million	= $3.5 trillion

Family Sized

The numbers above are too big to really understand. Here is what our government's spending and financial situation would be when reduced in proportion to the spending of (say) Bob's family:


Bob has	$50,000	of yearly income to spend after-tax.
He borrows	$29,900	more, 60% of his income.
He spends	$79,900	1.6 times his income, not saving anything.
Proposed cut	$1,400	is 1.8% of Bob's total spending,
		or just 4.7% of Bob's yearly borrowing.

Bob's debt is	$210,350	at 2.2% interest, a low current rate.
Bob pays	$4,550	yearly interest in his spending above.

Democrat Bob responds: "No way. I can't live with that drastic cut of $1,400. You are threatening my family. Think of my children!"

The proposed cut is only 1/21st of what is needed to balance the current budget and stop increasing U.S. debt.

Super-Sized Promises

Bob is a soft-hearted and generous guy. He has made additional promises to his parents, uncles, and cousins for Social Security, Medicare, Prescription Drugs, Medicaid, and more. He hasn't yet set aside $1,525,650 to provide the complete funding for those promises. Bob does not want to disappoint or worry his family, so he has not fully explained the situation to them.

Bob currently spends everything he earns and borrows. He pays $4,550 for the yearly interest on his debt, but he is not paying down the balance of $210,350. Amazingly, he is borrowing $29,900 more each year.

Contributions From the Family

Some of Bob's family pay to him $20,000 (40%) of his income (Social Security and Medicare contributions). He has promised to invest that money wisely for their support later when they retire or become sick. This year, he spent $33,100 on other family members who are already retired or sick.

Bob is currently meeting his obligations to support some of his family. But, Bob is not saving anything and has not planned how to later support the family members who are now paying in. He treats their $20,000 in contributions as part of his current income and spending.

Social Security Trust Fund

Bob collected money in the past which he did not need to spend immediately on family support. He put it into a trust fund, added it up, and immediately withdrew it to spend on other things. If he had saved that money it would now total $60,100 (in proportion to the Social Security trust fund of $2,600 billion). But, he didn't save it.

Worse, Bob's promises to support his family are far greater than all the amounts he collected, even if he had saved. By now, he would need savings of $182,600 dedicated to support Social Security. That is 3.6 times his income from all sources. (That is in proportion to the $7,900 billion unfunded liability of Social Security.)

All Promises

Mary Meeker and her team (below) have estimated all of the amounts Bob has promised to spend on Social Security, Medicare, and Medicaid over the next 75 years. They compared this obligation to the payroll taxes that will be collected for those purposes at current tax rates. Bob won't collect nearly enough to meet his promises.

Bob would need $1,525,650 right now in safe investments earning 3% interest to make up the difference. That is Bob's part of the combined "unfunded liability" of Social Security, Medicare, and Medicaid over the next 75 years. This is a way of valuing and comparing today what those promises will cost in the future.

Bob doesn't have any savings, so those promises will require much more income (much more in taxes). The Social Security Trust Fund will not help, because it only contains more promises. In our analogy, the trust fund is only a promise from Bob to himself to find more income in the future. See Unfunded PromisesAfter clicking this link, you can come back here with the "Back" button of your browser. below for more on this.

We expect that Bob's income will increase by 3% each year. This will not help much, because we also expect almost all of Bob's expenses to increase at that rate.

Taxes × 1.76

Here is the additional income Bob would need to pay for all of his promises.


Promise	Amount	Income
Entitlements	$1,525,650	$20,342
SS/Med Income		20,000
SS/Med Payments		-33,100
Federal Debt	210,350	772
Borrowing		29,900
Total Extra		$37,914

Current Income		$50,000
Total Needed		$87,914
Multiple of Income		× 1.76

This means collecting 1.76 times as much tax as at present. That huge amount must come mostly from the middle class. Only part would come from the rich.

You might think that a growing economy will make it easier to pay these promises. But, the official government analysis already assumes 3% yearly growth in the economy and taxes. Bob needs 76% more income (tax collections) today, and his total income and payments must increase yearly by 3%.

You can skip these details without missing much.

$1,525,650 is the lump-sum value, earning 3% per year, needed to pay for unfunded Entitlements over the next 75 years. The first payment, this year, would be 1/75th of that amount, $20,342. This is in addition to the funded portion, $20,000 this year. The funded + unfunded need is $40,342. Bob is paying $33,100 of that. Bob needs to save $7,242 more to meet his promises. All payments increase by 3% each year.

The payment of $772, increasing by 3% yearly, is enough to pay off Bob's proportional part of the national debt of $210,350. We assume that debt does not increase yearly. Interest on that debt is already being paid from other borrowing and taxes.

Is it reasonable to suppose that the national debt will not increase? Yes, because we are calculating here the additional income that Bob needs to pay for his promises, stop borrowing, and pay off the national debt.

Last, Bob must have additional income of $29,900 to stop borrowing each year, increasing by 3% yearly. He needs that income because every dollar of that borrowing is now being used to pay for something.

See the Excel worksheet FamBudget.xls for all of the calculations.

Who Will Pay?

In 2006 the the top earning one-quarter of taxpayers paid 86% of all personal income taxes. They paid an average of 16% of their incomes. That is not their top tax rate, but the total part of their adjusted gross income (AGI) paid in income tax. The figures for 2008 are not much different. I haven't done a detailed analysis for those more recent figures.

They are also paying payroll taxes, state taxes, and sales taxes along with everyone else. To collect an additional 76% from them, they would have to pay 28% of their total income toward income taxes alone, and also increasing payroll taxes as explained below.

The lower-earning three-quarters of taxpayers would also have to come up with 1.76 times their current taxes. This applies to their payroll taxes as well as income taxes. The payroll tax rate would go from about 15.3% of salary up to about 26.9%. This would hurt.

See below You Pay All Payroll TaxesAfter clicking this link, you can come back here with the "Back" button of your browser. for more explanation of this.

The 76% increase on business and "other" taxes (about 20% of tax collections) would discourage investment and raise prices for goods. The general public would pay those increased taxes in an indirect way. The government likes to impose indirect taxes which are hard for the average person to understand.

Taking more tax from the economy and from those who are most productive would lower economic output, and would create unemployment and/or reduced incomes. See also the separate post The Deadweight Loss of TaxesEO 12/2008 - The deadweight loss caused by increasing tax rates above current levels may exceed $2 per $1 of revenue increase. When the government collects $1 more in taxes, the economy loses at least $2 in production and jobs. .

Maybe taxes can't be raised enough. The government might find that raising tax rates brings in far less money than the simple multiplication above. The reduced take-home pay and high unemployment rate resulting from high taxes may make those taxes politically impossible.

This comparison of our government's finances to Bob's income, spending, and obligations is not perfect. But, the amounts are proportional to Bob's $50,000 of spendable income.

We and Bob are in deep trouble.

Rising Interest Expenses

Every family meets sudden expenses. These can be catastrophic when a family is living on the edge. We can predict a large increase in interest payments.

Our government debt is $9,100 billion (4.2 times total tax receipts). These are loans made to the government by Americans, foreign individuals, and foreign governments, but not including other parts of the government. For example, US savings bonds are loans to the government. Most loans are made by paying cash for US Treasury bonds. These bonds are promises by the government to pay back a fixed amount of cash in the future.


	U.S.	Bob	Income
Debt and Interest	Billions	$	%

Debt	$9,100	$210,350	421%
Interest at 2.15%	196	4,500	9%
Interest at 3.70%	337	7,800	16%

The US currently pays an average of 2.15% interest on its debt, an historic low. The average rate over the last 30 years has been 6.4%.

Analyst Mary Meeker (below) estimates that the average rate on the debt will be 3.7% by 2016, requiring a yearly interest payment of $337 billion, (an increase of $141 billion, 7% of income). That will increase the financial pressure on the government.

The proportional burden on Bob would be $3,300 more in interest payments, 7% of his $50,000 spendable income.

Probable inflation would produce interest rates that are even higher, and government interest expenses that are higher than estimated above.

For more details, see Debt and InterestAfter clicking this link, you can come back here with the "Back" button of your browser. below.

The Data

Mary Meeker is a partner at Kleiner Perkins, a large and respected venture capital fund. Her work is analyzing and investing in businesses.

She has analyzed U.S finances as she might do for a large corporation. Busines Insider talks about her report A Summary of America's Financial Statements (pdf). A web "slide show" of some of her report is here. My post uses mostly Meeker's figures.

These are charts of U.S. income and spending from page 9 of the report. "B" indicates billions (1,000 million). "T" indicates trillions (1,000 billion, or one million million).

The Figures

The column for Bob is proportional to the data for the United States. US tax revenue is about 43 million times Bob's after-tax income of $50,000. Bob's numbers are rounded to the nearest $50. You can view or download the Excel 2003 worksheet for these figures.


	U.S.	Bob	% of
Family Budget	$ Billions	$	Income
Income to Spend	2,163	50,000	100%
Borrowing	1,294	29,900	60%
Total Spending	$3,457	$79,900	160%
GOP Cut	61	1,400	2.8%
		Of Spending	1.8%
		Of Borrowing	4.7%


	U.S. Tax	Bob	% of
Income	$ Billions	$	Income
SocSec / Medicare	865	20,000	40%
Individual Tax	899	20,800	42%
Other Tax	208	4,800	10%
Corporate Tax	191	4,400	9%
Total Income	$2,163	$50,000	100%
Exclude SSec/Med	$1,298	$30,000	60%


	U.S.	Bob	Multiple of
Promises	$ Billions	$	Income
Social Security	7,900	182,600	3.7
Medicare	22,800	527,050	10.5
Medicaid	35,300	816,000	16.3
Total Unfunded	66,000	1,525,650	30.5
Federal Debt	9,100	210,350	4.2
Federal Pensions	2,100	48,550	1.0
Veteran Benefits	3,700	85,550	1.7
All Other	1,600	37,000	0.7
Total Benefits	7,400	171,100	3.4
Total Promises	$82,500	$1,907,100	38.1


	U.S.	Bob	% of
Spending	$ Billions	$	Income
Defense	694	16,050	32%
Non-Defense	431	9,950	20%
Tarp, Bailouts	152	3,500	7%
Total Discretionary	1,277	29,500	59%
Interest on Debt	196	4,550	9%
Social Security	707	16,350	33%
Medicare + Medicaid	724	16,750	33%
Unemploy't, Other	553	12,800	26%
Total Entitlements	2,180	50,400	101%
Total Spending	$3,457	$79,900	160%

Unfunded Promises

The above "Total Unfunded" Promises are the major promises of our government above any current income from taxes. Repayment of the National Debt is required by legal contract; the others are government programs continued from year to year by Congress. All payments to these programs come from current taxes and borrowing. There are no assets or savings set aside to pay for any of these promises.

Many people believe that trust fund "savings" are set aside for the Social Security program and for Medicare. Actually, those trust funds hold only special US Treasury Bonds. These bonds are promises by the government to pay back cash in the future.

Taxes collected for Social Security are first used to pay current Social Security checks. Remaining amounts have bought those special US Treasury bonds and went into the US Treasury. Those amounts plus borrowing have been spent each year on government activities. The situation for Medicare is similar.

This year, payroll tax collections for Social Security are less than the amounts paid out. The government is "cashing in" some of those accumulated bonds. In reality, the government must now find some more real tax revenues (or more borrowing) to write Social Security checks in full.

No Real Assets

There is no gold, corporate stock, or anything of independent value set aside. There is only a promise from the government to repay to itself the money owed to future retirees. Only higher taxes on the public or our children can supply that value.

This is like an insane person saving up for his child's college education. He puts $100 each Friday into his savings account. Each Monday he withdraws that $100 and spends it on wine and entertainment, but he carefully records in his "college trust fund" what he has taken out. He increases the fake-reality of the fund by adding 3% as interest each year to the total on paper.

When his child is 18, he tells him that he saved $50,000 over the years, plus interest. He only has to pay back what he took out, with the help of his child to supply the money.

Amazingly, this is exactly like the government accounting of the Social Security (and Medicare) trust funds. The funds hold only promises from the government, in the form of special Treasury bonds. The government duly issues additional bonds as interest each year, adding more to the total.

CBO: Trust Funds Are Only Promises

Some people argue that these bonds are real assets, as good as any Treasury bond owned by the public. They indeed would be, if the taxing power of the entire government were not in doubt. The promises of the government are so large that all of its bonds may lose some or all of their value, including the bonds in the Social Security and other accounts. The bonds represent a part of the promise, but they don't help to pay for the promise.

Don't take my word for it. Here is the written statement of the Congressional Budget Office - May 2003 [edited excerpt]:

The money that the government owes to itself has no impact on the economy because it represents debt owed from one Treasury account to another, mostly held in federal trust funds.
Trust fund holdings are not assets of the government and do not represent money owed to program recipients individually. Payments to Social Security recipients (like other social insurance programs) are based on rules set by law unrelated to trust fund holdings.
A federal trust fund is an accounting device that measures the difference between the income designated for a program and the expenditures made to its beneficiaries. The accumulated balance often represents the future "spending authority" for the program, but it is not a reserve of money for making payments.

The National Debt

Meeker reports the National Debt as $9,100 billion. The usual figure in the news is $14,500 billion. $9,100 billion is the "debt held by the public", the amount of Treasury bonds sold to people outside of the US government.

The higher figure includes "inter-governmental debt", the amount of bonds sitting in trust funds within the government as an accounting device.

$9,100 billion is held by people with a legal, formal right to sue the government for payment. The other $5,400 billion is held by government agencies which are a part of the government. The government can not effectively sue itself.

The $5,400 billion of trust fund debt causes confusion. It totals money collected in the past and long since spent on government activities, without any saving. Including this as part of the National Debt is mostly a bad thing. The fixed, definite quality of that figure gives the impression that "this is what we owe". But, government's promises are not much related to that amount.

Government spokesmen point to that relatively small $5,400 billion, but the unfunded promises are approximately $66,000 billion, 12 times as much, according to Meeker's accounting. Other sources calculate the unfunded promises as $86 trillionConcord Coalition - Stop 2011.org - p.18 to $106 trillionNational Center for Policy Analysis - Figure II

This video clip estimates the unfunded promises of the US at $120 trillion, 8 years of total, US production.

- -
Why Do We Take Politicians Seriously?
02/22/11 - Cafe Hayek by Professor of economics Don Boudreaux

[edited] The Social Security “trust fund” is indeed filled with ample quantities of interest-bearing U.S. treasuries. But, who pays the principal and interest to Uncle Sam when the treasuries are cashed in? Answer: Uncle Sam, who must raise taxes on flesh-and-blood people to get the dollars that he pays to himself, so that he can then pay out promised Social Security benefits.
Promises written to yourself are not assets. They are only pathetic reminders of gross financial irresponsibility.

Government Accounting
An XTraNormal video (2:12) by Prof. Boudreaux.

Fred: You loaned me $10,000. I have $10,000 in bonds in my desk drawer to guarantee that I can repay you.
Mary: What institution wrote the bonds? Are they good for the money?
Fred: I wrote the bonds. I will pay $10,000 to myself when they come due.
Mary: You are an idiot. That is not proper accounting.
Fred: No? It is the accounting our government uses for Social Security.

Obamacare Bails Out Medicare
09/2009 - EasyOpinions
Obama's healthcare reform is a huge increase in taxes combined with rationed medical services.

- -

Who Pays Payroll Taxes?

Why do I say above that your Social Security taxes would rise from 15.3% to 26.9% ?

The Social Security tax is described as 6.2% and the Medicare tax as 1.45% paid by each of the employee and employer. This description suggests that you are paying 7.65% of your income and that your employer is paying an equal amount.

Actually, you generate all of the wealth that pays your salary and the taxes associated with your employment. The employer writes the check, but you earned that money, and it would be part of your take-home pay if the burden did not exist on your employer. Competition for skills sets salary levels and arranges the maximum you can negotiate as your pay.

Here is a rough example. What would happen if the government charged employers an additional $10,000 per employee as a "social benefits" tax?

If your take-home pay was $50,000, employers would quickly shift to offering you only $40,000. Whatever value you were creating would have to support that extra $10,000 expense. You would get less salary because that extra expense would immediately make you less valuable to the company.

Similarly, your value to your company is currently supporting all of the taxes and expenses associated with your employment. The following is how your employer sees it.

Bob's Yearly Production	$110,000

For the Employer	-30,000
Expense managing Bob	-10,000
Human Resources	-1,000
Medical Plan	-8,000
Payroll Taxes	-4,051	(1)

Bob's Gross Salary	56,949
Bob Pays to Medical Plan	-4,000
Social Security Wages	52,949
Payroll Taxes 7.65%	-4,051	(1)

Bob's Cash Salary	$48,898

The lines marked (1) are the payroll taxes for Bob and his employer. Both of those payments reduce what Bob receives as a cash wage. They are both subtracted from Bob's total production, which has to pay for everything associated with his employment and also for a profit to his employer.

That is how Bob pays for all of his payroll taxes, even though his employer writes a check for him. If payroll taxes go up, Bob's salary will go down to pay for almost all of that tax, including the "employer's part".

See The Economics of Tax Incidence for a more detailed discussion.

- -

Interest on the National Debt

Our National Debt is $9,100 billion (4.2 times total tax receipts). These are loans made to the government by Americans, foreign individuals, and foreign governments, and not including other parts of the government. For example, US savings bonds are loans to the government. Most loans are made by paying cash for US Treasury bonds. These bonds are promises by the government to pay back a fixed amount in the future.

The US currently pays an average of 2.2% interest on this debt, about $196 billion per year (9% of tax receipts). This interest rate is at an historic low. The average rate over the last 30 years has been 6.4%. Analyst Mary Meeker (below) estimates that the average rate will be 3.7% by 2016, and the yearly interest payments would be $337 billion.

The goverment will pay $141 billion more (7% of income), and Bob would pay $3,300 more in proportion from his $50,000 of spendable income. That will increase the financial pressure on the government and Bob.

The interest rate is not set by the government. It comes from the market price for US government debt at an auction. Yes, the government borrows money by asking a crowd, "What will anyone offer for these Treasury bonds, which will pay back $100,000 in (say) 2 years?". For convenience and efficiency, only certain companies are allowed to buy at these auctions, and the auctions are done electronically. Most bonds are bought for clients.

When there is low inflation, and depending on the world economy, buyers will pay about $96,000 for a $100,000 bond due in 2 years. That is our current situation. This gives the buyer a $4,000 profit in two years, about 2% interest on his investment.

These days, bond buyers see the US government borrowing huge amounts, collecting less tax, having high unemployement, and putting money into the economy as "stimulus". Analysts fear that there will not be enough tax revenue to pay back the huge debt. They expect the value of money to fall as the government prints more money to pay back what it borrowed. So, they want more profit from Treasury bonds to replace the declining value of the dollars they will receive in 2, 5, or 10 years.

When buyers offer only $88,000 for a 2-year, $100,000 bond, the interest rate is about 6%, $12,000 over two years.

Government debt is made up of bonds that come due over time periods from a few months to 10 years or more. The government must pay back the short-term bonds first, and must borrow more to continue (refinance) the debt. As the interest rate increases, short-term debt will first be refinanced at the higher rates. In the following years, all of the debt will be refinanced at higher rates. The average cost of maintaining the National Debt will increase greatly over time.

- -

Meeker's Report

I used the following parts of Mary Meeker's financial report in this post. Page numbers are to the document, not the PDF display pagination.

9. Pie charts showing income, spending, and entitlements (promises).

71. The effective interest rate on Treasury debt is 2.2% in 2010.

76. There is no economic value in the Social Security trust funds.

77. 08/2004 - Statement by the Congressional Budget Office (CBO): "The Trust funds are basically an accounting device. Their balances provide no resources to the government for meeting future funding commitments, even if they are "invested" in Treasury securities.

82. Definition of the unfunded liabilities of Social Security, Medicare, and Medicaid.

107. Overview of healthcare spending.

143. Effective interest rates are at an historic low of 2.2% in 2010, vs. the 30-year average of 6.4%. The rate will rise with the federal funds target rate and long-term Treasury yield as our economy recovers. Long-term debt (10+ year bonds) in 2010 is only 10% of total debt. The average interest rate on US debt will change quickly following changes in interest rates.

166. Effective interest rates are 2.2% in 2010, and will be 3.7% in 2016.

465. Appendix

Links

Federal Hospital and Medical Insurance Trust Funds
8/5/2010 - 2010 Annual Report of the Board of Trustees

Tax Burden of Top 1% Exceeds Bottom 95%
7/29/09 - Tax Foundation - 2007 figures

Income tax paid by AGI threshold
National Taxpayers Union - Tax years 1999 to 2008

Normal Interest Rates Would be a Disaster for U.S. Debt
03/14/11 - LesJones.com
The US currently pays about 2%. If rates were to return simply to that historical average, it would involve an increase to our overall interest bill of $640 billion — to be paid immediately. “An impossible situation,” in US Sen. Coburn’s words.

Social Security and Medicare Liabilities
06/11/09 - National Center for Policy Analysis - NCPA
The estimated Social Security and Medicare liability as of 2009 is $17.5 trillion.

Social Security Administration Trust Fund Assets
01/31/11 - Social Security Administration On-Line
The Social Security trust fund holds $2,600 billion in special US government bonds.

The 2010 Budget (pdf) - By the Concord Coalition
Many clear charts explaining the US budget, showing debt and spending in 2010, and estimates for the future.

FamBudget.xls - 03/2011 - Excel 2003 worksheet.
The calculations for this post. You are welcome to open or download it.

2006 Tax Comparisons - 04/2009 - Easy Opinions
Analysis of who pays taxes based, on income slices, from the US 2006 tax data.

The Economics of Tax Incidence
08/2010 - Economists View
The government makes businesses pay taxes, but where does the money really come from? Almost all of it comes from offering lower salaries or charging higher prices. The working public pays those taxes, one way or another, and their real prosperity suffers.

The Deadweight Loss of Taxes - 12/2008 - Easy Opinions
The deadweight loss caused by increasing tax rates above current levels may exceed $2 per $1 of revenue increase. When the government collects $1 more in taxes, the economy loses at least $2 in production and jobs.

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Version 3 - What Changed?

The GOP in Congress settled on a $61 billion proposed spending cut, rather than the $70 billion used in Version 2.
Version 2 calculated a need for 2.6 times current tax revenue to pay for all promises. This post calculates 1.76 times current tax revenue.
This post uses a consistent "3% interpretation". It calculates what tax revenues would need to be today, increasing at 3% yearly, to pay the unfunded promises of the next 75 years. The government and independent analysts use this same interpretation (a 3% discount rate) to calculate the lump-sum amount today that represents government promises in the future.
A payment that increases at 3% yearly over 75 years can start at much less than a fixed payment (like a mortgage payment) that pays off the same amounts in the future.
This post eliminates some double-counting of future unfunded liabilites. Unfunded liabilities in Social Security and Medicare are estimated above the current revenues from dedicated payroll taxes.
The government is currently paying more for Social Security and Medicare than is collected. So, I assume that the overage is currently applied toward some part of the unfunded amount estimated by analysists. This reduces the remaining unfunded liability which will require increased tax revenue.
More of the numbers are easier to read and compare in charts, along with general editing, additional sections, and a list of links and referencees.

Edit History
02/21/11 - V1 Posted
03/03/11 - V2 Expanded without change in figures
03/28/11 - V3 Expanded, new figures as described above

Metaphorically Speaking

2011-01-23T20:36:00.005-05:00

Progressive: Your military metaphors break civility and encourage violence.
Conservative: Your side uses them all the time.
Progressive: We are fighting in a revolution to break the power of our capitalist oppressors. So, we're justified.

MEMO

From: Right-Wing Cabal Central
To: You know who you are

The ~~forces~~ discussion groups of the Left are leading their most effective ~~attack~~ ~~advance~~ pressure ever. Our military language, metaphors, and symbols are under ~~attack~~ respectful pressure. Soon they will be removed from us. Without them, we will be unable to create any enthusiasm, and will be swept before the ~~Leftist~~ Progressive ~~advance~~ insistent argument.

Without "target", we will only be able to "direct our attention to". Without "attack", we will be left with "raise our concerns in respectful ways". We will sink below the waves of hyper-civil discourse, while our ~~opposition~~ friends of differing viewpoint use these same ~~weapons~~ symbols against us with ~~devastating~~ more than a bit of uncomfortable effect.

We have prepared for this eventuality. We now implement Contingency Plan 36.

Turn your official word processor to mode "P36". All uses of "target", "attack", "oppose", "crush", "eliminate" and numerous other military metaphors will automatically be replaced with "bunny". This will seem awkward and ungrammatical at first, but you will quickly adapt.
Instead of crosshairs, circles, pointers, or sharp angles, use the supplied cute bunnies for graphic emphasis.

Remember also that one of the allowed meanings of bunny is "to love and be best friends with", according to context. Report this meaning if you are captured and questioned.

Thus rhetorically prepared, we will go forth to bunny those who disagree with us politically.

Remember the words of Winston Churchill at a time of great challenge (as converted by P36): "We shall respectfully hinder the invasion of our island, whatever the cost may be, we shall bunny on the beaches, we shall bunny on the landing grounds, we shall bunny in the fields and in the streets, we shall bunny in the hills; we shall never surrender."

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Another False Narrative About the Tucson Shooting

01/16/11 - Legal Insurrection gives the context for my post above.

[edited] The first false narrative was that Sarah Palin, Tea Parties, and conservatives were directly or indirectly responsible for the shooting. That narrative has been thoroughly debunked in the past week, although writers such as Paul Krugman and political figures such as Clarence Dupnik cling to the fantasy.

- -
Mobilizing the Jobless
01/23/11 - The Nation by Frances Fox Piven
- Via The PJ Tatler and Instapundit

Piven is an intellectual beacon for the Progressive movement. Her call for violence is Progressive, unless there is widespread condemnation of her advice.

There is widespread Progressive and liberal criticism that metaphors and symbols used by conservative speakers must be stopped, because such metaphors supposedly, might encourage violence. In contrast, direct calls for violence by Progressive leaders are acceptable, even when the call is to repeat violence which has already happened.

Piven [edited]: Local protests have to accumulate, spread, and become more disruptive, to create serious pressures on national politicians.
An effective movement of the unemployed will have to look something like the strikes and riots that have spread across Greece in response to the austerity measures forced on the Greek government by the European Union. Or, they will have to look like the student protests that recently spread with lightning speed across England in response to the prospect of greatly increased school fees.

The British and Greek protests were violent, and riots are violent by definition.

Three Reported Killed in Greek Protests
05/06/10 - New York Times

[edited] ATHENS — Swarms of violent groups in the city center overtook a general protest against austerity measures. Police report that demonstrators hurled gasoline bombs, setting fire to a bank building and killing three bank workers.

British protests over increased tuition turn violent
11/10/10 - Deseret News

[edited] LONDON — Demonstrators protested government proposals to cut education spending and steeply increase tuition for university students. The demonstration turned violent when protesters attempted to storm the building that houses the Conservative Party.
The protesters scuffled with police officers, set off flares, burned placards, threw eggs, bottles, and other projectiles, and shattered windows at the building. A small group of demonstrators, some wearing ski masks, climbed to the roof of a nearby building, waved anarchist flags, and chanted "Tory scum."

Titanic

2011-01-03T22:00:00.005-05:00

Director: Our new carbon regulations go into effect today. A great day. All of those old power plants will either clean up or shut down.

Assistant: With permission. Many of them say these regulations go too far. They don't want to invest more when the Agency is suing them. They will probably shut down.
Director: Good riddance.

Assistant: What will their workers do?
Director: Anything they do will be better than working for evil. Anyway, that is the business of the Department of Labor.

Assistant: By chance, do you know where our building power comes from?
Director: No, why do you ask?

Consider these scenes from the movie Titanic.

Ismay (imperious president of White Star Lines): So you've not yet lit the last four boilers?
Captain: No, I don't see the need. We are making excellent time.
Ismay: The press knows the size of Titanic. Now I want them to marvel at her speed. We must give them something new to print! This maiden voyage of Titanic must make headlines!
Captain: Mr. Ismay, I would prefer not to push the engines until they've been properly run in.
Ismay: Of course, I'm just a passenger. I leave it to your good offices to decide what's best. But what a glorious end to your final crossing, if we were to get to New York on Tuesday night and surprise them all! Make the morning papers. Retire with a bang, eh E.J.?
Captain: (nods reluctantly)
Ismay: Good man.
- -
(The Titanic has hit an iceberg. The Captain reviews the damage.)
Ismay: Most unfortunate, captain!
Captain: (perspiring and trembling) Water fourteen feet above the keel in ten minutes. In the forepeak, in all three holds, and in the boiler room six.
Ismay: When can we get underway, damnit!
Captain: That's five compartments! She can stay afloat with the first four compartments breached, but not five!
(pause) Not five. As she goes down by the head, the water will spill over the tops of the bulkheads at E deck from one to the next. Back and back. There's no stopping it.
Smith: The pumps... if we opened the doors...
Captain: The pumps buy you time, but minutes only. From this moment, no matter what we do, Titanic will founder.
Ismay: But this ship can't sink!
Captain: She's made of iron, sir! I assure you, she can and she will. It is a mathematical certainty.

Many people see the prosperity of the US as a given. They think many things. That we float on air because of luck, or location, or whatever. That one person earns more money than another because he is only lucky or privileged. That this lucky and undeserved wealth should be taken in taxes and redistributed. That businesses can be restricted at will, and can be made agents for the social good, in detail.

They believe that our country can't sink, no matter what laws or policies are implemented. But, the iron laws of incentive, energy, and economy cannot be abolished. People will not work hard if their income is taxed away. Investors will not risk their money if they cannot make more money. Great doctors will not work in a profession that requires half of their time to be devoted to paperwork at no benefit to the patients.

Our great ship can sink. It is kept afloat by well organized effort and private initiative. It will float for a while as damage increases. We are floating now at a tilt, after reckless government policies created more housing than people could pay for. Now we are all paying. How much more arbitrary and wishful policy will the government impose? Flood the fifth compartment, and our country will sink. It is a mathematical certainty.

- -
Caring and Reality

A conversation in San Francisco.

[edited]: I pointed out that California and San Francisco were both hemorrhaging money, destroying jobs, and were fundamentally unsustainable systems.
She said “I know, I know. I’ve heard all that. But, you know, I just love it here so much and I don’t want anything to change. Something will come up and it will get fixed. I just have to believe it.”

- -
And, Best of All, It's FREE
01/01/11 - Insure Blog

The government has declared that certain unproven treatments for autism are now covered by health insurance, up to $40,000 per year in each case. But, care is not free, and the providers will be paid. All people buying insurance will pay the providers through increased premiums and taxes.

This is just one cause for insurance premiums to go up. If you think that insurance benefits are free, to be mandated by the government, then you might think anything. You might think that iron will float regardless of the damage to the ship.

- -
The Wreck of the Edmund Fitzgerald
01/27/11 - A Brief History
Video (6:38) and song by Gordon Lightfoot.

The S.S. Edmund Fitzgerald was an ore carrier, 729 ft long, 75 ft wide, weighing 13,632 tons empty. That is big. It broke up and sank in a storm on Lake Superior on November 10, 1975. All 29 of its crew were lost.

Large, stable, systems can be broken by the chance forces of nature. You never know. Prudent men manage with a wide margin of safety; even then, it may not be enough. So, it is troubling that our politicians are managing our country at the edge of stability. We are currently in a storm, and we don't know what will be lost.

Property and Pigs

2010-12-09T23:02:00.004-05:00

Official: I see that you have a large income. We need more of it.
Mike: I work legally for my income and I pay 35% at the top tax rate. Isn't that enough?

Official: The economy is bad now. We need to take your money and pay other people. They will spend it and improve the economy.
Mike: Why do you think the economy will improve?

Official: 10 years ago the top rate was 39.6% and the economy was good.
Mike: Those things aren't related. How would higher tax rates produce a growing economy?

Official: I don't have time to discuss philosophy with you. You have the money. We want the money.

Property ...

12/09/2010 - Neo-Neocon [edited]:

Dowd: It’s easy to explain to Americans in distress that the protection of vast fortunes should not be the priority of government.

That may be the most revealing sentence in Dowd's column. Dowd seems to imply that an income of $250,000 a year is vast wealth. Given the circles in which she moves, does she believe that?
More importantly, a main function of government is to protect the property of everyone. Wealth belongs to the person who earned it, if that wealth is amassed without robbing anyone or breaking any laws, whether the wealth be vast, middling, or small.
The rich pay taxes, as well they should. But there is nothing special about being rich that entitles others to take more and more of their money just because those others are "in distress.” A government is in big trouble when it sees the money of the rich as not worthy of being protected, and even as fruit ripe for the picking.

... and Pigs

From a comment by Artfldgr: How to Catch Wild Pigs [edited]:

An exchange student explained that he had been shot while fighting communists in his native country. They wanted to install a communist government. In the midst of his story he asked "Do you know how to catch wild pigs?" He explained that this was not a joke.
Put corn on the ground in the woods. The pigs will come every day to eat the free corn. When they get used to that, put a fence along one side of the area. When they get used to the fence, they will resume eating the corn. Then, put up another side of the fence. They will get used to that and resume eating.
Continue until you have all four sides of the fence with an open gate. The pigs will soon come through the gate to eat. Slam the gate on them, and catch the whole herd.
Suddenly, the wild pigs have lost their freedom. They will run around and around, but they are caught. Soon, they will go back to eating the free corn. They are used to it and have forgotten how to forage for themselves, so they accept their captivity.

- -
Public Tax Meeting - We Voted On It

Are taxes fair just because the majority voted? The social compact of the United States is for economic and personal freedom. The Constitution is not a suicide pact nor an agreement that the government can take what it wants.

The Congress has discovered (for the moment) that it can issue unlimited guarantees and borrow unlimited amounts. This does not give the Government moral authority to exploit those loopholes. This cannot lead to a better society, because the government must take from some and give to others, without creating a stable, prosperous society.

The government says that its deficit spending is "stimulus", but this is an excuse for paying supporters. The government will levy higher taxes on the people who organize jobs in the private sector, to pay back the borrowed money with interest. The private sector knows this, and refuses to work harder only to see their incomes taxes away. That is one cause of our jobless, stagnant economy.

Would you want to work hard for a better future, and then have the government decide you were too successful? With a government like that, who needs robbers?

Your Dog Owns Your House

2010-12-07T22:00:00.006-05:00

Bob: You put out the fire. I can't thank you enough.
Official: Hand over the keys. We own that house now. It would have burned to the ground without us.
Bob: But, I already paid taxes for your help.
Official: I apologize. You have a point. Instead, pay us in tax half of what you produce. That is for our effort in providing all of our vital services.

Your Dog Owns Your House
April 2002 - Econlib.org by Anthony de Jasay
- Via Cafe Hayek

Jasay presents and then criticises the following flawed argument for government redistribution of wealth and control of all property and business [edited].

Your dog owns some part of your house. This is obvious when you consider the ethics and economics of redistribution.
Your dog may have repeatedly protected your possesions from being stolen. The actual value of your home minus its unguarded value is the contribution of your dog, even if not exactly known.
We might consider: who owns anything? The fire brigade keeps your house from burning down, and deserves some ownership of your house. The house would be worth much less without water and electricity, so some value can be assigned to the utility companies. And, without the protection of society, you would have nothing.
Your house and other possessions really belong to society as a whole, and so do the possessions of everyone else. Everybody has a rightful stake in your holdings and you have a rightful stake in everyone else's holdings. Society is alone entitled to decide how big everybody's stake ought to be, to take from Peter and give to Paul, and to regulate production, commerce, and consumption.
Here is some contemporary thinking [edited]:
A medical researcher might have worked terribly hard to discover something of great commercial value. But, who trained him? Who worked before him to make the discovery possible? Who built, operates, and pays for the lab in which he worked? Who maintains the enduring social institutions that give him commercial opportunities? He has cleverly exploited the social framework, but he has to thank that framework."

Why the above argument is wrong ...

Jasay presents reality and the flaws in the above argument.

A minor point. You cannot owe a debt to a "framework"; it is not a natural or legal person. "Institutions" do not act, and "society" has no mind or will, and makes no contributions. Only people do these things. You cannot assign credit for accumulated wealth, current production, and well-being to entities that have no mind or will. Individuals have a mind, but not a collection of individuals.
The major point. All contributions by others to building your house were paid for at each link in the chain of production. All current contributions to its maintenance and security are likewise being paid for. Value has been and is being given for value received. That value is not always money and goods, but is sometimes affection, loyalty, or duty. In the exchange relation, a giver is also a recipient, and the reverse.
In a voluntary exchange, the parties are quits after each side has delivered and received the agreed contribution. Seeking to credit and debit them for supposed outstanding claims is double counting.

Cooperation and Price

People exchange things in cooperation, and they voluntarily place a value on what they exchange. The exchange creates value for both sides.

Say that I start with two toasters and you have 40 loaves of bread. After I trade you a toaster for 20 loaves, we both go home to have breakfast toast. Our cooperation and trade has made us both better off and has created value for us. This is the basis for all specialized production and trade.

At the extreme, I might have been willing to trade two toasters for the bread, and you might have been willing to trade 40 loaves for a toaster. But, we don't hold out for the extreme, because each of us is free to walk away and find a better deal. Other people make toasters and bake bread.

A socialist says "I'm from the government. We provide protection to you, so we have a right to everything that you produce. Without us you would be nothing." This denies your individuality and personal worth. You have the natural right to find your protection from private sources or a different government. You have the natural right to assert that you do not owe the government everything merely because it provides a vital service.

Say a man points a gun at you and declares: "Believe me, you will be worth nothing if you don't hand over the money. This contribution to me will make you better off. It is well worth it." This is a crazy argument supporting a crime.

How is this different from a government official saying: "Believe me, we will put you into jail unless you give us half of what you produce. This contribution to us, I mean society, makes your life possible. We need the money to provide vital services to you. Anyway, we voted on it."

A free people owe each other the option to walk away and to make better arrangements in their life whenever it is at all possible. They owe each other cooperation which is determined by competition, not by the highest price that a person would pay at the extreme. If at all possible.

- -
Public Tax Meeting
09/2009 - EasyOpinions
Most of the citizens in a small town visit the richest man in town to ask for more help. They say it is only fair. After all, they voted on it.

The Five Stages of Understanding the TSA

2010-11-22T19:27:00.007-05:00

Fred: I loved flying. I wanted to fly everywhere.
Mike: That was before the TSA.
Fred: I can't change the TSA. I must accept it.
Mike: Maybe you should change the government that created the TSA.
Fred: That hope supports my will to go on.

Psychologist Elisabeth Kübler-Ross described the five stages of grief when coming to understand and accept a great loss. This process may help to accept the Transportation Security Administration.

Denial: This can't be as stupid as it seems. The TSA must have thought about this, and it must have come to a sensible determination of what is needed for our safety. I will show that I am strong by complying with the rules.

Anger: This is so degrading, useless, and a waste. Why me? It is obvious that I am not a terrorist. I'm travelling with my family. My 3 year old isn't a terrorist. Don't they have eyes, or a bit of common sense? What is the sense in these rules? I'm flying from New York to Kansas, for crying out loud.

Bargaining: OK, I'll go through the machine. Just don't pick me out for special treatment. If I'm very cooperative, I can hold on to my 3 year old, right? And you won't fondle her, right? I'll give you my toothpaste if you let her keep the teddy bear, right?

Depression: This is terrible, but what can I do? I will comply. I will just think happy thoughts as (ugh, oomph) he does what is required, and not more I hope. Is anyone looking? It doesn't really matter. This will all be over in a little while. I can't do anything about this. I will just hope that they improve their policy in the future. I'll wait. It might get better, or maybe not, who cares.

Acceptance: I see. The TSA is part of bigger government policy. Beyond the TSA, there is a government that wants to do so much good. And, now they are doing it to me. I wanted a government which would "nudge" people into proper choices. I now see they have that power, and no restraint.

They won't stop themselves, and I don't have the power to stop them. Even "we" don't have that power for now. My concern can't be just the TSA. I must be concerned about government power in general.

This is an example of what the government is willing to do to thousands of citizens in the open. What must government agencies be doing behind the scenes in thousands of ways?

I must endure the TSA for now. My fellow citizens must endure all of those government agencies for now. If I accept that government always goes too far, I will have the courage to take away most government power. Instead, I will support policies that I can accept or reject as an individual. I want a choice other than government management, and I will support politicians who will limit the government.

Seriously

The TSA is over-defending against visible, political threats. They are not motivated to do things more efficiently or to guide the public to a rational evaluation of threats. So, the expense for "security theater" grows without limit, as real safety remains constant. They are always fighting the last threat.

A bureaucrat has only one fear, that he will be responsible for the same attack twice and be fired. He can spend any amount of money on any number of different failures without penalty.

Front-facing TSA security looks for things, not to identify people. Even pilots are searched. The point is, the TSA doesn't know that the person in the uniform is really a pilot. They consciously ignore any information such as country of birth. They explain that identification cards can be forged or stolen.

The approach in Israel is to examine each passenger for identiy and demeanor. That system has done a great job without strip-searching everyone in line.

TSA's double standard
11/22/10 - Salon.com. The TSA relies on ID cards when it applies security to airfield workers.

[edited]: All airfield workers are fingerprinted, checked for a criminal background, and checked against terror watch lists. They are subject to random physical checks by the TSA.
However, a Kennedy airport worker told me: "All I need is to swipe my Port Authority ID through a turnstile. The door to the 'sterile area' is not watched by TSA or any hired security. I have not been randomly searched in three years. We only see TSA people when they get food at the cafeteria."

Time to abolish the TSA as we know it
01/07/10 - Washington Examiner (Search for $7 billion)

[edited]: One concerned bystander in Newark, N.J. told an (absent, sleeping?) TSA worker that someone just walked past him when he wasn't looking. That forced 10,000 people to go back through a security line and shut down air traffic all along the East Coast.
Jeffrey Goldberg demonstrated that anyone can print a fake boarding pass and carry a bottle labeled "saline solution", then enter our "secure" terminals with dangerous chemicals.

Airport Security: Bin Laden's Victory 03/03/10 - Forbes.

[edited]: We have paid hundreds of billions of dollars in lost time and productivity.
I am willing to go through some inconvenience and expense to stay safe. But we have to ask:
• Are all these extra security policies keeping us any safer?
• Assuming yes, are they worth the time, hassle and cost? Could something else be done without so diminishing our productivity [and personal liberty -ag] ?

Yearly Cost of Airline security

Passengers: 615 million
TSA budget:  $7 billion
Passenger Waiting time at $30/hour: $20 billion 
Personal "cost" of scanning and searching: ?

Direct cost per passenger:   $7 B / .615 B  = $11.38
Including indirect costs :  $27 B / .615 B  = $43.90

Expert Bruce Schneier: TSA Scans Won't Catch Anybody
11/19/10 - Popular Mechanics interviews Bruce Schneier [edited]:

PM: Has there been a case since 9/11 of an attempted hijacker being thwarted by airport security?
Schneier: None that we've heard of. The TSA says "Oh, we're not allowed to talk about successes." But, they talk about successes all the time. If they had caught someone, especially during the Bush years, you could be sure we'd know about it. That means there weren't any. Because the threat was imaginary.
It's not much of a threat. As excess deaths go, it's way down in the noise. More than 40,000 people die each year in car crashes. That is a 9/11 every month. The threat is highly overblown.

Most of the costs of airport security "theater" would be better spent on anti-terror intelligence. That would make us all more secure from all types of possible attack.

Bruce Schneier has collected links to his posts about the TSA and airline security. Some of the links:

• Airport Pasta-Sauce Interdiction Considered Harmful
• The TSA's Useless Photo ID Rules
• Airline Security a Waste of Cash
• Airplane Security and Metal Knives
• Interview of TSA Director Kip Hawley (2007)

The Brains of TSA

An anecdote about a past head of the TSA, Kip Hawley. A long line for food at a barbeque stumped him. How about those long TSA lines at the airport?

Health Insurance Thirst Mandate

2010-11-20T17:07:00.009-05:00

His Benevolence: I have decided to banish thirst from the land.

Advisor: Of course Sire. Tell me more.

His Benevolence: All health insurance will henceforth include unlimited purchases of refreshing drink, like Coke, Pepsi, and 7-Up. The peasants will slake their thirst and be reimbursed by the insurance companies. No co-pay.

Advisor: Your name will be legend. Sire, will you be paying for this bounty?

His Benevolence: The insurance companies will pay.

Advisor: Yes Sire. To do so, they will have to collect more from the peasants. Probably much more, to satisfy the peasant's unbounded thirst. Will you be lightening your taxes?

His Benevolence: Shall you feel the whip? The taxes remain.

Advisor: Of course Sire. The peasants will have to do their best in their gratitude.

His Benevolence: Whatever. Let it be so. I now grow tired of this subject.

Advisor: I will inform the scribes.

- -
Medical Necessity vs Mandates
11/18/10 - InsureBlog
Washington state mandated birth control as "a medical necessity" to be covered by health insurance. So, premiums for everyone will go up to pay for the additional services.

- -
Free Birth Control
07/26/11 - John Goodman's Health Policy Blog

Free birth control isn’t really free. It will raise insurance costs. How mandates for free services work in reality.

[edited, restated]: New individual policies sold under ObamaCare would offer new benefits used by more participants. This would increase the average premium by 27-30%, assuming other factors are constant.
The new coverages will cost 18-21% in added premium, and lowered cost-sharing (no copay) will increase use of these services for an additional 9% in premiums.

Fed Imposes $600 Billion Tax

2010-11-14T22:00:00.013-05:00

Fred: I see you collect coins.
Mike: They are more valuable when more rare.
Fred: What if the government produced some more of the rare ones, so you couldn't tell the difference?
Mike: They would be devaluing the coin market. I would lose money.
Fred: You can relax. The government is only creating more dollars.
Mike: Bummer! I collect dollars too.

Quantitative Easing is a $600 Billion Tax Increase
11/13/10 - Chicago Boyz by Shannon Love

[edited excerpt]: The Fed (Federal Reserve Bank) is taking (stealing) $600 billion dollars of real value from your pocket and using that value to buy US Treasury bonds. This funds the Federal government without saying the word "tax".
The transfer of real value goes from You, to the Fed, to the Government. It’s a damn tax increase craftily carried out using the finance system.
Instead of taxing just American citizens or those doing business in America, it taxes everyone who holds either dollar bills or bank accounts denominated in dollars.
Worst of all, it’s stupid. You can’t fix the economy by tricking people into taking economic action against their own self-interest

Money is a Bit Mysterious

Money is hard to understand because it does not really represent a specific, real value. You can exchange it for many things, but you don't have a guarantee about what it will buy. For example, you can use money to buy a coffeemaker. You will have a choice of many prices and styles in a free market, but you have no guarantee that you can buy what you want at the price you expect.

Money can keep a constant value if it is treated with respect and honor by the government and banks which create the money.

The exchange of money and goods in a free market is a bit mysterious. This exchange is the result of the productivity and preferences of millions of people. Pure reason does not tell us what prices should be. But, we observe that money and goods settle into a balance (an equilibrium) where prices and preferences are fairly stable.

Pizza, Prices, and New Money

For example, compare a pizza for $10.00 to a hamburger for $3.00. This ratio of 10 to 3 is probably stable, even if the price level is not. If the pizza rises to $12.00, we would expect the hamburger to rise to $3.60. The ratio 10 to 3 comes from the average preferences of people. The particular prices depend on the amount of money available compared to the supply of hamburger, buns, dough, and cheese, and the work of preparation.

The Federal Reserve Bank is creating $600 billion and using it to buy US Treasury bonds. Yes, it really is just creating the money. Poof! There is the money. This is almost as easy as typing $600,000,000,000 into its computers, and it shows up as money in its account.

The Fed buys Treasury bonds. Those Treasury bonds are a promise by the US Treasury to pay back that $600 billion. The government has $600 billion more cash to spend on whatever it wants.

The government becomes the "first spender" of that new money. That is a nice privilege if you can get it. Government workers take their new dollars and buy hamburgers for $3.00 each. The hamburger stand happily sells more hamburgers. Soon, their suppliers see they are running out of beef and buns, and they raise their prices to balance their supplies against the new demand from that fresh money.

As hamburgers rise in price, people express their preferences for pizza compared to hamburgers, and are willing to pay more for pizza. Eventually, the prices of pizza and hamburgers come to the same ratio of 10 to 3, but at a higher general price level of $12 to $3.60.

The Federal Reserve created the $600 billion in new money out of nothing. But, it can't produce the meat and buns for hamburgers and other goods out of nothing. More dollars are used to buy the same amounts of real goods, so prices go up until the new amount of money balances the goods available.

Bad Economic Theory vs Reality

The Fed is following Keynesian economic theory. It would argue that this extra money causes people to work harder and produce more, encouraging "the economy" to produce more goods. The government considers the spending of this new money to be an increase in GDP (Gross Domestic Product). So, there would be no inflation, and prices would stay nearly the same.

In reality, "the economy" refers to people. People work to produce and exchange real things, not just pieces of paper called money. People work to support and enjoy their lives, not to increase an accounting measure called GDP. The government can pay people with that new money, but there are no additional real goods available for those people to buy as their payment in real things.

The first spenders and receivers get full value for the new money. People farther along the network of exchange get less value as prices go up. People who have long-term savings in dollars are last in line. They get the fully diluted, reduced value for their dollars when they eventually buy real goods at higher prices.

Useless vs Useful GDP

Here is a subtle point. These monetary manipulations by the government may actually increase the production of real things, for a while. Government economists congratulate themselves. Yet, we citizens should be unhappy.

Say that you work for the government or provide it with goods and services, and suppose that the government has no real goods to pay to you. That is, it has spent its tax revenue and has borrowed all that it dares.

It might command you to "volunteer" a few days of your time for no pay, to work on government projects. You would add to GDP by producing real goods and services, without being paid. People would be alarmed at this system of forced work, even if they had no other job at the time.

Instead, the government can do much the same thing by creating new money through the Fed. They pay you instead of making you work for free. You might add to the real goods and services of the society, if what you do for the government is actually useful. Useful or not, government accountants add your pay to GDP, and GDP goes up in the official accounts.

The problem is that the government is consuming your production for its purposes, and your production is not available to pay you real things. You will get your real things from the production of others when you spend the new money. There are now more dollars available to buy the same goods as before. Prices go up for the goods that you receive as your real pay.

Instead of forcing you to work for the government, the government has fooled everyone into working for less real payment than they think they are getting. That is a tax.

Hidden Tax

Inevitably, the government extracts $600 billion dollars of value from the society, and the people pay that bill as a hidden tax on the real value of their bank accounts. Or, they see prices go up before they get their next raise, giving them a bit less for their work. People who save dollars feel inflation the most. The government is taxing them after the fact, on top of whatever taxes they originally paid on their income.

The government says: "We have not raised your taxes. A small amount of inflation is good for the economy, producing increased salaries". This is a fraud on people who produce. Yes, their salaries go up, somewhat behind increasing prices.

Money loses value when it is treated as a tool of the government, to take value from the people while pretending that government actions have not caused inflation. Or, amazingly, Fed Chairman Bernanke has announced that he wants to cause higher inflation (for the good of us all). Money creation as the Fed is doing it causes inflation, and this is a fraud on the public trust.

- -
So how bad is quantitative easing?
11/14/10 - Cubachi (Via Riehl World View)

Sarah Palin (don't laugh) sums up the situation nicely. Newt Gingrich and German Finance Minister Wolfgang Schaeuble agree. See also an Xtranormal video where two dogs discuss the true meaning of quantitative easing (creating money).

Cubachi [edited]: Fed Chairman Bernanke wants quantitative easing to raise inflation to 2% annually. The problem is that we already have inflation. This will make prices for goods soar even higher. Interest rates have gone up since Bernanke’s announcement; not what he expected.

Secret Walmart Survey Shows Inflation Now
11/11/10 - CNBC reports on current inflation:

[edited] Walmart is the world’s largest retailer. Their new survey showed a 0.6% price increase in the last two months, according to MKM Partners. At that rate, prices would be 3.6% higher a year from now, 80% higher than what the Fed has proposed.
Jim Iuorio of TJM Institutional Services:
“I suspect that when Bernanke thinks about reflation he has a difficult time looking beyond real estate. The Fed thinks that inflation is somehow unimportant when it is not driven by higher wages. It is quite important to people who see their homes going down in value and the food and energy they need going up in price.”

- -
The Goals of Quantitative Easing
11/15/10 - Cafe Hayek by economist Don Boudreaux

[edited] The LA Times reports that interest rates went up last week on Treasury, corporate, and municipal bonds.
This is a direct and predictable consequence of the Fed’s diarrhea of dollar creation. The Fed's goal might well be “to keep longer-term interest rates depressed”, but economies reflect realities and not mere intentions.
Market participants understand that this huge increase in the supply of dollars will spark higher inflation. Lenders thus insist on higher long-term interest rates to compensate them for the falling value of the dollar.

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Let's Counterfeit Our Way to Wealth
Feb 2009 - Easy Opinions

The thinking of economist John M. Keynes in 1935 has an outsized influence on the policies of our government. He said that increased spending was good for a recession. As you might expect, governments heartily agree because they use any difficulty as an excuse to raise taxes and spend money on their friends.

Unfortunately, Keynes was a crackpot. He said that government spending gives a multiplied return to the society. Unfortunately, that comes from a mistake counting transactions as if the entire value of each transaction creates wealth, instead of merely valuing or identifying wealth.

Obama's economic team claims that there is a 1.5 wealth multiplier on government spending. They say that the government can spend our way to prosperity. If that were true, we could all profit from encouraging people to counterfeit money.

That is what the Fed is doing as the master counterfeiter for the economy. Bernanke thinks that creating money and spending it through government is going to multiply our wealth. Somehow. In a way that has not been demonstrated.

Eliminate Earmarks

2010-11-11T13:04:00.014-05:00

Lobbyist: Earmarks of $16.5 billion are a tiny part of the deficit, about 1%.
Congressman: Yeah, I'll just take a tiny $20 million for my friends and myself.

Eliminating Earmarks
11/10/10 - Cato@Liberty by Jim Harper

[edited]: Earmarks are not a huge part of the federal budget, but we should end them. Senator Tom Coburn (R-Okla.) calls them a “gateway drug to federal spending addiction,” which is a folksy way of talking about political “log-rolling.” Former Congressman Joe Scarborough (R-Fla.) has seen it first-hand. He explains (video 4:00) how House and Senate leaders use earmarks to buy votes on legislation they want passed.
If earmarks go away as a tool for wheeling-and-dealing in Congress, members and senators will be less likely to sell out the country as a whole with bloated spending bills and Rube-Goldberg regulatory projects for the benefit of some local interest or campaign contributor.

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Earmarks Are the Gateway Drug to Big Government Addiction
11/22/10 - Cato@Liberty by Daniel Mitchell
See also the 5:40 video at the link.

For Earmarks

Washington Post by Mark Greenberg [edited]

The $16.5 billion Congress spent on earmarks in fiscal year 2009 is only about 1% of the $1.4 trillion deficit in 2009. [About 1/1000th of total yearly spending.]
Party leaders must appeal to lawmakers’ interests as well as their principles to get votes. They must offer incentives like earmarks to win votes on difficult issues.

An amazing argument. Party leaders need earmarks to buy the votes of congressmen where reason and principle are not enough motivation. Probably the fundamentals of the proposed law are lacking. Earmarks keep congressmen from much caring.

Against Earmarks

Daniel Mitchell [edited]: Earmarks increase indirectly the upward pressure on federal spending. Lawmakers support their party leaders on the spending committees in order to get earmarks. Earmarks seduce members into treating the federal budget as a good thing to be milked for their state and district projects.
Yes, it is possible that congressional leaders will use earmarks to pass legislation shrinking the burden of government. I’m not holding my breath.
Earmarks are utterly corrupt, although legal. They finance a racket of big payoffs to special interests, who give big fees to lobbyists, who give big contributions to politicians. Everyone wins except the taxpayers. Those lobbyists are often former staffers and Members.

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Transparency Killed The Earmarks
12/17/10 - Hot Air by Ed Morrissey (via Instapundit)

[edited] Porkbusters helped to kill these earmarks. The porkers abandoned their earmarks when the outrage became high enough and transparency identified the offenders.
As a result, we will see a reduction in spending, thanks to the new GOP majority in the House. The omnibus spending bill was chock-full of earmarks and funding for big-government programs.
It won’t be passed into law now. Legislators have no incentive to pass massive new spending if they cannot promote their own home-district projects. The overall spending will become the focus, as it should have been all along.

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The Political Manual: Adequate Compensation

There is a bit of risk arranging for extra compensation, but not out of line with the other risks you have taken. A few unlucky politicians go to jail. You could be in an auto accident tomorrow, or have a nasty confrontation with a deranged constituent. It may help to imagine your friends and competitors pointing and laughing if you manage to be poor when you retire from politics.

Comment - Caring and Reality

2010-11-07T13:27:00.002-05:00

11/07/10 - Comment by Anonymous at Daily Pundit:

[edited]: I remember talking to a colleague from San Francisco at a meeting right after the 2008 elections. She was all excited about the Democratic takeover because she cared about the poor and believed that all the world should provide social services the way San Francisco does.
I pointed out that California and San Francisco were both hemorrhaging money, destroying jobs, and were fundamentally unsustainable systems.
She said “I know, I know. I’ve heard all that. But, you know, I just love it here so much and I don’t want anything to change. Something will come up and it will get fixed. I just have to believe it.”
And I’m the one who is supposed to be an illiterate, stupid, conservative who just doesn’t understand how anything works.

Quip - Why more taxes for Obama?

2010-11-05T19:29:00.000-04:00

Obama has repeatedly promised that families earning less than $250,000 will see no increase in their taxes. He does want taxes increased on wealthier families.

I notice that all of his proposed programs and policies are supposed to save money. Even the TARP and GM bailouts are supposed to be paid back with interest.

So I wonder, how is Obama going to use those extra taxes? He won't need them.

Why the Stimulus Package Failed

2010-10-31T22:00:00.006-04:00

Obama: All economists agree that we needed the stimulus and that it has saved our economy.
Cato: At least 200 economists disagree.
Obama: I don't care about fringe economists.
Cato: They include Nobel Prize winners.
Obama: I don't care about fringe Nobel Prize winners.

→ Why the Stimulus Package Failed
10/31/10 - Open Market by Hans Bader

A roundup of articles by prominent economists who report that the $800 billion stimulus was doomed from the start. The stimulus was misapplied, even if you believe the economic justifications for doing it. The links and edited comments below are from Bader's article. See the article for even more information.

• The Case Against The Fiscal Stimulus
2010 - Harvard economist Jeffrey Miron (pdf)

Dr. Miron shows the stimulus failed, even if you take for granted Keynesian liberal assumptions about economic policy. Congress spent wastefully while failing to revive the economy. Miron concludes that the stimulus was designed to reward politically connected constituencies and special-interest groups like public-employee unions.

Stimulus Produces Stagnation

2010-10-28T22:00:00.013-04:00

Treasury Official: The Fed Bank will print lots of money for us to spend.
Assistant: We will construct more federal buildings, and the people will feel rich. Then what?
Treasury Official: We will collect all of that money back in higher taxes.
Assistant: Will that dampen their enthusiasm?

→ A Deficit-Financed Stimulus Leads Only to Stagnation
09/29/10 - Investors.com by Jerry L. Jordan
- Via Cafe Hayek

Mr. Jordan is a past president of the Federal Reserve Bank of Cleveland and a member of President Reagan's Council of Economic Advisers.

Soviet Realism

→ Leonid Brezhnev was General Secretary of the Communist Party and leader of the Soviet Union from 1964 until his death in 1982. He spoke at the Soviet Union Communist Party Congress in 1972:

The fundamental problem we face is that we can only distribute and consume what is actually produced.

Imagine the grandeur of the event. Communist Party leaders from throughout the Soviet Union were seated before Brezhnev in a large convention hall. This was similar to a US national political convention, but somber and powerful. The Party controlled all aspects of Soviet economic life. They listened in deep respect to every word of their totalitarian ruler.

Brezhnev made the above statement. It was the equivalent of saying with heavy meaning, "Gentlemen, the fundamental problem we face is that 2 + 2 = 4".

Imagine the country-wide failure which required an all-powerful leader to emphasize such a simple fact. The simple fact that you can eat a hamburger which is on the plate in front of you, but that you cannot eat a picture of a hamburger, and you cannot benefit from the promise of a hamburger unless you can exchange that promise for a real hamburger on the grill.

I think Brezhnev faced the problem that we face now in the US. The wierd economic ideas followed by the Soviet government were not working and had produced a crisis. Brezhnev had to reset policy. The Soviet Union had to face simple reality, rather than follow abstract theory. And, that is what we must do in the US.

The article which I link above provides an economic description of simple reality, nicely written. I think you will understand a reasonable economic explanation when you see one. You should be skeptical of any economic statements that are superficial or disconnected. Be especially wary of appeals to elite authority such as, "My program has the support of all the economists who I respect and who I have talked to."

Remember that entire nations can be misled, to such an extent that the rulers need a reminder of the simplest facts.

Summary of the article and other links ...

Summary of the Article

This is a summary of Mr. Jordan's three page article, with some added explanation. The article is worth reading in full.

Permanent Income

Households must decide what goods they can enjoy today and how much they must save or invest for the future. They estimate their long-term "permanent" income, and decide to consume (spend) some part of it. They don't spend all of a temporary windfall (eg. a bonus), and they don't cut back by the full amount of a temporary loss (eg. losing work for a short time).

Estimates of permanent income are relatively steady, but long-term changes in the overall economy will raise or lower those estimates over time.

Prosperity

Long periods of steady employment, increasing salary, and steady investment gains (eg. increasing values in 401K plans and house prices) may convince people that they are permanently more wealthy, and can afford to spend more now and in the future.

People will borrow against a plush future, to immediately enjoy such things as a bigger home or a vacation. This produces a low or negative savings rate. This is rational, and not a problem to be changed by government economic policy.

Businesses see opportunities and want to use current resources to meet the needs of a prosperous future. Real interest rates rise as individuals borrow for current enjoyment and businesses borrow to build more production capacity.

Higher interest rates direct borrowing away from low-yield projects, keeping those resources available for more profitable (more desireable) projects. Higher rates allocate resources to the best uses in the competitive markets of a healthy economy. This is also not a problem to be changed by government policy.

Recession

Decreasing employment, lower investment income, and falling housing prices produce an estimate of lower permanent income. Unfunded government pensions, large budget deficits, and growing government debt all promise higher taxes and lower after-tax personal income.

Government budgets are always balanced in real terms. The true burden of taxation is whatever the government spends. Citizens will pay for that spending, either now or later, either through explicit taxes or the effects of inflation (see below).

Future paychecks will be smaller or they will buy less. After higher taxes and/or inflation, people expect to be less well off.

A lower estimate of permanent income prompts people to consume less, to pay down current debts, and not acquire new debt. They doubt that they will have enough future income to both pay off their debts and spend as much as before. People want to avoid ruining their credit rating in the future. Paying down debt and keeping more cash in savings accounts increases the national savings rate.

The prospect of higher taxes and increased regulation lower the expected real, after-tax returns from new business projects. Fewer projects can return the needed minimum, real profit. Lower numbers of projects require fewer workers, affecting the least skilled workers the most. The lowered demand for both personal and business borrowing lowers real interest rates.

AMG: Low interest rates are not usually a sign of opportunity. Government interference to lower rates does not spark a recovery. People and business reduce borrowing because of their rational view of the future, not because already low rates are not low enough.

Government efforts to stimulate the economy by deficit spending are utterly useless. Government spending maintains some employment. But, businessmen know that tax increases (or inflation) will be used to pay back higher government debt and interest. They estimate their future customers will have lower real income to spend. So, they cut back on new projects, investment, and employment. This rational response of business and individuals cancels out any positive effects of that government spending.

Taxes, Deficits, and Inflation

There are three choices.

Tax Now. Limit government spending to the taxes being collected now, or raise taxes to cover increased spending. The US government for 40 years has almost always spent more than it has collected in taxes in any year.
Deficit Spending. Borrow the money needed to support spending above the amount of current tax collections (the additional deficit). The government sells US Treasury bonds to raise the money needed. Those bonds are promises to pay back that money after say 1, 5, 10, or more years, depending on the bond. The government pays interest to the bondholders as the cost of borrowing the money.
The government sells bonds every month to support new spending and to pay off older bonds that have come due. Taxes must be increased to pay interest on the bonds, and to eventually pay off the debt.
Every bond sold by the government is a loan to the government by someone with cash looking to make an investment. The government gets to use (or misuse) those resources, instead of a business receiving those funds for startup or expansion. This is called "crowding out" private investments. Ironically, huge government borrowing creates the risky business outlook which encourages investment in the supposedly riskless government bonds.
Inflation. The Federal Reserve Banks (the US central banks) create money by buying US Treasury bonds. This is a last resort by government to acquire more money to spend. This is typically done when the government does not want to pay increasing interest rates on the bonds it might sell to the public, or to avoid increases in those interest rates.
This is a hidden tax. The government acquires real resources by being the first spender of that new money. Later spenders find that prices for everything rise slowly as the new money is traded for an unchanged supply of real goods. The last people to spend are those who have money in bank savings accounts. They find that their money buys less real goods when they eventually use that money to buy things, such as buying their food in retirement.

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Why Spending Stimulus Plans Fail
11/2008 - Easy Opinions

The money isn't free. It is taken from the people who plan and invest in productive organizations. This destroys jobs and lowers everyone's income. The money is then given to government agencies which increase budgets. This is a form of government consumption. Investment is turned into consumption, and job expansion is killed.

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A Tested Stimulus Plan
02/2009 - Easy Opinions

The economic crisis is the result of a giant six year stimulus provided by housing loans. As we now know, it worked for a while and ended in disaster. What will the current stimulus plans produce when the money runs out? We know the answer: an economy like the current one, but somewhat worse.

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Stimulus Does Not Cure a Recession
11/2008 - Easy Opinions

Jobs change when people change what they want to buy or can afford. It is possible to keep people at their low-value or unneeded jobs for a bit longer, only by wasting the savings that should be financing a real recovery.

Selling Us What We Won't Make

2010-10-14T23:34:00.011-04:00

Fred: We must prevent Americans from buying cheap Chinese clothes and women's purses, and so encourage ...
Mike: ... our bright young people to sew cheap American clothes and women's purses.

The Choice
10/14/10 - Cafe Hayek by Don Boudreaux

Mr. Boudreaux posts about the value of free trade.

[edited] By buying products such as textiles, footwear, and luggage from China and other foreign countries, workers and resources in America are freed to work in fields such as bioengineering and artificial intelligence.
If we prevent the importation of “cheap Chinese goods,” we would require American industries to produce – what? – cheap American goods. How bleak.

The problem for the United States is not that the Chinese and others are supplying inexpensive goods to us. The problem is that we are preventing business development in the US that would employ our people to produce many things that we would like. We don't need to limit trade, we need to free ourselves from suffocating restrictions on being productive.

This comment by Dallas Weaver nicely presents this issue [edited].

Without China and others to actually manufacture our US designed high tech devices, none of our engineers, designers, and scientists would be needed. For example, i-Pad sales so far have utilized something on the order of 100,000 man-years of manufacturing employment. If this were done in the US, it would have been more automated, but still it would probably have required at least 10,000 man-years of manufacturing labor.
However, imagine trying to get permits from our bureaucrats to build or even refurbish a manufacturing complex for 10,000 jobs in this country on the required time-scale. The environmental impact report on traffic impacts alone would take several years, and a single law suit on one component of the supply chain would delay the entire project for years.
You cannot manufacture products in rapidly changing markets quickly enough in the US. The markets change far more quickly than our government permit system and legal parasites allow. These malevolent forces slow projects far beyond the point of responding to changed market demands.
This is the real world of the US. Every bureaucrat and nut group has the ability to delay any project. A good example is the attempt to get a permit for seawater desalinization in southern California using existing seawater intakes and using a site already covered with abandoned oil tanks. Many millions of dollars have been spent on the project over the past 8 years, but even the permitting process is not complete.
Another example in southern California. We have a coastline, and a market for fresh seafood of more than 20 million people. Studies show we could create a $2+ billion aquaculture business directly employing 10,000 workers, competing to replace the $8 billion of seafood we currently import, without significant environmental impacts.
As a consultant in this area, I have had to inform potential investors that permits are effectively impossible and that they should look outside the US for business opportunities.
Imports have allowed our society to delay facing the fact that we have evolved from a country which could do and build anything, to a country dominated and controlled by bureaucrats and lawyers. They are parasitizing and decreasing the productive sectors of our economy. Without imports, our system would have collapsed.
Our innovation has continued to move our country forward, because our innovative ideas have been actualized outside our country.

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Stop Bashing Business, Mr. President
10/15/10 - Wall Street Journal by Ken Langone. (Via Chicago Boys)

Ken Langone is a former director of the New York Stock Exchange and a co-founder of Home Depot. He describes how the onerous regulation of business and a hostile attitude from government keeps businesses from forming.

[edited] Mr. President, I am glad that you answered my question at the town-hall meeting you hosted on September 20th in Washington, D.C.
The event seemed more like a lecture than a dialogue. For more than two years, the country has listened to your sharp rhetoric about how American businesses are short-changing workers, fleecing customers, cheating borrowers, and generally "driving the economy into a ditch."
I asked why it was necessary for you to vilify the people who deliver econimic growth, at this time when investment and dynamism are so critical to our country? Instead of offering a straight answer, you informed me that I was part of a "reckless" group that had made "bad decisions" and now required your guidance, if only I'd stop "resisting" it.
I'm sure that kind of argument draws cheers from the partisan faithful. But to my ears it sounded patronizing. One of the chief conceits of centralized economic planning is that the planners know better than everybody else.
You insist that your policies are necessary and beneficial to business, but this is utterly at odds with what you and your administration are saying elsewhere.

You picked a fight with the U.S. Chamber of Commerce, accusing it of using foreign money to influence congressional elections, something the chamber adamantly denies.
Preet Bahrara is your U.S. attorney in New York. He compared investment firms to Mexican drug cartels, and said he wants the power to wiretap Wall Street when he sees fit.
You drew guffaws of approving laughter with your car-wreck metaphor. You recently told a crowd that your critics are "standing up on the road, sipping a Slurpee" while you are "shoving" and "sweating" to fix the broken-down jalopy of state.

You offer condescending encouragement one day and hostile disparagement the next. That short-sighted wavering creates uncertainty and economic paralysis, because no one can tell what to expect next. Any investor could tell you this.
If we tried to start Home Depot today, under the kind of onerous regulatory controls that you have advocated, it's a stone cold certainty that our business would never get off the ground, much less thrive. Rules against providing stock options would prevent us as a start-up from incentivizing worthy employees. We could not pay the incredibly high cost of regulatory compliance overall and mandatory health insurance. Still worse are the risks of loss imposed by ever-rapacious trial lawyers.

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Bourgeois Dignity
10/05/10 - Cato@Liberty by Jason Kuznicki

Chief Secretary of Economics: Those miserable shopkeepers and small businessmen are not cooperating. We will have to lower their taxes, just a bit and for a short while, to get them to work harder and invest more. We will get all of that revenue back later when we introduce the new rules.
Apparatchik: Do you think they might work less because they are despised?

Economist Deirdre McCloskey: [edited] The Big Economic Story of our time is that the Chinese in 1978 and the Indians in 1991 came to attribute a dignity and a liberty to the bourgeoisie [small businessman] formerly denied. Then, China and India exploded in economic growth.

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Drowning In Law
10/16/10 - Overlawyered by Walter Olson

Mr. Olson quotes an op-ed by Philip K. Howard in the New York Daily News. There is much more at the link.

[edited] Employers face legal challenges at every step. This requires legal and other overhead costing 50% more per employee for small businesses than big businesses.

Municipalities requires multiple and often nonsensical forms to do business.
Labor laws expose them to legal threats by any disgruntled employee.
Mandates to provide costly employment benefits impose high hurdles to hiring new employees.
Well-meaning but impossibly complex laws impose requirements to prevent consumer fraud, provide disability access, prevent hiring illegal immigrants, display warnings and notices, and prevent scores of other potential evils
The tax code is incomprehensible.

America will thrive only so long as Americans wake each morning believing they can succeed by their own efforts. Innovation, not cheap labor, is the economic engine of America. The Kauffman Foundation reports that the net increase in jobs since 1980 is attributed solely to newly started businesses.
The fatal flaw of the modern state is that it doesn't honor the human element of all accomplishment. Rules don't make things happen. Only people do, making fresh choices in response to the infinite complexities of daily challenges.
Nobel economist Friedrich Hayek warned us in 1960. "We are not far from the point where the deliberately organized forces of society may destroy those spontaneous forces which have made advance possible."
We may finally be there. Government is basically bankrupt, and the accretion of law is suffocating individual initiative. Nothing will work until we clean it out.

Annals of Government Medicine

2010-09-17T22:00:00.017-04:00

Professor: Finally, we will implement an equitable health system for all.
Mike: Finally? Does that mean you have tried before?
Professor: There are attempts in other countries.
Mike: Attempts? How have they worked out?
Professor : They have some problems, but we will do much better.
Mike: So, you have already implemented something better?
Professor: No, but we have a deep literature of theory to support the experimental trials and committees which we have specified.
Mike: Experimental?
Professor: Well, yes. If it doesn't work at first, we will keep trying.

John Hinderaker at →Power Line has put up many posts under the title Annals of Government Medicine. These are stories of health care failures mostly within the National Health Service in Britian. Ironically and tragically, the NHS is presented by Team Obama as an example for all of us to follow in "reforming" the US healthcare system.

These posts present a strong argument by example that government should not be managing healthcare. All of our lives are at stake.

PowerLine provides a search link to access these articles. I present these links below with summaries, ordered by newest to oldest. There is much useful commentary by Hinderaker at the links. Click on the date.

02/27/11 NHS Refuses Drugs to Cancer Patients

The British NHS has refused cancer drugs to more than 80 desperately sick cancer patients. The National Institute for Health and Clinical Excellence (NICE) had decided the treatments were not cost effective. This occurred in the four months after a £200 million fund was introduced to stop health authorities from rationing treatments.

02/14/11 Death Panel Neglect

Doctors and nurses gave pensioners appalling treatment, denying half of them enough to eat or drink. One family member said it amounted to euthanasia. Several patients died without loved ones by their sides because of the staff's casual indifference and bewildering disregard for people's needs.

The Ombudsman warned that the described cases were not exceptional.

02/01/11 Neglected and starving mental patients freeze

26 patients died when temperatures in Cuba dropped to 39 °F on 01/09/10.

Hospital employees explained that the patients were undernourished and had no blankets, because food and supplies had been stolen by hospital workers.

Official records showed delivery of food for 2,458 patients, to feed 1,484 patients. Yet, a review found malnutrition, anemia, and vitamin deficiencies.

12/29/10 Man's penis amputated following misdiagnosis

A man in his sixties went to a local clinic in Blekinge, Sweden in September 2009. His complaints were diagnosed as a urinary tract infection. Six months later there was irritation of the foreskin. He had to wait five more months to be seen at Blekinge Hospital.

AMG: Socialized medicine minimizes resources and delays treatment. Many problems resolve during the wait. Others don't.

09/17/10 Much less equipment available in UK vs US.

Comparing British medical equipment and procedures to the US, per capita. CT scanners 1/4th, MRI scanners 1/3rd, coronary-bypass surgery and angioplasty 1/4th, hip replacements 2/3rds. Dialysis or transplant for treating kidney failure, for patients 45-84 is 1/5th, for patients 85+ is 1/9th.

Read about more healthcare problems ...

08/04/10 In Sweden, a man waits, waits, then sews up his leg.

A man aged 32 sliced his leg on the sharp edge of a kitchen stove while renovating. "I went to the health clinic, but it was closed. The medical help line told me that it shouldn't be closed, so I went to emergency and sat there." Tired of waiting, he sewed up his leg himself. The hospital staff called the police, charging him with "having used hospital equipment without authorization."

07/31/10 Dying woman could not get the attention of doctors.

A desperate woman phoned photos of herself to her mum as she lay suffering and slowly DYING on a hospital bed. The poor woman knew she was desperately ill, but couldn't convince her doctors and nurses to pay attention.

07/28/10 Britons demand decentralization of NHS.

The National Health System plans to decentralize control in response to publick revulsion at rising costs and lousy health care. A relatively junior cardiac surgeon was appointed to raise patient numbers at the John Radcliffe Hospital in Oxford. He was left to cope on his own, and complained about old equipment and poor working practices at the children's cardiac unit. He was ignored until four babies died.

07/18/10 Saving money by not buying equipment and supplies.

A cash crisis in the NHS has left patients lying on the operating table as doctors realised vital equipment had not been ordered. Women in labour have waited while epidural equipment was borrowed from other hospitals. Other patients have been denied chest drains and radiology supplies,

04/29/10 Berwick embraces rationing of care.

Obama has appointed Dr. Donald Berwick to head the Centers for Medicare and Medicaid Services. Berwick believes that Washington should run health care and that the bureaucracy should exercise a strong degree of control over questions of life and death. Berwick is completely up-front about this: "The decision is not whether or not we will ration care, but whether we will ration with our eyes open."

04/18/10 Pay for any of your own care and lose public access.

Jenny Whitehead paid £250 for an appointment with an orthopaedic surgeon rather than wait five months to see him on the NHS. The surgeon wanted to add her to his NHS waiting list for surgery to treat a spinal cyst. However, the NHS barred her and sent her back to her GP to start over. Department of Health officials admit it is official policy to withdraw care from patients who go private.

03/26/10 Layoff hospital workers and reduce services.

Secret plans to save £20 billion would eliminate tens of thousands of NHS workers. The sick would be urged to stay at home and email doctors rather than visit surgeries. Procedures such as hip replacements could be scrapped. Cutting £2 billion in the East region, the SHA proposes shifting services out of hospitals. Social workers would deliver some treatments.

03/21/10 Downgrading emergency response.

The most senior ambulance officials made a cost-saving decision which may have cost hundreds of lives. They altered the computer program used by most control centres to prioritise emergency calls. For years, calls to 999 in life-threatening situations were accidentally "downgraded" and call handlers were told not to send the most urgent response.

03/06/10 Dangerous heart surgery.

The UK's most senior heart surgeon warned in 2003 that half of Britain's heart surgery units should be closed as substandard. The Government did nothing.

03/05/10 Shutting wards to save money, despite promises.

The UK government asked NHS to shut hundreds of NHS wards to save money due to the recession. The rolling programme of cuts contrasts sharply with assurances from Labour and the Tories that the NHS was "safe".

02/24/10 400 deaths linked to poor care at yet another hospital.

Patients were routinely neglected or left "sobbing and humiliated" where at least 400 deaths have been linked to appalling care. Managers at Mid Staffordshire NHS Foundation Trust were preoccupied with cutting costs to meet government targets.

11/26/09 Poor care and filth kill 400 patients.

Poor nursing care, filthy wards, and lack of leadership at Basildon and Thurrock University NHS Hospitals Foundation Trust led to the deaths of up to 400 patients a year.

09/28/09 Waiting 2 1/2 years for surgery.

Christina Woodkey waited a year to see a hip specialist, who said she would need a back specialist, then would wait 18 more months for any surgery. She opted out, paying for surgery in the US in two days.

Romer is Theoretically Correct

2010-09-05T18:43:00.017-04:00

Fred: How many stimulus jobs have we created?
CBO: Just a second (runs computer program model).
2,343,458 jobs.
Fred: Did you just scan a detailed database of collected information?
CBO: No. The model always says that.

Christina Romer is Mystified
09/02/10 - Ann Althouse

Christina Romer has resigned her post as chair of the White House Council of Economic Advisers, a top advisor to President Obama. The quotes below from The Washington Post are supplied by Ms. Althouse. I have edited and paraphrased.

WPost: Romer acknowledged that she and her colleagues did not realize how quickly and strongly the financial crisis would affect the economy.
Romer: To this day, economists don't fully understand why firms cut production and labor as much as they did. Almost all analysts were surprised by the violent reaction [1].

Althouse: Every damned thing that happens is declared "unexpected".

WPost: That miscalculation, in turn led to her miscalculation that the stimulus package would keep unemployment under 8%. Romer had predicted unemployment of 9.5% without stimulus [2]. The plan passed, and unemployment went to 10%.

Althouse: Unexpectedly and mystifyingly, it was quite a surprise.

Romer: The Council of Economic Advisers has reported to Congress widespread agreement that the act is broadly on track.
I will never regret trying to put analysis and quantitative estimates behind our policy recommendations [3].

Althouse: A negative interpretation: They started with a policy preference, then rustled up numbers to support it. So, it is not surprising that the quantitative analysis was second-rate [4].

Read the analysis ...

[1] "Almost all analysts were surprised" means "My friends and I were surprised".

Romer just didn't know, but she was willing to guess. She was willing to recommend borrowing and spending $800 billion for a giant experiment on the people of the United States, the people who would have to pay back the borrowed money.

The constant "surprise" in government anouncements gives the impression that the Obama administration had a reliable, practical basis for expecting something better and different.

Their excuse: The bad news is so unusual and unexpected this time. Don't blame us.

[2] Unemployment would be less than 8% with stimulus, or 9.5% without.

These are precise numbers. It would be a breakthrough to see the analysis in writing, to learn something, study the results, and do better next time.

I don't think Romer's analysis would impress an ordinarily intelligent person. I think Romer and her staff looked at charts of economic quantities during past recessions. They applied the Keynesian theory of the moment, wrote down a few formulas, and recommended giant spending.

Spending is always agreeable to politicians. It is like recommending ice cream to an overweight person, to increase his energy for later exercise.

I would like to be proved wrong on this. Where is the written analysis on which Romer based her recommendations to the President? Why aren't Romer and Obama proud of their work?

[3] "I will never regret trying to put analysis and quantitative estimates behind our policy recommendations."

Why is Romer thinking about regret? I think every member of Obama's political team came into her office at some time and asked "Why-Oh-Why did you have to put a number on your recommendations, and then be so wrong? We could have advised you. We are wrong all of the time, but it doesn't matter when we don't give a number."

The word "trying" jumps out at me. To quote the character Yoda: Do or do not, there is no try. Did Romer have analysis, data, and past examples sufficient to risk the U.S. economy? If so, she would have said "I stand by the analysis supporting my recommendations". As it is, she won't regret "trying" to produce a good analysis.

Possibly, I should thank her for taking a chance on something new in government work. She "tried" to put analysis and quantitative estimates into policy recommendations. She implies this was a new thing within the White House Council of Economic Advisers.

[4] Althouse: It is not surprising that the quantitative analysis was second-rate.

AMG: Just how second-rate is revealed in the following offical report.

Estimate of Jobs Created

Estimates Of Job Creation From The American Recovery And Reinvestment Act Of 2009 - May 2009 (pdf)
Executive Office Of The President: Council Of Economic Advisers.

To estimate the likely impact of the fiscal stimulus on real GDP, we used multipliers that we feel represent a consensus of a broad range of economists and professional forecasters.
The final step is to take the effect on GDP and translate it into job creation. Not all of the increased output reflects increased employment: some comes from increases in hours of work among employed workers and some comes from higher productivity. [And some is wasted -AMG]
We therefore use the relatively conservative rule of thumb that a 1 percent increase in GDP corresponds to an increase in employment of approximately 1 million jobs, or about three-quarters of a percent. This has been the rough correspondence over history and matches the Federal Reserve Bank model reasonably well.

Huge Problem

This report is not worthy of being called an analysis. It considers only the possible increased employment from government spending. It does not mention or consider the bad effects of government borrowing and increased taxes, or the → deadweight lossThere is a $200-$300 loss in production (salaries and jobs) from raising tax rates to get an extra $100 in tax collected. This is the Deadweight Loss of taxation. It is what is never produced, or what goes into extra accounting and legal fees, because taxes are raised. We end up with more paper and politics, and less consumer goods and jobs. from collecting more taxes.

Increased employment is possible, but the borrowing and taxes are certain. Any increased employment ends when the stimulus spending ends. The borrowed money plus interest must be repaid regardless, through higher tax collections.

John: You will love the $20,000 boat I bought.
Mary: You spent the college fund?
John: Relax, I borrowed the money.

Big Problems

Multipliers of What?
The Report lists multipliers for Government Spending (say 1.5) and for Tax Cuts (say 1.0). These multipliers say that Government spending is much better than tax cuts, but better at what?
First, Romer believes (Kenesian Economics) that $100 of government spending produces (magically, eventually) $150 in increased production and jobs (GDP or Gross Domestic Production). She also believes that $100 in consumer spending does the same thing.
She wants to get the government involved because the government can force consumers to spend by borrowing and spending the money. The money will need to be repaid, but the benefits in the meantime are supposedly worth it. →They aren't worth it.03/2009 - Cargo Cult Economics
Obama's and the government's most harmful economic myth is that savings are bad, and that only spending improves an economy. Spending transfers current production, but savings buys the equipment and business expansion that directly produces jobs and future production. The reason that government taxation and borrowing is bad is exactly because these use up savings and direct savings toward bad investments.
Romer is saying that the government spends all $100 when it collects $100 in taxes. When the government cuts taxes by $100 or leaves the taxpayer with $100, the taxpayer spends $66 and saves or invests $34. So, the government is much better at spending all of the taxpayer's money than the taxpayer is.
Amazingly, this is the same Christina Romer who authored the study →The Macroeconomic Effects Of Tax Changes - March 2007See Section VI. Conclusions, p.41
Romer states the equivalent, that a $1 tax increase reduces GDP by $3. which concludes that $1 of tax cuts raises GDP by about $3. The reason is that people invest and work more when taxes are lower.
Romer's 2007 study is detailed and thoughtful. What did a top government position do to her? I think Althouse is correct in [4] above.
GDP As an Accounting Entry
Greater production is associated with prosperity. The money spent by consumers is a vote about the usefulness and quantity of what is produced. Consumers choose to buy only the things which are useful to them, that were worth producing and buying.
The freedom of choice to buy or not buy gives GDP its good associations. So, it is crazy to believe that everyone will be better off by forcing them to buy because that raises GDP.
Government spending adds to GDP by definition on paper. It adds to real prosperity only if the government buys things that are as useful as what an individual would freely purchase. When the government buys something that is only slightly useful, →we call that a waste of resources07/25/10 - LegalInsurrection
You will recall my now-classic post about the miles of sidewalks leading from Warren, Rhode Island to the Massachusetts state line. A stimulus project., and no one is going to buy more when the government stops buying. Any "stimulus jobs" which produce that item will disappear after the government stops buying.
Here is stimulus thinking: A prosperous economy supports jobs in restaurants and tourism. Many of those jobs have disappeared due to weak demand. The government will restart the economy by borrowng money to buy more meals and tours. Afterwards, everyone will be better off.
In reality, taxes go up to pay for the debt created by the government. This reduces the money available to freely buy meals and tours, and that demand collapses even further. Worse, every productive person and investor acts in fear that the government will do this again. They work and invest less, shrinking the economy and lowering useful GDP.
Spending As An End In Itself
The Report has things fundamentally, crazily backwards. We don't spend money to create jobs, we organize jobs to provide useful things. We should apply the least resources (money) that we can toward producing those useful things.
The result of spending is what is produced. That is it. The money is not fairy dust spreading wealth to whoever touches it. The money represents say a basket of groceries that is traded in exchange for producing those useful things.
At best, government spending buys absolutely necessary things such as military arms that only a government can control. At worst, government passes out money to friends and contributors, producing little of value to the general society, under the cover story of producing jobs.
Every dollar of government funds has been or will be taken from someone who has produced, or will be expected to produce something useful. He has worked hard for that dollar that the government takes away in taxes.

-----
CBO Creates Jobs On Paper
03/17/10 - Cato@Liberty - Daniel J. Mitchell [edited]:

Doug Elmendorf is Director of the Congressional Budget Office (CBO). He basically agrees with me, that their employment model simply spits out pre-determined numbers, regardless of what happens in the real economy. The CBO recently estimated that so-called stimulus spending generated jobs and growth.
Someone asked Elmendorf, would the CBO model be unable to detect whether the stimulus failed. After hemming and hawing, and a follow-up question, Elmendorf confessed "that’s right".
(See this at 39:00 on the C-Span video at the link)

Our economic future is being analyzed by CBO models that are entirely theoretical and are not compared to the reality that they are supposed to predict. The CBO "scores" Congressional legislation, telling us how much legislation will cost and how much it will "reduce the deficit".

This does not inspire in me a warm feeling of trust.

-----
NY Times and Washington Post: CBO Numbers Stink
03/19/10 - The Lid by Sammy Benoit

[edited] Democrats worked with the nonpartisan Congressional Budget Office for more than a year, fine-tuning the bill in the last weeks. And, they consulted repeatedly with the bipartisan staff of the Joint Committee on Taxation.
The CBO found that cost and deficit targets would be missed. So, Democrats adjusted parts of the legislation to meet their goal.
Here are two of their tricks.

The first ten years of increased taxes are applied to only six years of costs.
$500 billion of Medicare savings are counted twice.

-----
The CBO Scores Congressional Legislation

A fly on the wall:

CBO: The MedHelp bill spends $1 trillion and increases what you must borrow, the deficit, by $230 billion.

Politician: What if I tell you that we will stop paying the doctors, saving an additional $400 billion?
CBO: Can you really do that?

Politician: Just assume that I can. I'll write it into the margin.
CBO: Then, the bill spends $1 trillion and decreases the deficit by $170 billion. It raises taxes by $770 billion, and saves $400 billion on the doctors.

Press Conference: The bi-partisan, non-partisan, mathematical, unbiased, technoid, trustworthy, very smart CBO has just scored the MedHelp bill. Ladies and Gentlemen and Republicans, this bill delivers medical help to everyone, and reduces the deficit by $170 billion. How could any intelligent person be against it?

-----
Spending Hurts, Not Just Deficits
12/15/09 - Cato@Liberty by Daniel J. Mitchell

Politicians fixate on the deficit to pull a bait and switch. They claim that they can raise taxes to solve any problem. That only replaces debt-financed spending with tax-financed spending. The likely result is that the required tax increases will weaken the economy and make us all poorer.

-----
The Real Tax Burden
01/13/09 - EasyOpinions

The real tax burden is everything that the government spends. It is your money, now or in the future. Borrowing delays taxes while paying interest, just like a credit card.

You may think that some other rich guy is paying those taxes, not you. Don't be surprised if those guys buy fewer things from your employer. Where does that leave your job prospects?

Martian Gold

2010-07-25T15:19:00.010-04:00

Fred: Gold! The Martians are paying about one ounce per day to work for them.
Mike: I'm in. That's over $1,000 per day.
Fred: Last week. Gold is $100 per ounce this week.
Mike: That's OK. What will gold be worth next week?
Fred: Who knows? But it's gold; how could we lose?

Future News:

It has been three years since the Martians arrived, smiling and giving gold coins to whoever would help them establish their "humanitarian aid colonies" around the world.

Government economists applauded, predicting that this injection of gold into the economy would make everyone rich and end the recession. Certainly gold is better than cash. Multitudes around the world are fully employed building the Martian colonies, raising the special foods that Martians love, and providing the Martian creatures with sighteseeing tours of the Earth.

Everyone has seen these coins in circulation. Government economists said that this was proof of the multiplier effect, as the coins are passed around, stimulating production in each passing.

Puzzling Effects

Some irritating private economists have noted puzzling effects. The value of gold is falling fast as more shows up in trade. The Martians respond by manufacturing even more of it with their secret process, handing out as much as needed to keep resources flowing to their projects.

The price of human goods is rising, in dollars and gold, as people realize that more of world agricultural and manufacturing capacity is going toward Martian needs. Some clearly confused people are complaining that "Everyone is working for the Martians" and "We can't eat gold, so what good is it?". Government and Martian economists have responded that economics is complicated, they are trained to think about these things, and that this should be left to the experts, not to the "peasants".

New Legislation

Pending legislation would direct the US Treasury to print up as much money as needed to buy the Martian gold.

A Treasury offical: The public would be more comfortable with dollars. We will buy the Martian gold, providing them with dollars. Then they can spend the dollars in the usual way. This is quite similar to stimulus spending on new projects.

The media have not noticed the comments of some fringe economists.

The flood of both gold and dollars is directing resources toward Martian needs. Humans hold vast quantities of dollars and Martian coins. These people want real things in the future. Why will people work in the future to deliver human goods to these people, in exchange only for those coins and dollars?
Coins or dollars, what is the difference now? They are both worthless in themselves. They are only IOU's.

- -
What happens when Martians or our government manufacture money? They receive real resources. The citizen or peasant gets an IOU.

Ireland Tries Economic Suicide

2010-07-09T20:02:00.014-04:00

Fred: Ireland is trying to recover without stimulus spending.
Mike: Are they all drunk?
Fred: It seems to be working.
Mike: Are we all drunk?
- -
Fred: Did you hear about the big bank robbery? The robbers have agreed to spend the stolen money within the town.
Mike: They have all the luck. That stimulus spending will make them rich.
Fred: Government is doing that for all of us, so we won't have to depend on bankrobbers.

The New York Times Reports Twice About Ireland
07/07/10 - Cafe Hayek by Russ Roberts

First, we learn that Ireland tried to commit economic suicide by not creating more debt to support stimulus spending.

NYTimes 6/29/10 [edited]: An economic collapse forced Ireland two years ago to cut public spending and raise taxes.
Economist Alan Barrett: Our public finance situation blew wide open. The dominant consideration was ensuring that there was international investor confidence in Ireland so we could continue to borrow. We said "Let’s get this over with quickly."
Ireland is being penalized for its actions, not rewarded. Its downturn has certainly been sharper than if the government had spent more to keep people working. Lacking stimulus money, the Irish economy shrank 7.1% last year and remains in recession. The once thriving nation is struggling, with no sign of a rapid turnaround in sight.

The next day:

NYTimes 6/30/10 [edited]: Ireland’s gross domestic product grew 2.7% in the first quarter of 2010. It was the first such rise since Q4 2007, when Ireland’s economy began to buckle amid a bursting bubble in construction and property speculation.
Economists are forecasting that Ireland’s GDP will grow in 2010, setting aside earlier predictions.

Ireland did the right thing in cutting government spending, and it had a good and fast result. Some people would point to raising taxes as somehow leading to economic growth. I don't see the mechanism in higher taxes that would do that. Raising taxes was probably a necessity forced on them by their past spending. If you borrow to spend more, then you must raise more tax later to pay off that borrowing.

The U.S. is going to carry out an experiment starting in 2011. We are raising taxes to support increased government spending, and probably will continue to spend more "stimulus". We will see how that works out. I say it won't be good.

Future News

Keynesian Bankrobbers Save Local Economy

The biggest bank robbery in Kennebrokeport history has left the people stunned. Criminals stole $12 million in cash and government notes, 12% of the town's annual economic output.

The robbers offered an interesting bargain. In exchange for a pardon, they will spend all of the cash within the town on restaurant meals and consumer goods, thus stimulating the local economy. Town leaders are hopeful, and some are even pleased.

The mayor announced that this was a great opportunity to "jump-start" the economy in what are difficult economic times. "We will all start working and spending again. I think we all forgot how to consume. Now we will get back into the habit, and eventually we will all be rich".

The mayor continued "I have talked to government economists about the effect of this. They say we have lucked out, that we should get an economic boost of 1.5 times the amount stolen and spent. We are actually going to make a lot of money on this deal. I didn't know that bank robbery could be so beneficial to the community. I'm thinking of changing our entire attitude toward this type of theft."

Townspeople are suspicious of the newcomers spending a lot of cash, but do not want to ruin their own economic future by prying into how they obtained the money. "We're just happy that someone is spending again, although they are not great tippers."

Links

The few jobs created by stimulus spending are temporary, even the full-time jobs. Stimulus money is not going into wise investment to create the jobs of the future. It is being used for the projects that are already organized by federal, state, and local governments, like raises for government employees and road repair.

Road repair and the like are useful projects (but not in this case), but they are not the high-value investments that create new and lasting job opportunities. Stimulus jobs will disappear when the stimulus spending stops. Meanwhile, government borrowing and taxes to pay for the stimulus are reducing the high-value investments that "the rich" would have made in response to the recession.

A Tested Stimulus Plan

The economic crisis is the result of a giant six year stimulus provided by housing loans. As we now know, it worked for a while and ended in disaster. What will the current so called stimulus plans produce when the money runs out? We know the answer: an economy like the current one, but somewhat worse.

Stimulus Does Not Cure a Recession

DIY Stimulus Policy

2010-06-26T16:28:00.022-04:00

Fred: What is your analysis of stimulus spending?
Economist: "4=2+2" so stimulus will increase GDP and jobs.
Fred: Are you nuts?

Economist: Oh, I meant to say "GDP = All production in the U.S.", so stimulus will increase GDP and jobs.
Fred: I don't get it. That's just a definition.

Economist: Oh, I meant to say "GDP = C + I + G + (X - M)", so stimulus G will increase GDP and jobs.
Fred: That's better.

This is one of our most impressive installments of DIY. Government economists support giant "stimulus" spending to end our recession. We explain the tricks of the professionals, so that you can create fiscal (spending) policy at home.

Don't panic. This is a "high concept" idea that would be less impressive if it were complicated by details. Just appreciate the grandeur of analyzing the entire production of 300 million people, simply by giving it a name.

Don't be afraid of the few formulas you will see. They are only a fancy way to add things up, and they look great on a cocktail napkin. Any formula will amaze your friends and show your deep insights into finance. This is exactly the same effect enjoyed by graduates of Harvard Business School.

The GDP Formula For the Economy

The detailed interactions that describe the U.S. economy are many, complicated, and mostly not understood.

In the meantime, many macro-economists use a short formula which is easy to remember. They use it to promote deficits, spend $789 billion on stimulus, impress the non-PHD's, and win arguments on blogs. You can use this formula as an amateur. It is merely addition, but it does require memorizing the letters (the variables or quantity names) to show that you are unusually intelligent.

 Y (same as GDP) = C + I + G + (X - M)

You can casually say at a party "Stimulus increases G, which increases Y and creates more jobs throughout the economy". The effect is electric. Politicians will applaud.

The quantity "Y" or "GDP" is Gross Domestic Product. That is all of the goods and services produced in the country.

Just like "DIY - Garden Shed", we will build from the bottom, giving you hints along the way. Here is the foundation:

GDP  =  Total U.S. production. All goods and
        services produced during the year

That is merely a definition. We can make it less boring by slicing GDP into philosophical pieces. Really, schools award degrees in this stuff. Here is our first slice:

GDP  =  Consumption C  +  Investment I

This says that everything we produce can be assigned to two categories. "Consumption" is what we use personally, like food, clothing, and automobiles. "Investment" supports businesses to produce those goods and services, like supermarkets and automobile factories. There are some gray areas, but why worry? The macro-economists don't.

How does government fit in? We slice again:

GDP = Consumption C + Investment I + Govt Spending G

Consumption is spending for individual use, also called consumer spending. Investment is spending to support businesses, like buying machinery. Government Spending is everything purchased by government.

Notice that there is no "Government Investment". We know that government builds a few useful things like bridges, but government doesn't try to make a profit (more is the pity) so it is all called Government Spending.

We have left out "Exports X - Imports M" for now. You can look below for that explanation, so that people don't accuse you of reading "only that stupid DIY post". "X - M" is "Exports minus Imports". It is there mostly to show that you understand the complexities of the economy, after completely ignoring all of those complexities by relying on this stupid formula.

That is the GDP Formula. I know you were looking forward to more complexity and hours of study. You may even be angry, thinking now that this whole post is a big joke. You think it can't be this simple. Our leading government economists and Keynesian pundits just can't be using this simple formula as justification for their economic policy. I share your anger. Don't blame me. That is just how it is.

About GDP

Here is the GDP Formula again. You will find out how our government uses this formula. Sadly, this is not a joke.

GDP = Consumption + Investment + Government Spending

This formula is simple and absolutely true. People are dazzled by its truth, but are not aware of how useless it is. It is only a broad mental exercise for thinking about the money spent in our economy.

GDP is everything produced in our country. An economist notices that your income results from selling what you produce. You sell your effort each day to earn your salary in money. You spend your salary to buy the food, clothing, and services which support your life. Your income in cash comes from your share of the goods and services you help to produce. So, production and income are two sides of the same coin. All production represents someone's income.

In general, more GDP is good because more production means more income to the people of the country. Government economists look for ways to increase GDP, especially during recessions. They most often find their answer in the GDP Formula above. They see that GDP would be larger if one or more of its parts were larger.

Consumer Spending

Economists note that consumer spending is 70% of the economy. This means that about 70% of all purchases are by people for their personal benefit. Looked at another way, 70% of what is produced (GDP) is made for people to use personally.

During recessions, people spend less on consumption because some are out of work and others want to save more, in fear of losing their jobs. GDP is produced by people, so higher GDP is associated with more people working. Government economists look at the GDP Formula and conclude that if people would spend more on consumption, there would be higher GDP and more jobs, ending the recession. This extra consumption would be economic "stimulus".

It is difficult to encourage people to consume more. A few tries have been made with Cash for Clunkers for buying autos, and cash subsidies for buying homes. But, people can't consume much more if they are out of work.

Both presidents Bush and Obama gave one-time tax refunds or payments to people. These didn't do much for the economy. Government economists complained that people saved most of it instead of spending it all, reducing the "stimulating" effect.

I don't understand why saving (investment) is supposed to be worse than spending. According to the GDP Formula, they add equally to GDP. I suppose that is just inconvenient to what politicians want to do. They want to spend.

Investment

Nope. The government doesn't know how to invest, and it hates making a profit. Investment is done by the prosperous business people that the government takes taxes from. Government isn't about to give back that money for investment, followed by "trickle down" prosperity.

Government Spending

Now we are on to something. Government economists interpret the GDP Formula as showing that government spending increases GDP. That is something that government can do with a few votes, and spending is something that all politicians like to do. Any recession creates calls for much more government spending, and they do it.

The Personal Spending Formula

I said above that the GDP Formula is true but useless. Let's get a feel for that by looking at a smaller, friendlier, more understandable relative The Personal Formula:

My Spending
   =  Restaurant Meals + Savings + Other Spending

In general, more of My Spending is good because I enjoy most of the things I buy. I often wonder how I can buy more things to be happier. The Personal Formula seems to give me guidance: I should buy more restaurant meals to increase My Spending. In fact, I might think it tells me that I should eat out all the time, and take friends and family with me. More spending on restaurant meals is good, and the more the better.

I hear some shouting in the audience, that I can't just increase what I spend on restaurants. I would have to decrease what I save or decrease what I spend on other things. I might enjoy more restaurant meals, but I would have to cut elsewhere. In fact, I can't really change My Spending at all (!) because I have properly included Savings in the formula.

By definition, my entire income is equal to My Spending, and I can only allocate my income to different purposes. I can't raise or lower My Spending by spending more or less in one category, because I must adjust the other categories. The formula is correct, but it can mislead me about how the quantities affect each other.

To increase My Spending, I would have to work more hours, or find a better-paying job, or save/invest in a growing company. None of that is represented in the Personal Formula.

I could buy more restaurant meals if I cut Other Spending. I might spend less on maintaining my car and use the difference for more restaurant meals. But, my car might break down, and that strategy could work out as a bad choice. Whatever happens, the Personal Formula will reliably add up the results, but it does not say what I should do or what will happen.

An increase in my income would allow me to spend more in one or more categories. The Personal Formula doesn't tell me that I can increase my income by purchasing more restaurant meals or anything else. That would be a crazy interpretation of a formula that merely adds up my spending choices.

The Personal Formula is absolutely true, which impresses people at first glance. But, it is worthless for guiding my personal policy, except to suggest that I must spend less in one category if I spend more in another category.

Borrowing Savings For a Price

If I want to buy a new television for $1,000, and I don't have enough in savings, possibly I can borrow the money. This works if I can reliably save enough to pay for the TV plus interest, and I don't want to delay the purchase until I have saved the money.

I could buy the TV for $1,000, and pay $80 per month for the next 15 months to pay off a $1,000 loan. My total cost to buy the TV this way would be $1,200. So, I could pay an extra $200 to the lender to buy the TV now, rather than save $80/month for 12.5 months to buy the TV later.

It seems that I have increased My Spending by $1,000 by getting that loan. Actually, I increase Other Spending by $1,000 when I buy the TV, and I decrease Savings $1,000 by getting the loan. Savings has become negative.

Negative savings means that I owe money. I put less into savings over time than I have now taken out. I will pay about $67/month into savings as I pay off the loan, and I will pay the loan company about $13/month interest for the use of the money. Savings will become $0 after 15 months (assuming it was $0 to start), the loan will be paid off, I will own the TV, and I will have paid about $200 to borrow enough savings to buy the TV sooner rather than later.

This is interesting. "My Spending" did not change because of the loan. Other Spending went up by $1,000, and Savings went down by $1,000, offsetting each other. This contrasts with the usual assumption that taking out a loan increases "spending". In fact, loans are a transfer of savings for a price.

This personal accounting agrees with what the society sees. I bought $1,000 more of something, but the lender bought $1,000 less of something. These cancel out for the society, and they cancel out in a proper personal accounting.

Confusion

I confess that I introduced some confusion, but only the same confusion that government economists use. The Personal Formula should have looked like this:

My Production or Income
   =  Restaurant Meals + Savings + Other Spending

It is entirely true that Production = Income = Spending. We can account for Production by either valuing everything that is produced as GDP, or adding up all Income, or adding up all Spending (when Savings are properly accounted as a category of spending).

Here is the confusion. When I say "My Spending = . . .", that choice of word gives the impression that I can change what I spend in total. "Spending" seems to be something that I can do more or less of. In fact, when we properly account for transfering money into Savings/Investment, I can't change the total of My Spending, I can only allocate it between Restaurants, Savings/Investment, and Other Spending.

If I had said "My Income = . . .", then it would have suggested the correct conclusion from the start. "My Income" depends on what I earn, and I can only allocate it between different types of purchases, including Savings/Investment. It becomes much clearer that what I earn doesn't change because I spend more or less on consumer goods rather than on Savings/Investment.

Stimulus

Here is the GDP Formula again:

GDP = Consumption + Investment + Government Spending

It should look different to you now, after reading the section above.

There, we saw that the Personal Formula is a true representation of how I might allocate my income among different categories of goods. It is useless for deciding what I should do to increase my income. It doesn't express or relate any of the complexity in my life that determines what my income is or what it could be.

The GDP Formula has the same qualities. It is definitely true. But, it is merely a true statement about how all GDP (production) can be allocated to various uses, in principle, philosophically.

It is crazy to use the GDP Formula to claim that increasing Government Spending will increase GDP. The GDP Formula only says Government Spending buys some part of what is produced. It says nothing about how we could produce more or increase employment. The GDP Formula says nothing about the immense complexity within our society. If anything, the GDP Formula suggests that there is a tradeoff, that more government spending requires less personal consumption and/or less investment.

Government economists say that the government is in a special position to create "stimulus", to borrow money and increase spending now to create jobs now. Although spending will go down in the future when the loans are repaid, they say the economy will have time to recover.

There is a problem in this reasoning. Borrowing does not increase "spending" overall. The government spends more, but the lender spends (invests) less to support business. It is mostly a wash. If anything, resources lent to the government are applied with a lower productivity than they would be by individual investors in our society, reducing employment.

Your car has a speedometer that reports how fast you are going. You would be crazy to think that you could increase your speed by grabbing the needle and pulling it toward 50 mph.

The GDP Formula reports (only in principle) how production is allocated among uses. You would be crazy to think that you could increase production merely by allocating more of it to the use of government. That is what increased government spending does.

The GDP Formula is a magic trick. Observers see that the formula is true by definition. Then the magician economist interprets the formula in a crazy way to support the taxing and spending desires of the politicians who employ him. Assuming that government economists are smart and college educated, I think that they are lying, not merely mistaken about this crazy interpretation of the GDP Formula.

The Complete Keynes Formula

Total Production Y = 
  Consumption C + Investment I + Govt Spending G 
  + Exports X - Imports M

The Keynes Formula divides all production within a country into categories. Consumption + Investment + Government Spending seems to include everything, so what is (Exports - Imports) doing there?

The Keynes Formula accounts in principle for every spending transaction within a country and assigns each transaction to Consumption, Investment, or Government Spending. But, usually that is not quite equal to the goods and services produced within the country.

If a French company buys from the U.S., the spending is done in France for goods manaufactured in the U.S. This foreign spending on U.S. exports should be added to U.S. GDP.

If a U.S. company buys from France, the spending is done in the U.S. for goods manufactured in France. This local spending on French imports does not represent U.S. GDP, so it should be subtracted from the spending figures.

So, if we start with "All spending transactions within the U.S.", we can add exports and subtract imports to get the true dollar value of U.S. GDP (Total Production Y above).

Showy Complexity

The Keynes Formula is contrived.

First. The division of GDP into Consumption, Investment, and Government Spending is arbitrary. It seems to me that Government Spending is in the formula merely to refer to it as a component of political strategy.

I could as easily write this formula:

GDP = Consumption + Investment 
      + Video Games + Cat Food

Then I could argue for increasing GDP by subsidizing the purchase of video games and cat food.

The categories of spending seem analytical, but they aren't used for any further analysis. There is no discussion about which is better, and there couldn't be; these terms are too vague to provide an analytical insight.

Keynes did not make a distinction. He famously recommended distributing cash to the public, or paying them to dig holes and fill them up. Any means of increasing consumption, investment, or government spending was supposed to increase overall production. Of course, politicians have always preferred government spending.

Second. The inclusion of "Exports - Imports" adds unneeded complexity. Our government certainly buys some foreign goods, and sells government services to foreign countries. So, part of "Exports - Imports" is Government Spending. Who cares? The Keynes Formula is only used to incorrectly claim that increased Government Spending must increase GDP. That fallacy is the central point of this post.

The value of including "Exports - Imports" is to present another absolutely true and complex fact about GDP accounting which is irrelevent to the discussion. It puts another gloss of legitimacy on the incorrect interpretation of the Keynes Formula.

Third. Keynesian economists have analyzed the failure of one-time tax rebates or subsidies to "stimulate". They conclude that the public didn't spend enough of their new money. They saved much of it or paid down debt, which is another way of saving.

But, the interpretation of the Keynes Formula by Keynesian economists would make consumer spending, saving, and investment equally "stimulative" and equally powerful in raising GDP. This bias toward spending and against saving is not part of the Keynes Formula, but they illogically use the Keynes Formula as a quick justification for their political preferences.

- -
Keynes, Digger of Holes
12/2008 - EasyOpinions

No one should trust a theory that predicts greater prosperity from digging holes. Yet, this is the theory by Keynes that Obama is following, and that many past presidents have followed to forcibly change our society. We will supposedly create even more wealth in the future by wasting our current wealth today.

I know. I must be wrong. No one could believe such a thing. Certainly no president of a great country would listen to a dead crank who spouted such nonsense. But, there it is.

There is a story at the link about Keynes dirtying some towels in a washroom and claiming that he had just helped the economy by creating work.

How many obviously false statements must a person make before the quality of his entire thought is in question? The limit has not yet been set for Keynesian economists and politicians.

- -
The Keynesian Accounting Trap
06/17/10 - 12/21/09 - Mises.org by Robert P. Murphy

[edited] I think Krugman [a Keynesian economist and pundit] is committing a very basic error. He is confusing the Keynesian accounting identity [the GDP Formula above] with a causal theory of how changes in one of the variables lead to changes in the other variables.
This formula very often misleads people that the way to increase output [GDP] is to try to increase one of the variables on the right side. But this is a fallacy. The accounting identity must always be true, but it can remain in balance if other variables on the right side fall.
Krugman is wrong even within the Keynesian framework. For example, Keynesians often use this formula to argue that increases in government spending are necessary to "fill the gap" when private consumption and investment are below "potential GDP." They naively assume that boosting Government Spending on the right side of the formula will lead to an increase in GDP on the left side. But, that relies on the Keynesian theory of how the macroeconomy works; it doesn't follow from the formula itself.

- -
Bigger Government Is Not Stimulus
12/15/08 - Cato Institute by Dan Mitchel (YouTube video 7:29)
A video by the Center for Freedom and Prosperity Foundation.

Both theory and evidence show that allowing politicians to spend more money does not produce better economic performance. Keynesian theory doesn't make sense. Government can only put money into the economy by first taking it out as borrowing. Transferring the economy’s money from its left pocket to its right pocket is not a recipe for growth.

- -
Macroeconomics is Astrology, Not Science
01/30/09 - EO -> RealClearMarkets

Frank J. Tipler is Professor of Mathematical Physics at Tulane University:

[edited] The inability of macroeconomic theories to make accurate predictions about an entire economy means that those economists do not know what they are talking about. Our leaders are being advised by macroeconomists who haven’t got a clue where they are leading us. Their actions may lead us out of the current recession, or they may lead us into a depression as bad as the Great Depression.

Update

2010-06-25T13:00:00.003-04:00

A Doctor Describes Government Management of Medical Care
07/03/10 - Big Government by Bret Jacobson (YouTube video 3:37)

This doctor treated Medicare Patients, and was routinely denied payment. Medicare said: "We can't pay you right now, the computer is down". The computer was down for 18 months when she gave up.

This is an update to Government Management of Doctors.

= = = = = =

Fred: We'll build wind turbines everywhere and store the excess energy in hydro facilities.
Mike: That will work for places that are flat and windy, next to mountains that will support a hydro dam. What about the other places?

The Myth of Alternative Power and Hydro- Electric Storage
06/17/10 - ChicagoBoyz by Shannon Love

[edited] "Alternative energy" can’t be used for baseline power because it is not reliable, and we can’t make it reliable by storing the electricity that it episodically generates.
What about energy storage in a hydro-electric dam? Pumps would use alternative power to lift water behind the dam. When wind or solar power is not available, we could drain the water through turbines to create electricity.
Suppose alternative power should produce 30% of our current baseline power needs. If alternative power (optimistically) operates 75% of the time, we would need a 25% stored reserve. 25% x 30% is 7.5% of our total electric power needs.
Coincidentally, hydro-electric power today produces 8% of U.S electricity. If we want to use hydro-electric storage to make alternative power reliable, we will have to recreate 93% of the generating capacity of every current hydro-electric facility. That includes Hoover Dam, the entire TVA, and all of the dams in the Rocky Mountains.
All the places with the geography and water to produce hydro-electric power are already in use. Worse, the places that produce significant amounts of solar and wind power, the desert and the plains, are very far from that geography, requiring expensive power-line connections.

The full post has more information and many interesting comments.

This is an update to Problems With Green Energy

= = = = = =
Increases in the Minimum Wage Kill Job Creation
06/15/10 - HotAir by Ed Morrissey

[edited] The Center for Freedom and Prosperity offers this 4:25 video about the destructive results of the minimum wage.
Democrats increased the minimum wage in steps from $5.15 to $7.25 per hour. They claimed to be helping the young and poor.
The minimum wage did no direct harm when it was less than the usual wage for entry-level jobs. When the minimum wage rose above that wage, employers stopped offering those entry-level jobs.

This is an update to Minimum Wage Prosperity

= = = = = =
ObamaCare Will Increase Premiums, Change Coverage, and Reduce Wages
06/14/10 - Cato @ Liberty by Michael F. Cannon

Fred: I took this job because of the great healthcare plan, even though it paid less.
Mike: So, be happy. Now you will get Obamacare, and you will be paid even less.

ObamaCare increases health insurance premiums and requires the employer to pay that increase. But, the employer pays this cost out of the production of the employee. So, the employer must offer a lower wage or fire the employee. The employee will likely blame the employer, not ObamaCare.

[edited] ObamaCare will raise health insurance premiums even higher than they would have risen. If employers or consumers try to reduce their coverage and costs, they will lose their “grandfather” protections, and be forced to purchase even more coverage under ObamaCare mandates.
Employers are required to sustain "their" contribution to the cost of health benefits. This hides ObamaCare’s effect on health insurance premiums.
Health economists almost all agree that the “employer contribution” is a fiction. Employers merely deduct what they pay for health benefits from the overall compensation offered to employees. In other words, the employee pays for his own health benefits. [The employer only writes the check for him.]
ObamaCare’s increasing costs will appear as lower wages offered. Workers would likely blame ObamaCare for rising insurance premiums, but are less likely to blame ObamaCare for stagnant take-home pay.

This is an update to Company Paid Health Insurance is Part of Your Salary

EPA Purity of Essence

2010-06-21T18:27:00.019-04:00

Fred: (crawling in from the desert) Water, water.
EPA: My poor man. Yes, we have water. Do you have a Desert Waste Disposal Permit?
Fred: (more weakly) Water.
EPA: It seems not. If I give you water, you are likely to create more waste. The regulations require a permit.
Fred: (raises questioning eyes) You ... your waste?
EPA: Oh, right. I use the trailer behind me. Sorry, EPA personnel only.

Our government is supposed to be a giant organization for The Good. Government collects information and regulations that are supposedly vital to a safe, productive economy. Government supposedly collects resources and action plans to react quickly to mistakes and disasters.

But, when put to the test, we find that government employees and agencies do not want to act, for fear of making a mistake. And they won't bend any rule, regardless of reason or consequence. They know that government runs on rules. You can't break a rule just because it is reasonable or required. Sorry people. Better luck next time.

Tell me again, why should we empower and trust the type of organization called "government"?

EPA and Dutch Skimmers
06/20/10 - ClimateAudit by Steve McIntyre
Article: Dutch response team on standby

[edited] Dutch skimmer ships process an oil spill to extract the maximum oil in the minimum time. They use huge booms to sweep and suck the oil from the surface of the sea. They extract and store most of the oil, and discharge slightly oily water that is not at drinking water standard.
The U.S. Environmental Protecion Agency (EPA) refused the Dutch skimmers because regulations prohibit discharging oily water, even if processing extracts almost all of the oil. Americans don’t have any spill response vessels with skimmers because their environmental regulations do not allow it.
Wierd Koops is chairman of the Dutch Spill Response Group. He thinks the US approach is nonsense, because you would have to store the skimmed seawater in the tanks as well. We have to get as much oil as possible into the storage tanks, along with as little water as possible. So we pump the separated water overboard, containing drops of oil.
US regulations are contradictory. Releasing oily water is not allowed, but spreading chemicals to dissolve the oil in the seawater is allowed. The oil is naturally broken down quite quickly in both cases. But, experiments showed that dissolving the oil with chemicals caused more damage than the oil itself.
You have to clear up the oil at sea, before the oil reaches the mud flats and salt marshes. All you can do then is dig the oil up [with the sand]. That response is worse than the problem.

The EPA restriction on operating the Dutch skimmer ships has been known for years. Why is there still a prohibition on taking dirty water from the sea and returning much cleaner water? It seems that our government is incapable of making a practical rule. The requirement to "never discharge dirty water" seems like a religious requirement, rather than a general goal which has practical exceptions.

- -
Watchdog says EPA is covering up the toxicity of Gulf oil dispersants
07/20/10 - Digital Journal by Stephanie Dearing

[edited] Hugh Kaufman is senior policy analyst at the Office of Solid Waste and Emergency Response at the US Environmental Protection Agency. He says the EPA is covering up the toxic effects of the dispersant Corexit used on the oil spill.
Kaufman [edited]: "People and wildlife having contact with Corexit are hemorrhaging internally. That’s what dispersants are supposed to do. EPA now says that they really don’t know how dangerous it is, even though the label tells you. It is being used to protect BP's economics, not the environment."
Both types of Corexit products being used in the gulf were banned in the United Kingdom for such use years ago. This information had been in a New York Times article, Wang said, but had been pulled later. Nearly two million gallons have been sprayed on the oil spill to date. Kaufman said the dispersant was only causing the oil to sink below the surface.

Dispersants Are Breaking Up in the Gulf
06/30/10 - CNN U.S. by Wire Staff

[edited] The EPA in May ordered BP to cut back its use of Corexit due to concerns about its safety. It wanted BP to use a different dispersant, but BP said no safer products were available in large enough quantities.

The EPA considers two million gallons of dispersant to be safe enough, although dispersants are not completely safe. Up close, dispersants are dangerous. It seems that dispersants make the oil less visible, dispersing it throughout the seawater below. So, why the rule against using Dutch technology skimmer ships, which add nothing dangerous to the seawater and collect useful oil in addition?

- -
Coast Guard Shuts Down Oil-Skimming Barges
06/17/10 - HotAir Via ABC News

[edited] Eight days ago, Louisiana Gov. Bobby Jindal ordered barges to begin vacuuming crude oil out of his state’s oil-soaked waters. Today those barges sat idle, even as more oil flowed toward the Louisiana shore.
Jindal: “It’s the most frustrating thing. Yesterday morning we found out that the Coast Guard halted all of these barges."
The Coast Guard needed to confirm that there were fire extinguishers and life vests on board. It had trouble contacting the people who built the barges.

The Coast Guard spends much effort checking pleasure boats to verify that people have the proper safety equipment. This valuable mission must be high on their list of things to do when they see a boat, even a 100 foot barge engaged in a vital mission to protect the LA coast. Well, the rules are the rules.

- -
Obama Orders Louisiana To Stop Building Berms
06/23/10 - Quando.net by MichaelW

[edited] Louisiana has been building berms [rows of sand] about a mile out from the coast to halt infiltration of oil into its wetlands and fishing areas. This process was first delayed by federal red tape. The state has permits in hand, but the US Dept. of Fish and Wildlife is now ordering this to stop at midnight Wednesday.

The Feds Latest Attempt to Kill Louisiana
06/23/10 - SoItGoesInShreveport by Pat Austin

[edited] I’m trying to understand the “coastal scientists” who say that the berms will “change tidal patterns” and lead to more long term erosion. If the islands are killed off by the oil, what difference does it make?
It seems that the feds want to cripple Louisiana’s response to this crisis. Gov. Bobby Jindal said long ago (paraphrase): If you’re not going to fix it, get out of the way and let us do it ourselves!
We could get the idea that Team Obama is trying to neutralize Jindal’s response, as if Obama were threatened by Bobby Jindal.

Porter Clark presents another possibility: "Any sufficiently advanced incompetence is indistinguishable from malice".

- -
The Government's Catastrophic Response to the Oil Disaster
07/09/10 - Reason by Jon Basil Utley

[edited] Washington is almost criminally inept, compounded by the negligence of BP. Washington’s reactions are causing greater damage than the spill itself.
Extreme environmentalists in the Obama Administration have the declared agenda to shut down all offshore oil drilling, in Alaska as well as the Gulf. The Sierra Club has bragged that it helped to shut down all new coal power plants. Other environmentalists remain pleased that the Three Mile Island crisis ended building new nuclear power plants.
CNN reports that almost all new drilling has been suspended for at least two months. This includes shallow-water wells in less than 500 feet of water, despite Obama's prior statement that drilling such wells would continue.
Interior Secretary Ken Salazar has delayed permits for current drilling operations, despite that thousands of deep-water wells have been drilled successfully. Obama and Salazar falsely claimed that their desired six month shutdown had been supported by a panel of experts.
Salazar and his gang may be ignorant of business. They may shut down the sophisticated flow of supplies and men, believing they can later restart that flow like flipping a switch. This may bring financial ruin to smaller companies.
My sources estimate needing at least two years to restore Gulf production to its pre-suspension levels. Deep-water drilling rigs cost at least $500,000 per day. They are immediately being sent to work in Africa and Asia where they are wanted. It will take months or years to bring them back. Some 100,000 high-paying jobs are at risk. Already, the number of deep-water rigs has dropped by 23 from 42 to 19, a 55% decline.

- -
BP Relied on Faulty U.S. Regulatory Data
06/24/10 - Wall Street Journal

[edited] BP PLC and other big oil companies have plans for responding to oil spills in the Gulf of Mexico. They are required by federal regulators to base these plans on models prepared by the Mineral Management Service within the Interior Department. These models were last updated in 2004, and never tested for deep water spills.
Regulatory models gave very low odds of oil hitting shore. These models projected that most of the oil would rapidly evaporate or be broken up by waves or weather. Oil would not reach shore even for a catastrophic offshore spill much larger than the current one.
Congressmen last week accused BP and other companies of using "cookie cutter" contingency plans that contained many errors and omissions. Exxon CEO Rex Tillerson noted that much of the company's response plan "is prescribed by regulation, including the models that are used to project different scenarios for oil spills."

Congress constructs laws that apply after crimes and errors have occurred. Then, Congress imagines that government "regulation" is even better, because it will require safe practices ahead of time and prevent cutting corners and bad mistakes.

In reality, government regulation is heavy handed, slow to change, and applied in suffocating detail. Regulation can crowd out good practices. I can imagine that oil companies are hassled enough by regulations that offer little benefit. Then, they are reluctant to go beyond requlations in areas that are speculative, such as where oil will float after a spill.

The government plan was to have "fire boom" available to soak up oil and burn it off while it was far at sea. In reality, the government did not have this boom available, and the EPA also said they couldn't burn off the oil this way.

I don't see intelligent regulation based on logical planning and trade-offs. I see a regulatory mess, with many agencies having conflicting requirements.

- -
EPA Prevents Dairy Spills
06/25/10 - Cato@Liberty by Walter Olson
Referring to HollandSentinel

In this emergency of spilled oil, the EPA tightens handling of all oils. Will olive oil be next? This will put some small dairies out of business.

[edited] New EPA regulations treat spilled milk like oil, requiring farmers to build extra storage tanks and form emergency spill plans.
EPA regulations say “milk typically contains a percentage of animal fat, which is a non-petroleum oil. Containers storing milk are subject to the Oil Spill Prevention, Control and Countermeasure Program rule when they meet the applicability criteria.”

EPA regulations, along with all government enforced regulations, resemble a computer program that has not been tested. When unintended situations come up, the regulations eliminate jobs, and are difficult to correct using reason.

This illustrates a typical regulatory response. Government regulation and preparation failed in the very important case of the Gulf oil spill. This has produced a strong reaction in other, simpler, unnecessary cases as a demonstration that the regulators are really vigilant and powerful. Take that, you dairy farmers!

- -
Dr. Strangelove - Precious Bodily Fluids
The 1964 movie "Dr. Strangelove" is a must see. It made the phrases "Purity of Essence" and "Precious bodily fluids" immortal. This video clip (2:52) is the scene where Col. Ripper describes the necessity of keeping the Communists from polluting our nation's precious bodily fluids. Satire becomes reality as enforced by our EPA.

More at The Internet Movie Database

Social Security Grandchildren

2010-05-27T17:16:00.000-04:00

Retirement Policy
05/26/10 - EconLog by David Henderson

[edited] A friend of mine retired at 65 and went to register at the Social Security office.
Clerk: Do you have any children under age 18?
Friend: One. Why do you ask?
Clerk: You will get an extra monthly payment until the child turns 18.
Friend: This must be pretty rare. In my case, I couldn't get pregnant, and so we adopted when I was in my late forties.
Clerk: It's not at all rare. Many grandparents in this area adopt their grandchildren.

Are you 20 to 45 years old? Then, you are paying 12.4% of your real salary into Social Security to support current benefits being paid out. I hope you don't mind losing that money, because the above Social Security policy puts little value on it. Your politicians will not adjust the rules to eliminate the above gaming of the system.

You probably will never see a return on these taxes you have paid or will pay. The "Social Security surplus" is a piece of paper at the Treasury that totals up the amount of Social Security taxes collected but not yet spent on Social Security. But, that money has already been spent on other things.

That money has been spent each year out of the general Treasury fund. It isn't there. There is no gold, stocks, or anything of value there. There is only an IOU, a promise from the government to repay to itself the money owed to future retirees. Only higher deficits or much higher taxes on your children can supply that value.

Amazingly, this is like an insane person saving up for his children's college education. He puts $100 each Friday into his savings account. Each Monday he takes out that $100 and spends it on food and entertainment, but he carefully records what he has borrowed from the "college fund".

When his kids are 18, he tells them that he saved $50,000 over the years. He only has to pay back what he took out, or borrow the money in the name of the children. Are they happy at that result?

This has been justified over the years with the slogan "we owe the money to ourselves, so why not spend it now?" OK. Now, in your retirement, pay yourselves back.

Ponzy Schemes Like Social Security 01/01/09 - Easy Opinions

There is nothing real in the "trust fund". There is only a political promise to find the money somewhere that has already been spent. This is 300 times bigger than the Bernie Madoff fraud of $50 billion. It is a gigantic Ponzi scheme pretending to be a sensible government program.

Cass Sunstein Nudges the Discussion

2010-05-23T13:46:00.001-04:00

Does Cass Sunstein Link to Richard Epstein?
05/20/10 - Cafe Hayek by Don Boudreaux

[edited] [Czar] Cass Sunstein is head of the White House Office of Information and Regulatory Affairs.
This radio interview reveals he would discard the letter and the spirit of our First Amendment rights, our rights to freedom of speech and freedom of the press.
Sunstein wants political websites to ‘voluntarily’ supply access to sites offering views from ‘the other side’. If they didn't, then Congress could force them to do it.

+ + +
Future news:

The "Fair Access to Opposing Views on the Internet and Elsewhere" law has produced some interesting references on the Web, often called "Sunstein Links". For example:

One development is the creation of "Interview Links". The offered link goes to an intermediate page asking three questions. A correct response transfers to the end link. One of the questions is often "Social Security Number".

Other services provide a "Variety Link" for a long list of topics. These links are completed by transfering to one of thousands of web pages classified by topic and political view, such as Republican, Democrat, Independent, Undecided, Che Guevara, ChiCom, Born Again, Pet Lover, Vegetarian, and Eastern Anarchist.

Congress is now debating whether this is fair, what the definition of a "link" is, and what "opposing view" means in law.

Wall Street Reform Bill

2010-05-22T01:39:00.003-04:00

Financial "Reform" - Pablum, Confusion, Dishonesty
05/21/10 - Clean Government Now
Via Power Line

[edited]

The bill is only tangentially related to the financial crisis.
This large, confusing, and ill-considered bill favors only one constituency: those rich enough to afford the legal team needed to craft a compliance regime.
The bill does nothing to address bi-partisan criticisms of the last "reform" attempted by Sarbanes, Oxley, and Spitzer. Prior "reforms" all but ruined the market for small company stock and the venture investment business that depended upon it.

This bill takes another step toward a European regime of political cronies in control of national investments (think Greece).
This bill regurgitates the nausea-inducing political spin, that the financial crisis was the result of "wild speculation" and "exotic instruments" on Wall Street. In fact, the crisis resulted from losing $2 trillion worth of fake AAA mortgage securities. $2 trillion is 14% of total US production for one year, or about 2 months income for everyone in the US. The crisis was supported by

Shaky insurance from a politically connected AIG,
Financial ratings granted by a few government-favored companies filled with "experts" of the kind this new bill relies on, and
Government-sponsored Fannie Mae and Freddie Mac buying up shaky mortgages [convincing most participants that they were safe].

This bill responds to every ill (perceived or real) by creating another sclerotic, disconnected, and flat-footed federal agency, filled with turf-meisters having too much authority and too little experience.
We could recognize the power of free markets, empower the native interests and intelligence that drive the vast majority of American business leaders, and enable true enforcement of the rules of the road.
Instead, this bill brings the vain courtiers and vapid egoists of the political court onto the center of the economic and financial stage. Read Alice in Wonderland as your guide.

The effect of losses in housing wealth is painful, but does not explain the full depth of our current crisis. The loss from bad housing loans is $2 trillion. The effect on housing prices is worse, reducing the market value of US housing by $3.8 trillion. Together, that $5.8 trillion is about 5 months of total national income at $14 trillion per year.

That would be bad enough, requiring many people to change what they are doing (change jobs) to meet the national need to save more, to replace what was lost. Worse, our government has reacted by increasing spending, making it harder to save and produce what people need now. This has deepened and lengthened the pain.

Obama and Democrats are spending money on larger government bureaucracies, higher government salaries, and building roads and bicycle paths. That cannot possibly be the way to create greater wealth for the average person.

Stimulus Does Not Cure a Recession
Jobs change when people change what they want to buy or can afford. It is possible to keep people at their low-value or unneeded jobs for a bit longer, only by wasting the savings that should be financing a real recovery.

Government Management of Doctors

2010-05-22T00:06:00.005-04:00

Doctor: I dreamed of being a doctor, and earned my M.D.
Mike: I'm puzzled. Why are you managing a government department?
Doctor: As a doctor, I realized I was mostly managing a government department. This way, I get paid to do it, and I go home at 4:00.

The Trend to Cash Medical Practice
05/21/10 - Chicago Boyz by Michael Kennedy

Medicare has degraded to the point where reimbursements minus imposed costs are not enough to support doctors. The true, awful promise of Obamacare is to make this worse. Medical prices have been grossly distorted along the way, with more distortions to come.

[edited] I have written about doctors dropping out of Medicare, many quitting all insurance. I met a woman geriatrician who is the only fellowship trained geriatric specialist in central Iowa. Geriatrics as a specialty is a university subsidized field. There is no private geriatric practice because the doctor can’t survive on what Medicare pays. She tried and had to quit.
Quitting Medicare is remarkable when all your patients are of Medicare age. Medicare was harrassing her because she was seeing patients too often. Many were frail elderly living at home. She dropped out and began charging cash. She made a decent living after a year and was happy with her decision.
Another doctor discovered he was able to do very well financially, have high patient satisfaction, and deliver good quality of care, by avoiding the administrative and bureaucratic hassles of Medicare. Surprisingly, most of his patients are not wealthy. Half have no insurance, and another 15% use Medicare for other doctors.
If a doctor accepts any Medicare payments, Medicare requires that he charge their grossly inflated price. Then they pay 10-20% of that price. If Medicare discovers that a doctor has charged less to a cash patient, Medicare reduces his “profile” price to that cash price and pays 20% of that. A doctor simply cannot go to cash medicine and stay enrolled as a Medicare provider.
Newport Beach is one of the wealthiest communities in California. Their busiest hip surgeon has dropped Medicare and charges $1200 cash for a total hip. Patients are surprised, because total hips cost $5000. No, that is the Medicare price. He is charging cash at the same rate he would be paid by Medicare. People don't realize the discounting that goes on because insurance companies have been able to sign doctors to contracts.

- - -
Extortion
05/21/10 - MDOD by 911Doc

I am dismayed at what our thoughtless political leaders are doing to a vital profession. Literally vital, maintaining life. Citizens, wake up, and don't allow our politicians to continue to screw this up. To borrow a phrase, if you think medical care is expensive now, just wait until it is "free".

[edited] Over the last fifteen years a quiet coup has taken place in medicine. Decisions about reimbursement, schedule, responsibilities, and the shape of a physician’s practice have been co-opted by all manner of clipboard carrying administrative drones and academicians.
I don’t believe the drones to be evil per se; they are simply doing what we cannot now do. They work to support themselves and their families to the BEST possible extent within their comfort zone. But their ‘normal’ existence and the laws, rules, and regulations which have allowed their rise, has come at the direct expense of physicians and patients.
The expense to physicians is in money lost, and more importantly in confidence. The monetary loss is easy to understand: EMTALA and other government redistribution programs are unfunded, medical care comes at a cost, and someone must pay. Physicians, nurses, and taxpayers pay the most as providers of the services.
This redistribution has given to the poor, both deserving and underserving. It has supported illegal aliens by the hundreds of thousands. It has also paid cash from our pockets to the new drone class in medicine. After all, there has to be a drone class to file the papers and hold meetings about how other people’s resources and money should be distributed. It has to be done with a semblance of “fairness” even though the act is unfair on its face.
Physicians have been quiet as their stuff has been taken, their time at the hospital increased, their power quashed, and their ability severely limited to practice medicine as they had trained. Uncertainty has replaced confidence. A generation of academicians and older physicians have submitted to bullying, or worse, encouraged it.

In the comments, 911Doc advises a doctor in training:

[edited] Do not look to medicine to provide some deeper meaning, or prestige, or mojo, or whatever. For better or worse, today, it's a job. That's all it is.
Now, you and I probably know differently, because we feel that there is something special about what we do, that we practice a noble and giving profession, and hopefully that counts for something somewhere. But perceptions, while often wrong, carry weight, and the perception now is that what we do is just a job, and that health care is a commodity and not an art. This perception may change, but if it does, it will be decades hence.

- - -
A Doctor Describes Government Management of Medical Care
07/03/10 - Big Government by Bret Jacobson (YouTube video 3:37)

This doctor treated Medicare Patients, and was routinely denied payment. Medicare said: "We can't pay you right now, the computer is down". The computer was down for 18 months when she gave up.

- - -
The Political Distribution of Wheat
01/17/10 - EasyOpinions

A short analogy to what is happening in the market for medical services. What does a market for wheat have to do with healthcare? It is easier to understand.

[excerpt] A politician sees a warehouse full of wheat. He takes some of it to distribute to poor voters and prospective voters in his district. The warehouse will have to bear the burden. He is applauded for his sensitivity and charity.
The politician is dismayed at the consequence. Maybe the warehouse goes out of business, as people switch to using a warehouse that the politician doesn't see or can't tax. Or, the price of wheat goes up as the warehouse is not completely refilled. The politician ignores the people who paid for the wheat or were expected to buy it.

Obamacare At Ground Level

2010-05-18T00:35:00.004-04:00

Government: Whoa! Why are you reacting like this? We are the ones qualified to plan for the future, and it is going to work out fine. We are changing everything, but you should keep on as if nothing has changed.
Business: We must be unqualified. We see a different future than you do.

Fannie Mae Health Insurance
05/16/10 - Throckmorton's Other Signs

[edited] The effects of ObamaCare are beginning to hit. New quotes for health insurance are scary for small businesses in our area and in surrounding states. Health insurance rates are going up 27-37% because of increased demands on private insurance companies and the costs imposed on businesses.
Companies are dropping health insurance. Patients can't get Medicaid because it is out of money. So, there are now more people without insurance, and those who have it have giant deductables and are waiting too long to get care.
Medical centers like ours that have an open door to the indigent are getting creamed. Demand from indigent patients is increasing, and demand from the under-insured is skyrocketing. The costs of practicing medicine are increasing exponentially.
This medical model is like Fannie Mae. Give everyone "healthcare" that they can't afford, hide the cost, and stick it to future generations. Then forclose and destroy the whole thing.

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Throckmorton's sign
In case you were wondering. "Throckmorton's sign" is irreverent medical slang. The Throckmorton sign is positive when the patient's penis points to the side of the body showing a problem on a plain X-ray of the Pelvis. Throckmorton's sign is negative if there is no abnormality, or reversed if the problem is on the other side.

It is also called the John Thomas sign, after the common British euphemism for the penis.

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If Obama were a Marxist, what would he believe?
10/17/09 - American Thinker by Kelly O'Connell

[edited] These are the basic teachings of Karl Marx. Readers may judge for themselves whether these might be at work influencing current administration decisions. In the present chaotic political atmosphere, the phrase "Marxist" is tossed around without explanation. But what exactly does Marxism represent?
. . .
Critics claim Obama's budget is an example of the Cloward-Pivin model of planned economic destruction of a functioning capitalist economy via sabotage. Outlays are so gigantic, and so dreadfully misspent, that our financial infrastructure will soon collapse. A trillion dollar tax increase and spending rising by $10 trillion dollars over the next decade is probable.
If so, government default will occur, only offset by printing money, which will then bankrupt the general populace. The middle class will fall. Chronic inflation will result, causing America to lose its sterling credit rating. Global financial players will dump the dollar as it falls in value. Then, hyperinflation will accelerate, and the era of superpower America will end.
John Maynard Keynes' wrote "The Economic Consequences of the Peace". He commented on Russian dictator Vladimir Lenin's economic insights.
[edited] Lenin is said to have declared that the best way to destroy the Capitalist System is to devalue the currency. Governments can secretly confiscate an important part of the wealth of their citizens by a continuing process of money inflation. There is no subtler, no surer means of overturning the existing basis of society than to devalue the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

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Rahm Emanuel is Obama's Chief of Staff:

You never let a serious crisis go to waste. And what I mean by that, it's an opportunity to do things you think you could not do before.

If it is moral to politicize a crisis for a good cause, is it moral to create a crisis to bring about a thorough transformation of an imperfect and supposedly unjust society?

Stimulus Give and Take

2010-05-06T19:31:00.002-04:00

Useless Stimulus and Phoney Green Jobs
05/05/10 - Aguanomics by David Zetland
Via Knowledge Problem

[edited] A friend mentioned that he had hired an extra guy under the stimulus program.
"Yeah, they are paying 80% of his wages and overhead. It's a win-win for him and me ... but then I fired another guy; he just cost too much compared to the new guy."
So we get +1 job and -1 job = 0 new jobs, more profits for my friend, and more taxes for us.
This happened because my friend was encouraged to use this new program to "get America back to work." I'm guessing that this is happening across the country.
Bottom Line: You can't make jobs where there's no demand, but you can sure waste money pretending that you know what you're doing!

To paraphrase Thomas Jefferson: A government big and intrusive enough to manipulate incentives for your business, is big enough to screw up your business in other ways. Manipulation does not create jobs.

Unconstitutional Health Law

2010-03-17T17:39:00.008-04:00

An Unconstitutional Solution
03/17/10 - PowerLine Blog by John Hinderaker

Democrats are attempting to pass ObamaCare healthcare "reform" with unconstitutional procedures. John Hinderaker explains and quotes clearly about the conflicts.

Michael McConnell is a law professor at Stanford and a former judge on the U.S. Court of Appeals:

[edited]: Senate rules protect a 41 vote minority by allowing it to block most types of legislation (a fillibuster). "Reconciliation bills" only make adjustments to spending or revenues, to reconcile current law to a new budget resolution, and they require only a majority vote.
Say the President signs the ObamaCare Senate bill into law. "Reconciliation" would permit Senate Democrats to change budget issues in that law with 51 votes. They could correct most offensive features, but maybe not the abortion provisions.
The Senate parliamentarian says reconciliation may only amend existing law. House Democrats must first pass the identical bill that passed the Senate, including the special deals, abortion coverage, and high taxes on expensive health-insurance plans.
The clever, but unconstitutional, Slaughter solution ignores basic fact. To become law, and eligible for amendment via reconciliation, the Senate bill must actually be signed into law.
The Constitution speaks directly to how a bill becomes a law. According to Article I, Section 7, a bill shall have passed the House of Representatives and the Senate, and be presented to the President of the United States for signature or veto. Unless a bill actually has passed both Houses, it cannot be presented to the President and cannot become a law.

Here is my summary. The Senate has passed ObamaCare. The House dislikes ObamaCare, but likes ObamaCare + Amend. What can the House do?

Pass ObamaCare + Amend directly. But, it will not pass the Senate, because Republicans now have 41 votes (via Scott Brown) to block passage.
Pass ObamaCare to become law. Also pass Amend and expect the Senate to approve. The Senate might pass Amend with 51 votes, or it might easily accept ObamaCare as-is, leaving the House Democrats hanging.
The Slaughter trick. Pass Amend + Rule. The Rule says: When the Senate passes Amend, then the House automatically approves of ObamaCare.

Opponents object:

The Senate can't pass a reconciliation amendment to an ObamaCare law that doesn't yet exist.
Congress can vote on laws. It can't vote on laws that automatically vote on other laws.

I want the actions of Congress to be deliberate, open, and understandable. Congress is not a computer program that writes rules to create other rules. That complexity would end any accountability.

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The Health Care Debate: What is “Deeming”?
03/17/10 - Washington Watch by Jim Harper

A clear 900 word description of the procedures affecting passage of the massive healthcare overhaul called ObamaCare.

Cloture, The 60 vote rule, House passage of the Senate version, Reconcilliation, Senate promises to amend, Hiding a Yes vote, a Rule, a Self-Executing Rule, and Deeming it Passed.

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Questions for Thoughtful ObamaCare Supporters - Part 3
03/16/10 - Cato@Liberty by Michael F. Cannon

What do the following facts mean to you? [edited]

Pharmaceutical-industry lobbyists are meeting with House Democrats behind closed doors to write this legislation. They are preparing to spend millions of dollars on advertisements to support the legislation.
A former federal judge: Under Article I, Section 7, passage of one bill cannot be deemed to be enactment of another.
Speaker Pelosi says of her proposed “deeming” strategy: I like it because people don’t have to vote on the Senate bill. Pelosi once opposed this same strategy in a court of law.
The Washington Post editorializes: The Democrats’ endgame seems “dodgy” and “threatens to turn into something unseemly and contrary to Democrats’ promises of transparency and deliberation”.

Questions for ObamaCare Supporters
Part 1 Part 2 Part 3

Only 40% of Healthcare Costs

2010-03-11T22:00:00.001-05:00

Mike: I have a $4 coupon here for a hamburger.
Server: (loudly to kitchen) Burger, well done, no salt, no cheese, no fries, half a bun. (to Mike) We'll have it for you in an hour.

Mike: Wait, I don't want it like that!
Server: It's free. Stop complaining.

Mike: (looks at next table) Their meals look good.
Server: Politicians and union guys. Where do you work?

Mike: Acme Manufacturing, why?
Server: We'll bill them for the other $6. Hah, they'll be happy.

Mike: Say, what sort of restaurant is this?
Server: Obama's Health Restaurant.

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Obamacare Cost Estimate Watch
03/11/10 - Cato@Liberty

[edited] The CBO (Congressional Budget Office) released today another cost estimate for ObamaCare. It still omits the cost of new private-sector mandates, nine months after the first version was released. President Obama has implicitly acknowledged this omission.
From history, the CBO estimated that mandates in President Clinton's health plan accounted for 60% of the costs. The Obama plan is remarkably similar, which is probably why Democrats have suppressed such estimates this time around.

So, when the CBO says the plan will cost $1 trillion ($1 million million), the true cost is likely $1 trillion collected in tax and spent by the government, PLUS $1.5 trillion in health care spending required of businesses and individuals, totalling $2.5 trillion.

The government is likely reporting just 40% of the true cost.

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Obamacare Would Increase Deficits by $59 Billion
(Via Legal Insurrection)
03/20/10 - Fox News

[edited] After correcting for the Doctor Fix gimmick the CBO estimates imply that the Obama plan increases Federal deficits by $59 billion over the next 10 years.
Democrats hid another $1.5 trillion by preventing the CBO from scoring hidden taxes. "Individual mandates” force workers to pay money to insurers, which is a hidden tax. History says those taxes would cost roughly $1.5 trillion, omitted from the CBO analysis.
The actual cost of the bill is nearly $3 trillion. Worse, existing and new constituencies will demand even more government spending, and proposed cuts in spending will be stopped by highly organized and vocal opposition.

Terrorism is Thug Advertising

2010-03-02T16:47:00.005-05:00

Wars, Crimes, and Underpants Bombers
03/02/10 - Cato at Liberty by Julian Sanchez

The common question: Why do Islamic extremists spend their time and resources attacking the US and our people? What is in it for them?

One explanation is hate. They don't mind sacrificing their men to suicide bombings, or enduring our counter-terrorist operations that kill their leaders, as long as it shakes up The West and the US. But, there is much hate in the world, and most organizations and countries are not attacking in that way. So, hate is a plausible explanation, but doesn't leave me satisfied.

The following insight seems right to me. They attack us as a form of thug advertising, to build their organizations.

Sanchez [edited]: The claim that "we are at war" seems to be a statement that "we are very, very serious about national security". This self-esteem boosting ritual has a cost.
Jihadis primarily want to impose their rigid vision in the Muslim world, and to depose rulers perceived as corrupt or too secular. (See "The Far Enemy" by Fawaz Gerges.) Their decision to strike “the Far Enemy” in the United States is not motivated by blind bloodlust or a desire to kill Americans as an end in itself. Their decision is generally unpopular, even among radical Islamists.
Al Qaeda had been perceived within jihadi circles as a marginal organization. Osama bin Laden and Ayman al-Zawahiri hoped that a titanic conflict between Islam and the West would revive the jihadi movement and enhance the prestige of Al Qaeda. This has largely backfired
Terrorism is primarily a symbolic act. Terror groups execute sensational attacks as PR stunts. They don’t love blowing up airplanes; they do it to establish their own credibility versus more locally-focused Islamist groups. They compete with both violent and peaceful groups for recruits.
Our response to these attacks will often have a military component. But, we should not treat Al Qaeda as if it were a belligerent foreign state. A big show supports their advertising and outreach efforts. We should treat Abdulmutallab and his cohorts as just one more band of thugs, when this is compatible with our intelligence gathering and security goals.

Do Smart People Run The Market?

2010-02-17T23:58:00.008-05:00

Merit and the Market
02/16/10 - Econlog by Shikha Dalmia

[edited] Does merit drive the market? I say the opposite, that markets reward merit and many other qualities. The former Soviet Union lacked technical and financial successes because it suppressed markets. Free Markets enable people to turn their smarts and other knowledge into benefits.
Rewards can go to the stupid as well as the brainy. The recent MTV reality show "Jersey Shore" has made a group of young, non-descript Italian-American kids from New Jersey into millionaires for displaying a lifestyle that is self-indulgent and devoid of accomplishment. It is these kids' vices that are making them rich, not their virtues!
Markets create a mechanism to use knowledge about the everyday stuff of life, along with the abstract and complex. There will always be brain-powered industries in any economy, and smart people will do well. In addition, for every Bill Gates, there are thousands of little guys making money through small innovations: improved plastic caps, a tastier salad dressing, a better vegetable peeler, [and restaurants, dry-cleaners, and hardware stores].
The market rewards brilliant ideas, not brilliant people. Markets care only about the idea and its value to others, not its source. Markets are inherently anti-elitist. Smart, educated, credentialed people may lose in market competition, even to someone or some product they consider inferior. They regard this as a symptom of market failure and demand corrective government regulations, such as standards for minimum quality, manufacture outside "sweat shops", [and professional licensing].
Smart people have an undeserved sense of entitlement, that their brains power the market, and that some portion of the world is rightfully theirs. This sense of superiority blinds them to the broader "ecological rationality" of the environment in which they operate. They think that they are the ones who make markets work, instead of the other way around. This offends the vast portion of humanity.

Rational Management vs Random Markets

Academics and politicians routinely pose a question: Do you want us to provide rational, insightful, far-seeing management of your life and resources, or do you want to leave this to the unregulated, unplanned, hit-or-miss results of the market? They are smug in their belief that there is only one smart answer, that rational planning has to beat random action every time.

Of course, they spin the question to get their desired answer. The better question is: which do you choose as the primary way of solving the problems of life and offering you methods and choices?

Government
Empower 100,000 academics, lawyers, and politicians with half of what you produce, and entrust them to find great solutions. They deserve this power because
- Academics are the best at deriving statistical results from historical studies,
- Lawyers are adept at interpreting and writing complex rules of procedure, and
- Politicians are the most likeable and talkative members of their group.
If they make mistakes, they will shrug their shoulders, will explain why it was the best anyone could do under the circumstances, and will promise to do better in the future with even more of your resources.
They will coordinate their actions through interpersonal agreements, meetings, organized political support, and lobbying. They will parcel out the work into divided areas of responsibility, to prevent wasteful competition and duplication. Except, if there are indeed multiple committees or agencies working on the same problems, then all will be funded to preserve the widest range of ideas and solutions.
The most successful gatherers of resources will go on to higher responsibility.
Market
Trust three million people to solve the problems that they understand, using their own resources or those of willing partners. Anyone can participate, at their own risk and for whatever reward they can negotiate.
If they make mistakes, they lose their investments. This is a direct and unavoidable reason to plan well and be careful in the use of their resources.
They will coordinate their actions through prices and contracts. Their success depends on delivering value to others, a greater value than the resources they use to produce their product. This creation of value is called Profitability.
A wide variety of products will be produced to satisfy the same problem area, limited only by profitability for each product. If more than one product competes, and some are not favored, those products will go out of business, ending the wasteful allocation of resources to those products.
The most successful producers of valuable products will gain funding and trust, enabling them to attempt the production of further products.

The choice is not between government planning or market non-planning. The choice is between (1) government planning by the few through politics, or (2) market planning by millions with the knowledge and resources to create more value than they use up.

Myth of the Clinton Surplus

2010-02-02T00:21:00.004-05:00

The Myth of the Clinton Surplus
10/31/07 - Craig Steiner US

This is one of multiple links that reveal these facts (Google: Clinton's Surplus). This shows how deceptive are the Democrats and big media. The Clinton Surplus is repeated endlessly as a biased and untrue talking point, in an attempt to prove the effectiveness and thriftyness of Democratic administrations.

This is a clear and interesting analysis. Here are edited excerpts:

You will often read the claim that President Clinton balanced the budget and even ran a surplus. This is then used to underline the irresponsibility of the Bush administration. [Bush ran deficits also, but he wasn't a sinner following a saint. -ag]
Clinton claimed surpluses of $69, $123, and $230 billion for FY1998-2000. Clinton claimed that the national debt had been reduced by $360 billion (interestingly, not the $422B sum of the yearly claims).
There was never a surplus. In fact, the total national debt increased by $281 billion during those years. How can this be? The Public Debt and yearly deficits were paid down by borrowing money from the Social Security fund, rather than borrowing directly from the public. Clinton did not achieve a surplus and he did not leave President Bush with a surplus. Actually, growing deficits began with a $133 billion deficit in the last Clinton budget, not in the first budget of the Bush administration.

Analogy: Dad has a college fund for the kids (accumulated money from Social Security taxes) and a credit card (Public Debt). Dad spends more than he earns, and borrows from the college fund to cover the excess. Then he goes further, and borrows $281 more from the college fund to pay off some of the credit card. Dad talks to Mom: "We're doing great dear. Look, I have paid down some of the credit card." Dad doesn't tell her that the kids aren't going to college.

Craig Steiner is evenhanded. He explains the myth as being a biased report of statistics, but not an intentional scam by Clinton.

This result most likely was not a conscious decision by Clinton. The Social Security Administration is required to buy U.S. Government securities with its surplus. This automatically borrows from Social Security, labeled "intergovernmental holdings" in the national accounts.
People were earning a lot during the dot-com bubble and paying a lot into Social Security. The government was running deficits, but the money from Social Security taxes was larger than those deficits. The amount borrowed from the public went down, while the money borrowed from Social Security went up by much more.

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The Real Tax Burden
Jan 2009 - EasyOpinions by Andrew Garland

The real tax burden is what government spends, not just the deficit.

Political Distribution of Wheat

2010-01-17T17:18:00.003-05:00

A politician sees a warehouse full of wheat. He takes some of it to distribute to poor voters and prospective voters in his district. The warehouse will have to bear the burden. He is applauded for his sensitivity and charity.

The politician is dismayed at the consequence. Maybe the warehouse goes out of business, as people switch to using a warehouse that the politician doesn't see or can't tax. Or, the price of wheat goes up as the warehouse is not completely refilled. The politician ignores the people who paid for the wheat or were expected to buy it.

People complain that wheat is more expensive. The politician takes more of the wheat to subsidize the not-so-poor, to keep up his political support. Even less wheat appears in the warehouse, the price goes up again, and another group of people complain about the rising price.

The politician decides that the rich are making the price go up by buying too much wheat. He proposes a Wheat Allocation Board to decide how much wheat a person should get at the official, lower price. That board decides that politicians, state and federal workers, union members, and anyone granted a Wheat Buyer Card ("The Exempt Ones") can buy what they want. If others want more wheat, they can buy more by paying the 40% Wheat Tax on their extra wheat. Or, there are always oats available, which make a crumbly and dry bread, and cause some people digestive problems.

The amount of wheat falls further. The politician explains that the wheat farmers are at fault for not growing enough and charging too much, that the warehouse operators are causing shortages by not stocking enough wheat, and the rich must be cheating by continuing to buy too much wheat.

The answer is the Comprehensive Wheat Reform Act of 2010. It appoints 120 committees and boards to understand, control, and allocate all aspects of wheat production and consumption. Preliminary reports claim that the price of wheat will fall dramatically, now that the chaotic and inefficient market in wheat will be brought under comprehensive, organized, scientific, and rational management. The wheat farmers are called on to do their patriotic and humanitarian duty by cooperating with the government to finally provide wheat to everyone at a fair price. The selfish rich are told that they will be limited to a fair amount of wheat, regardless of their hard-to-justify wealth.

The Exempt Ones arrange for special deliveries of wheat to themselves subsidized at public expense, given their necessary and special contributions to the national welfare. They will need to remain impartial in deciding how much wheat the common man will receive, given that there may be a continuing and worsening wheat shortage, on a temporary basis.

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The Medicare Tomato Market
06/24/09 - The Happy Hospitalist

Say that tomatoes were declared vital to life and made available free through the Medicare National Tomato Bank. This translates the story of the healthcare market to the tomato market. A long, readable, and informative post directly about the horrible effects of politically allocated healthcare.

This inspired my shorter analogy about wheat.

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Capgras' Syndrome
01/15/10 - Throckmortons Other Signs

Capgras' Syndrome is the primary delusion that a close relative or friend has been replaced by an impostor, an exact double, despite familiar appearance and behavior.

Throckmorton [edited excerpt]: One pulmonologist on staff had pontificated on how we spend so much resources keeping people alive in their last six months. He didn't think the proposed panels to limit care were a bad thing.
His father has suffered a massive stroke. Now he wants everything done, a trache, peg, longterm rehab vent unit, the works. I thought I was having an attack of Capgras' syndome, but then remembered liberals want to decide how to spend everyone's money except their own [and limit everyone's choices except their own -amg].

Europeans Are Less Wealthy

2010-01-17T15:49:00.003-05:00

Are Europeans as Wealthy as Americans?
01/15/10 - Links from Cafe Hayek by Don Boudreaux.

Consumption in America vs. Europe
01/15/10 - Cato At Liberty by Daniel J. Mitchell

[edited] People claim Europe is as rich as the United States. I’m shocked, because abundant data shows otherwise. The following charts should be more than enough to end the argument, both from presumably impeccable sources.
The OECD is the Organisation for Economic Co-operation and Development. OECD data (page 6) shows average consumption per capita. I compare America to the EU-15 (Western Europe) adding Norway and Switzerland to boost the European score.
The chart shows US consumption at 152, Western Europe at 105, compared to a benchmark of 100 for the average of all members of the OECD. That is 44% more goods and services enjoyed in the US as compared to Western Europe.
The biggest policy difference between the U.S. and Western Europe is the burden of government.

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We're Rich, You're Not. End of Story.
04/17/05 - NYTimes.com by Bruce Bawer

[edited] I am an American living in Oslo, Norway. People here believe the common wisdom about economic life in the Nordic countries. They believe that they are incomparably affluent, with all of their needs met by an efficient welfare state. Some recent studies support my view that the reality is not quite what it seems.
I moved here six years ago. I quickly noticed that Norwegians live more frugally than Americans do. They hang on to old appliances and furniture that we would throw out. They drive around in wrecks. My partner and I took his teenage brother to New York in 2003 on his first trip outside of Europe. He stared boggle-eyed at the cars in the Newark Airport parking lot, as mesmerized as Robin Williams in a New York grocery store in the movie "Moscow on the Hudson".
An office worker in New York might go to a deli for lunch. In Paris, she might enjoy quiche and a glass of wine. In Norway, she will sit at her desk with a sandwich from home. The home sandwich is ubiquitous here, from classroom to boardroom.
It is not simply a matter of tradition, or a preference for a non-materialistic life. Dining out is just too pricey in a country where teachers make about $50,000 a year before taxes. A large pizza delivered from Oslo's most popular pizza joint costs $34 to $48, including delivery and a 25 percent value added tax.

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Of Sunroofs and Motor Scooters
06/27/07 - Pittsburgh Live by Donald J. Boudreaux

[edited] I suspect that Parisians have fewer sunroofs on their cars because they are less wealthy than Americans. A sunroof is a luxury unrelated to reliability or safety. It only makes a car ride more enjoyable, like an in-dash CD player.
A very poor person buying a car cares mostly about how reliably the car will transport him. He is unlikely to pay for leather seats and a tilt steering wheel. He prefers to conserve his income for more vital purposes such as fuel, food, and decent housing.
But, give this same poor person a windfall of $1 million, and he is more likely to buy a fancy car.
A large number of Parisians ride motorcycles. This makes me more confident in my conclusion about sunroofs. Parisians might like motorcycles more than Americans do, or Paris' weather might make motorcycles more practical than in America. The most plausible explanation for the larger volume of motorcycle traffic is that Parisians are less wealthy than Americans.

+++++
Do We Want to Mimic Western Europe’s Stagnant Welfare States?
02/26/10 - Cato@Liberty by Daniel J. Mitchell

[edited] America today is richer than Western Europe. Per-capita living standards are about 30 percent higher in the United States, according to the statists at the Paris-based Organization for Economic Cooperation and Development (see page 6 of this report). And we have been growing faster, which presumably should not be the case according to convergence theory (see Annex Table No. 1 of this OECD database).
Left-wing populists seem to believe (wrongly) that the economy is a fixed pie, so their fixation on redistribution is understandable. Their view is that robbing Peter is the only way to lift Paul.
Why does the left want America to be more like Western Europe, when their living standards lag America, and the gap grows wider each year? I think they are so fixated on differences in income (or resentful of success) that they are willing to make poor people worse off if they can impose even greater damage on rich people.

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The Political Dictionary: Liberal Economics
11/07/08 - EasyOpinions

Money falls from heaven for everyone to use. But, the immoral and sneaky rich gather more than their share. The government's purpose is to redistribute the money the way God intended. Or, if you wish, the way Gaia, or the Tooth Fairy, or whoever intended.
Taxes remove the excess income of the rich and give it to the voting poor, through a fair and organized bureaucracy. The rich oppose this action by selfishly and spitefully decreasing employment. Government responds by increasing grants and spending, to boost employment. The government runs a deficit while it discovers the "knack" for creating the jobs that the rich are hiding.

The Good Side of Dictatorship

2010-01-13T23:14:00.003-05:00

Totalitarian governments past and present are receiving some praise from liberal sources. This alarms me.

Benito Mussolini was the Fascist dictator of Italy from about 1936-1943, and was killed in 1945 when Italy surrendered to the Allies.

A joke about his governance is: "Yes, he was a dictator, with all the harm and problems that came from that, but he did a lot of good, too. He made the trains run on time". Of course, this is dark humor. No reasonable person would excuse dictatorship and arbitrary control by saying "but, some good came from it".

I am reminded of the occasional tragic story about wild mushrooms. The dish killed all at the table. The participants remarked how delicious the mushrooms were, just before they died. Usually, these people were experts at identifying and preparing wild mushrooms. I'm sure they were quite surprised to die, because of their superior knowledge.

I don't care at all how delicious the mushrooms were. Those mushrooms are an unacceptable risk for having a delicious dinner.

So, what possible purpose is there in understanding the good parts of a dictatorship? I don't care if a much stronger government can do some good things, because the risk of harm is greater also. It is fine if you can isolate a policy that had a good effect and doesn't need dictatorial power to be implemented. In that case, why mention the dictatorship at all, except as a curiosity?

If you can't isolate the policy, then you are arguing for dictatorship, and I want none of it.

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It’s Not Censorship, It’s "Reasonably Enlightened"
01/12/10 - Investors.com by Ed Carson. Via Ed Driscoll.

[edited] Google defiantly stated late Tuesday it may exit China, citing attempts to hack into dissidents’ e-mail accounts. It strongly suggested the Chinese government was behind the attacks. Google will no longer censor search results in China.
Clearly, Google doesn’t understand the nuances of China’s totalitarian rule the way New York Times columnist Thomas Friedman does.

Our One-Party Democracy
09/08/09 - NY Times - Op Ed by Thomas L. Friedman

[edited] One-party autocracy certainly has its drawbacks. But, when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages. That one party can just impose the politically difficult but critically important policies needed to move a society forward in the 21st century.
Our one-party democracy is worse. The fact is, on both the energy/climate legislation and health care legislation, only the Democrats are really playing. With a few notable exceptions, the Republican Party is standing, arms folded and saying “no.”
Many of them just want President Obama to fail. Such a waste. Mr. Obama is not a socialist; he’s a centrist. But if he’s forced to depend entirely on his own party to pass legislation, he will be whipsawed by its different factions.

Sarcastic restatement:

Democracy is so inefficient. When half of your country disagrees with your policy, it is so much easier to have autocracy, the absolute rule by one faction. This is useful for suppressing the Republicans, and also for suppressing the "different factions" within your own party. Where is Mussolini when you need him?

It is so much better when the leader is called a "centrist", because his policies are then necessarily good for everyone. Friedman says we should not mind a "centrist" dictator. As long as a "reasonably enlightened group of people" is running things, all will be well. If they aren't enlightened, then what? Where do our politicians get this enlightenment? At the top of a mountain in Tibet? Where?

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I Have Your Hitler Context Right Here
01/12/10 - Big Hollywood by Kurt Schlichter

[edited excerpts] Oliver Stone’s latest, desperate grasp at relevance is a new cable series which promises to place der Furher into der context. Does Stone really believe that Hitler somehow lacks “context”, or that “American corporations from GM through IBM were involved with the Nazis”?
His Secret History will not be “history”, in the sense of reporting what actually happened in the past. Nor is its tired leftist wisdom a "secret", about how America was somehow to blame for the rise of the Nazis, and to blame for all evil throughout the ages.
The real Secret History which Stone won’t disclose is the identity of the Americans who actually thought the Nazis had quite a lot to offer: their collectivist, anti-capitalist vision; their refusal to let democracy stop their agenda; and their fondness for eugenics. Those Americans were the Progressives.
I would not be at all surprised if the Secret History shows the silver lining of the Third Reich which we short-sighted conservatives always overlook.

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Oliver Stone's 'Secret History' to put Hitler 'in context'
01/09/10 - The Live Feed by David Hibberd. Via Ed Driscoll.

Oliver Stone as quoted by Hibberd [edited]:

Stalin, Hitler, Mao, McCarthy -- these people have been vilified pretty thoroughly by history.
Stalin has a complete other story. Not to paint him as a hero, but to tell a more factual representation. He fought the German war machine more than any single person. We can't judge people as only 'bad' or 'good.' Hitler is an easy scapegoat throughout history and has been used cheaply. He's the product of a series of actions. It is cause and effect.
People in America don't know the connection between WWI and WWII. I've been able to walk in Stalin's shoes and Hitler's shoes to understand their point of view. We're going to educate our minds, and liberalize them, and broaden them. We want to move beyond opinions.
Go into the funding of the Nazi party. How many American corporations were involved, from GM through IBM. Hitler is just a man who could have easily been assassinated.

What could be the motivation for showing the "more complex" Hitler, the Hitler that reacted to historical imperatives, the Hitler who wasn't completely bad?

Collectivist: Hitler had the strength and vision to reorganize German society in a coordinated, comprehensive, scientific way. He saw the state as the only power that could tame the unruly masses and produce a glorious future for Germany and all of the territories that would come under Germany's influence.
Collectivist: Unfortunately, divisions in German society and some defects in Hitler's world vision caused more human suffering than was necessary to that cause. His goals and methods were rational and effective, but some of his results were regrettable.
Collectivist: We should not tar Hitler's methods and major visions with those few unfortunate results. We have the capability today, as then, to use organized government to accomplish greater goals for society. We are wiser now, and we will do it better.

Just to be clear, I hate the Collectivist.

Exchanging Gifts Cooperatively

2009-12-21T17:54:00.001-05:00

The short story The Gift of the Magi by O. Henry (William Sydney Porter) is an ironic, painful, and sweet story of a poor couple who want to give a fine Christmas gift to each other, out of true love. Their gift giving is impractical because it is selfless.

Here is my contribution to the genre, far out at the other end of the subject. (smile)

John: Let's shop together for something that you would really enjoy. What would you like for Christmas?
Mary: I would like a nice, snuggly, terry-cloth robe.
So, sweetie, what would you like for Christmas?
John: [thinks a moment] I would like a nice, snuggly, terry-cloth robe, in your size.
Mary: [thinks, gasps] Wait a minute. That is like me buying the robe for myself!
John: What's the problem? I will be giving you what you really want, and you will be giving me what I really want. Sweetie?

Healthcare Price Controls

2009-12-14T22:59:00.002-05:00

Medical Economics 101
12/08/09 - MDOD by 911Doc

911Doc practices Emergency Medicine. He writes about what happens to doctors and patients when a bureaucracy sets prices and rewards. The emergency department became a jungle. He now works for lower pay in an environment where he can be a doctor under reasonable rules.

[edited excerpt] What happens when the government imposes price controls? You can find out for yourself by reading "Basic Economics" by Thomas Sowell. (For purchase at Amazon or free online as PDF -ag) He is a black conservative with the Hoover Institution, so half of you can quit reading, because you care more about that fact than you do about logic.
Here is what happens in my little branch of the world. When price controls are imposed in medicine, EMTALA is a good example, then particular medical procedures and services lose any meaningful relation to their actual worth. Price and cost cease to have any real relation.
I'm happy with my pay cut and have no plans to go back and use my unique skills in the ER. The ER is a circus of pain and silliness, and the same kind of silliness is being debated right now in Washington. You should pray that it doesn't pass.
I find myself in agreement with what Shrodinger's Cat said a few years ago. They could pay him four times as much, and it would not make it worth working in the ER. Good luck all.

- -
Amy comments:

[edited] A lame piece on PBS pushed government healthcare, highlighting the amazing medical services of several other nations and how cheap they are. They used Japan as an example.
My inlaws have lived in Japan for over 20 years. They have ample experience with the healthcare system in Tokyo. The government sets the cost of everything from an office visit to an aspirin. PBS didn't mention that Japanese health care is based on rationing. It is not overt rationing, but that is exactly what it is.
They depend on Eastern medicine first. No matter what you come in with, they give you a little purple powder to mix up and try first. If it doesn't work, you come back and get a crack at Western medicine. Maybe you get sick and die, too bad. No one under the age of 12 can get an organ transplant. Hospitals do not accept ambulances. If you have a heart attack, you die in the bus. Japanese doctors strongly rely on the wait and see approach, even if current medical literature stresses prompt action.
Healthcare in Japan is 20 years behind the US. Yes, they make those robots for laproscopic surgery, but they don't use them, or they don't know how.
My mother-in-law fell and had a blow-out fracture of the orbit. She had a sagging eyeball and severe double vision. Her Japanese surgeon insisted that she wait a month to see if it got better. If not, they would operate to remove a piece of bone from her hip to plug the hole in her eye socket. This is about 20 years behind what a U.S. surgeon did, two weeks after the accident.
My in-laws can buy the best. The problem is, you just can't buy that in Tokyo thanks to the government.
(There is more.)

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ER Medicine and Bureacracy
08/31/08 - MDOD by 911DOC

Medicine becomes more expensive, harder to do, with worse outcomes, as government imposes intrusive regulation and arbitrary quality measures, despite good intentions.

Government Motto: You say you are a caring doctor, so treat the poor for free.

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The Medicare Tomato Market
06/24/09 - EasyOpinions quotes The Happy Hospitalist

A readable analogy and explanation of Medicare economics. Say that tomatoes were declared vital to life and made available free through the Medicare National Tomato Bank. The story of the healthcare market is translated to the tomato market.

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More on Healthcare

Congressional Sports Team

2009-12-10T22:00:00.000-05:00

Worthwhile Analogy
12/10/09 - ChicagoBoys

Quip: It is painful to think of Barney Frank coaching pro-basketball, or running U.S. business.

David Foster:

[edited] Imagine that Congressmen Barney Frank, Chris Dodd, Dennis Kucinich, and Robert Byrd managed a professional sports team. Would anyone invest money in that team?
The average Congressman probably knows far more about sports than he knows about business. He watches sports on TV and he may have played in his younger days. Whereas, his knowledge of business is comparable to not understanding the difference between balls and strikes.
Yet, this Congress and an approving Administration is acquiring the power to micromanage every business in the country in excruciating detail.

Entrepreneurs Go on Strike
11/20/09 - American Thinker by C. Edmund Wright

[edited] The big opportunity now is to spend government money: on an $18 million government contract to create an awful Recovery.org website, SEIU union jobs in ObamaCare, bankruptcy lawyers, and the coming carbon credits. There are ACORN-style crony contracts to be had, and all the jobs created by David Axelrod astroturf media escapades.
If you are connected, or if your dream is to enrich yourself by killing the dreams of others, then the field is ripe for you.
Entrepreneurs can sense it. This is not now the country for you if you simply want to build a better mousetrap. This is not just about tax policy, health care, or cap-and-trade (which are all terrible and need to be stopped).
The American dream is dying. This kind of economy cannot work, not until pigs fly, or until Barney Frank dunks on Lebron James.

Not Just One Rotten Climate Apple

2009-12-07T19:20:00.015-05:00

Riddle Me This
12/07/09 - Chicago Boyz by James R. Rummel

ClimateGate is about the emails and practices of the Climate Research Unit (CRU) of East Anglia Univeristy, Britain. It is a large and previously prestigious institution.

Logicians now say that this scandal does not necessarily invalidate the work of the other climate centers. I suppose that this is the difference between fine academic logic and a more realistic view of human bias, politics, and politicized Big Science.

The climate scientists will have to prove their work, as they should have from the beginning. They must reveal their data, theories, methods, and computer codes. There must be no more splicing of different data series to get a graph showing what is politically correct.

[edited] Most climate scientists speaking on news programs or writing op-eds offer a general defense. This scandal might cast doubt on more than 10 years of work at CRU, but they say it does not invalidate research by other scientists supporting catastrophic global warming caused by humans.
This is why it invalidates the work of other scientists:

The Hadley CRU boasted the largest and most comprehensive collection of climate data in the entire world.
This massive collection of data inspired, if not directly influenced, just about every other climate scientist’s work.
The people who wrote the emails are the most prestigious and influential climate scientists in the world. The emails show their dirty tricks, data manipulation, and collusion to hide problems with their research.

Why should anyone take any climate scientist’s word for his own integrity and the soundness of his work? Isn’t the onus on him/her to prove that he isn't a crook and liar, like the big guys are?

A comment by Shannon Love [edited]:

The revelations invalidate the work of other scientists:

They all claimed to have reviewed and reproduced the CRU’s work, and
They defended that work against scrutiny.

(1) causes doubt about their competence, and (2) causes doubt about their integrity.

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Fast Facts About Climategate
12/06/09 - Pajamas Media by Charlie Martin
A convenient overview of the emails and issues of ClimateGate.

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Government Funds Distort Climate Science
07/22/09 - Science and Technology News

Quip: We don't fund studies critical of our policies.

The Science and Public Policy Institute:

[edited] The US Government has spent $79 billion since 1989 on research and support for climate change studies. Yet, scientific review and criticism is left to unpaid volunteers, who have repeatedly exposed major errors.
Dedicated, uncoordinated scientists around the globe test the integrity of global warming theory. They compete with Government, a lavishly funded, highly organized, centralized purchaser of climate research.
The government pours money into a single, scientifically baseless agenda. It has created a self-fulfilling prophecy, not an unbiased investigation. Sound science cannot easily survive this grip of politics and finance.

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Jo Nova Finds the Medieval Warm Period
12/07/09 - What's Up With That by Jo Nova (Via Don Surber)

The sharp upward swing in temperature was due to a single tree in Yamal, Russia.
In 2009, McIntyre analyzed Briffa’s Hockey Stick graph of sudden warming. He waited three years for the data he asked for. It took just three days to expose it too as baseless.
Briffa had concealed for nine years that he only had 12 trees in the sample from 1990 onwards, and that one freakish tree transformed the graph. When McIntyre graphed another 34 trees from the same region of Russia, there was no sudden warming.
Craig Loehle used 18 other proxies. (Proxies are measurements of physical processes that should have been sensitive to temperature. -ag) Temperatures were higher 1000 years ago and cooler 300 years ago. We started warming long before cars and powerstations were invented. There is little correlation with CO2 levels.

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Hockey stick observed in NOAA ice core data
09/12/09 - WattsUpWithThat by Anthony Watts

J. Storrs Hall is at the Foresight Institute. He made some interesting graphs from NOAA ice core data:

[edited] Let's look at the temperature record as read from this central Greenland ice core. It gives us about as close as we can come to a direct, experimental measurement of temperature at that one spot for the past 50,000 years. As far as I know, the data are not adjusted according to any fancy computer climate model or anything else like that.

Watts comments on graphs of the temperature record from this single ice core, going back 500 1,200 4,000 10,000 12,000 and 40,000 years. Other data shows temperature for the past 400,000 years.

The 500 year record shows a wiggling, slow decline in temperature, then rising steadily by .7 degrees F in the 80 years from 1840-1920. That +.7 F is the total increase, not yearly. Watts says with humor: "a hockey stick".

True understanding comes from looking at temperature over longer time scales going into the distant and geologically distant past. On that scale, our current temperature fluctuations are nothing special. The Earth has been much colder for most of the last 400,000 years, and somewhat warmer for part of that time.

We don't need CO2 by humans to explain changing global temperature. The Earth has had large fluctuations all by itself. We should be glad it is warm for us now.

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Galilean Peer Review
12/06/09 - Throckmorton's Other Signs

A doctor teaches his residents how to read published, peer-reviewed papers in medical journals.

[edited] In our journal club, we all take recent papers in our field and present them to the group. This is a great exercise for the residents. First, you look at what question the research is hoping to answer. You then see how they are getting the data and if analysis of the data will lead to an answer. You then check the statistics on the data. Only then can you say if the research is of merit.
I stress that the comments and discussion are just that, or better expressed as an editorial. It is amazing how many of the papers don't support the conclusions.
I can't help but feel this way about Climategate. This seems to be a classic example of researchers having an opinion and then trying to backtrack to make the research support that opinion.

Sarah Palin

2009-11-30T22:00:00.003-05:00

Sarah Palin's Governing Philosophy Emerges In "Going Rogue"
11/30/09 - Riehl World View

Palin in Wasilla - Resistance to insider assimilation
11/29/09 - Op-ed at the Appeal-Democrat

[edited] It seems Palin resisted influence peddling, even when this opposed her early political mentors. Her governing approach showed itself as mayor of Wasilla and stayed with her as Governor.
[edited] Palin showed her political independence to her patron Carney. Palin opposed Carney's plan to have residents pay for neighborhood trash pickup. Most hauled their garbage to the dump themselves, as Palin says she still does. This was important to Carney because he owned the local garbage truck company.
It seems that Palin is not anti-government, but wants government to provide critical services and programs while trimming out the fat.
[edited] Palin consistently opposed heavy-handed community planning initiatives and burdensome taxes during her terms on the council. She explains: I focused on what I believed to be the key functions of government: infrastructure development, fiscal responsibility, and simply being on the side of the people.

Palin haters spread the canard that she is an airhead, and clearly not capable of dealing with the intricacies of government. This chapter demonstrates the opposite.
Palin has a keen grasp of the details of governing and budgeting, and also understands the political difficulties making government responsive. Many of her antagonists at the national level scoffed at her experience in Wasilla. Quite the contrary, local government is where a public official has direct impact on the electorate. It is where you really have to understand what you're doing.

Peer Review is Not What You Think

2009-11-30T16:42:00.012-05:00

Scientific Peer-Review is a Lightweight Process
11/30/09 - ChicagoBoyz by Shannon Love

[edited] "Peer Review" says nothing about conclusions. It is the fate of most scientific papers to be proven completely wrong.
Peer review protects a journal’s reputation. The journal hires experts to check for basic errors in math or methodology, along with grammar and spelling. It offloads responsibility for publishing bad papers onto anonymous scientists. It is a form of blame-passing that everyone would like to use. It does not confirm or refute experimental or theoretical conclusions.
The anonymous and secret peer review process is not part of actual science. Science demands that that all observers of a phenomenon can agree they see the same thing. Ruthless transparency is critical. Secrecy hinders the functioning of science, and peer review is a secret process. Science is not settled by the secret complaints of the anonymous.
Some people will say that a scientific result is true because it appears in a peer reviewed journal. That is the weakest defense possible. It means only that some editor and his reviewers found it to meet their minimum quality standards for publishing. It meets no standards if the editors and peer reviewers are corrupt.

When people see "peer review", they usually think of "scientific review", which is the detailed investigation of data and the replication of results by independent scientists. Scientific review gives some confidence that the claimed results are correct. Even then, conclusions about what the results "mean" can be wrong.

- -
ClimateGate: The Fix is In
11/24/09 - Real Clear Politics By Robert Tracinski
Via SmallDeadAnimals

[edited] Global warming "skeptics" had unearthed evidence that scientists at the Hadley Climatic Research Unit (CRU) at Britain's University of East Anglia had cherry-picked data to manufacture a "hockey stick" graph. This graph showed a dramatic, but illusory, runaway warming trend in the late 20th century.
Much broader evidence has emerged that will break that scandal wide open. Pundits have named it "Climategate." Thousands of e-mails and data from the CRU are now available on the Web.
The following stood out for me. There is extensive evidence of the hijacking of the "peer review" process to enforce global warming dogma. Peer review is the practice of subjecting scientific papers to review by other scientists with relevant expertise before they can be published in professional journals. The idea is to weed out research with obvious flaws or weak arguments, but there is a clear danger that such a process will simply reinforce groupthink.
Peer review has been corrupted, becoming a mechanism for an entrenched establishment to exclude legitimate challenges by simply refusing to give critics a hearing.
The noted climate researcher Michael Mann emailed about pressuring the journal Climate Research, which published a paper critical of global warming.
I think we have to stop considering "Climate Research" as a legitimate peer-reviewed journal. Perhaps we should encourage our colleagues in the climate research community to no longer submit to, or cite papers in, this journal.

This is the scandal of the century. It needs to be thoroughly investigated, and the culprits need to be brought to justice.

Biased Reporting

2009-11-25T22:05:00.000-05:00

The Media has Always Been Biased
11/25/09 - ChicagoBoyz by Shannon Love

Shannon Love excerpts one of his favorite Bloom County comic strips:

Milo: Senator? This is Milo Bloom at the Beacon. Will you confirm that you sunk Jimmy Hoffa in your backyard pond?
Sen. Bedfellow: What? Of course not!
Milo: Fine, I’ll go with ‘Sen. Bedfellow Denies That Pond Is Where He Sunk Hoffa.’
Sen. Bedfellow: That’s not true!
Milo: Okay. ‘Bedfellow Did Sink Hoffa in Pond.’
Sen. Bedfellow: I don’t know where Hoffa is!!
Milo: ‘I Lost The Body’ Says Bedfellow.

Anti-Capitalist Policies Are Anti-Job

2009-11-25T22:00:00.002-05:00

Anti-Capitalist Policies Are Anti-Job
11/25/09 - BigGovernment by Thomas Del Beccaro

[edited] There is no secret to capitalism.

Some people save money for investment.
They start or grow businesses.
Businesses employ people.
Employed people have purchasing power to buy things.
Trade distributes value to buyers and profits to sellers.
Profits are partly saved for investment ...

The Left’s political policies destroy that simple and effective economic process. They impose taxes to reduce class differences and to raise revenue. Ironically, the opposite occurs in both areas.
Say it takes $500,000 from two partners to start a restaurant. High taxes take money from them and spread it to tens of thousands of people through government programs. The recipients don’t start businesses, and jobs are not created. Businesses that don't exist or grow also don't pay taxes or don't pay more taxes.
Increasing regulation has a similar effect, raising the cost of starting or expanding a business, reducing business activity, and killing jobs.
There are many other anti-capitalist policies of the Left, including Cap & Trade, the proposed Wall Street regulations, and skyrocketing deficits. All result in fewer businesses, jobs, and purchasing power, killing economic recovery.

Quip: Communist theorist Karl Marx revealed that business owners are leeches on society, draining away the wealth that rightfully belongs to the workers. At least, the ones who have jobs.

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The Real Tax Burden
Jan 2009 - EasyOpinions by Andrew Garland

The real tax burden is what government spends, not just the deficit.

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Public Tax Meeting
Sep 2008 - EasyOpinions by Andrew Garland

It isn't common knowledge just how much tax wealthy people already pay, and how much is wasted by increased government spending. Ironically, raising taxes on anyone will lower the production of the US, and so will lower the number of jobs.

An excerpt:

John JJ Richman was making breakfast when he heard the crowd outside. They seemed just shy of hostile. He opened his door to see about 65 townspeople, out of a town of 100. Two spokesmen were standing on the porch.
John: Good morning. Why are you all here?
Rob: There are things that need changing, and you are the one to help us.

Top Ten Political Statements

2009-11-08T13:46:00.007-05:00

Statements 1-9 are political messages from no particular source, as satire. Statement 10 is quoted from early remarks by President Obama about the mass murder at Fort Hood, TX.

-----

1 There is nothing strange about my policies. The incompetent former occupant of this office did many of the same things I have, but for selfish and stupid reasons.

2 I would not say that we lied. Sophisticated people know that politicians must find compromise between groups. This is much easier when those groups don't understand the details. So, we don't lie; we just aren't detailed. And, sometimes those details differ in suprising ways from our general statements.

3 Critics claim that I have changed my policy. In fact, my views have been quite consistent. If my policies seem different now, it is only because the facts have changed. I am smart to change my policy to incorporate different facts. You ask, "What were the facts in the past?". Well, they were different.

See statements 4 to 10 ...

4 I know the public is concerned about deficit spending. Our deficits may be bigger, but the other guys started it. We inherited huge problems, so we have to quickly spend huge money. We haven't spent most of it yet, but we will. Give us time. We are being thoughtful about this.

Deficits are not a problem. Thousands of deserving people have government jobs exactly because we are spending the money that causes deficits. I can say with certainty that there would be no unemployment if the government hired everyone. We are working on it.

5 Our plans are carefully researched to provide more services with less money. If they don't work out that way, we will fix them, no matter how long it takes or how much it costs.

6 We predicted 8% unemployment if we did nothing, and now unemployment is 10% after enacting a $787 billion (with a "b") stimulus package. My opponents blame us for not meeting our earlier estimates. But, if we really knew, we wouldn't call them estimates. Estimates of the future are the most difficult because we don't have the data yet. We estimate that unemployment would now be 18.35% if we had done nothing. So, we are celebrating.

7 Our policies for spending, taxing, deficits, and reviving the economy were based on sophisticated, tested, econometric models, constructed and refined by the best minds in government. Despite this, we have been surprised by the underperformance of the economy. We are not worried. There are plenty of econometric models out there, and we are switching to better ones right now.
(Stimulus jobs) [edited] Congressional Democrats are disgusted with the phony accounting of jobs created by the stimulus plan.
David Obey is the House Appropriations Committee Chairman. He lambasted the government's flawed data "showing" that $160 billion in stimulus spending has created or saved at least 640,000 jobs.
The administration has been forced to delete 60,000 jobs from its list, and had claimed 30 jobs in a non-existent congressional district.
David Obey: [edited] "The inaccuracies are outrageous and the administration owes itself, the Congress and every American a commitment to correct the ludicrous mistakes. Whether the numbers are good news or bad news, I want the honest numbers, and I want them now."

8 The stimulus package we put in place is working just fine. Thousands of government jobs have been created, or stabilized with higher salaries. This assures that government workers will be loyal and at their desks through any economic difficulties to come.

9 Our policies of stimulus and bank bailouts have led to a rising stock market, for which we are proud. Remember that employment is a lagging indicator. Overall employment will increase after fat-cat stockholders have been made rich enough. Of course, we will tax away most of their ill-gotten capital gains.

10 (President Obama spoke as scheduled on 11/05/09 at the Tribal Nations Conference of Native American Leaders, organized by the Department of the Interior. President Obama or his speechwriters are better at satire than I am.)

¹ Let me, first of all, just thank Ken and the entire Department of the Interior staff for organizing just an extraordinary conference. I want to thank my cabinet members and senior administration officials who participated today.
I hear that Dr. Joe Medicine Crow was around, and so I want to give a shout out to that Congressional Medal of Honor winner. Good to see you!
My understanding is that you had an extremely productive conference. I want to thank all of you for coming, and for your efforts, and I want to give you my solemn guarantee that this is not the end of a process, but a beginning of a process, and that we are going to follow up. Every single member of my team understands that this is a top priority for us.
I want you to know that, as I said this morning, this is not something that we just give lip service to. And, we are going to keep on working with you to make sure that the first Americans get the best possible chances in life, in a way that's consistent with your extraordinary traditions, and culture, and values.
Now, I have to say, though, that beyond that, I had planned to make some broader remarks about the challenges that lay ahead for Native Americans as well as collaboration with our administration.

² But, as some of you might have heard, there has been a tragic shooting at the Fort Hood Army Base in Texas.
We don’t yet know all the details at this moment. We will share them as we get them. What we do know is that a number of American soldiers have been killed and even more have been wounded in a horrific outburst of violence.
My immediate thoughts and prayers are with the wounded, and with the families of the fallen, and those who live and serve at Ft. Hood.
These are men and women who have made the selfless and courageous decision to risk, and at times give their lives to protect the rest of us on a daily basis. It’s difficult enough when we lose these brave Americans in battles overseas. It is horrifying that they should come under fire at an army base on American soil.
[further remarks omitted]

¹ President speaks about Fort Hood shootings
11/05/09 - youtube - Video from Fox News
My transcription of the beggining of Obama's speech.

² President Obama Speaks About Fort Hood Tragedy
11/05/09 - blogs.abcnews.com by Jake Tapper and Sunlen Miller
Continuation of Obama's speech as reported here, slightly edited.

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Jumping to Conclusions
11/06/09 - Powerline Blog by John Hinderaker
About President Obama's understanding of the Fort Hood mass murder.

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A Political Speech: Troubling Times
Easy Opinions (satire)

My fellow Americans. May I first say that all of you are the most intelligent, beautiful, clear thinking, generous, patriotic, and deserving people that I have met, along with all of the other great people of your town, city, and state.
I am sorry to bring you bad news, and I hope you don't shoot the messenger (smiles). We live in troubling and difficult times.

A Political Speech: Coming Together
Easy Opinions (satire)

My administration will reach across the aisle to both parties, and especially to the opposing and obstinate party, to gain agreement and smooth the operation of government. We will smile rather than argue.

A Political Speech: My Policies
Easy Opinions (satire)

I want you to know where I stand on the issues. I believe in Prosperity, and I always will.

We Can't Stop Government Growth

2009-11-03T18:49:00.004-05:00

Can the Rampaging Leviathan Be Stopped or Slowed?
11/02/09 - Independent.org by Robert Higgs
Senior Fellow in Political Economy, and
Editor of The Independent Review at The Independent Institute.

[edited] There are critical difficulties restraining the growth of government. Even when restraints on government are enacted into law, the government does not obey. So, constitutional amendments are worthless. The Constitution already contains the NinthThe enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people. and TenthThe powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people. Amendments. With those amendments and four bucks you can get a latte at Starbucks.
"Solutions to the ongoing growth of government are a dime a dozen and utterly worthless in themselves. Every genuine solution must be implemented by enough people and money. Marshalling people and money will require ideological conversions on a substantial scale. These conversations themselves will require many people and much money, if such conversions are possible at all.
The troubling fact remains, that if any truly effective measures are approved to limit the government, the rulers would likely resort to whatever legal or illegal violence proved necessary to prevent those measures from taking effect.
If Ron PaulCongressman from Texas, noted for wanting a much smaller and limited government were miraculously elected president, he would not live to take office. Opponents of the government's ongoing growth must bear in mind that we are dealing with violent, heavily armed, utterly unscrupulous people who, if pushed to the brink, will stop at nothing to retain their power and privileges.
We who abhor the continued growth of government cannot stop or slow it in the near term. But, we can take heartNot much of a comfort -ag from the knowledge that ultimately this criminal enterprise will attain such bloated size and scope that it will implode, as the Soviet Union and other overreaching systems have imploded.
Governments that grow without other limits find that their predation becomes greater than their prey can support. Thus, the government in this country and many others contain the seeds of their own destruction.

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Leading the People
08/2008 - EasyOpinions by Andrew Garland

My personal experience with radicals in college was scary. They don't mind threatening others, regardless of the academic setting or discussion.

[excerpt] He argued that only a radical change in government would bring about a better society. I disagreed. He said that I should join the demonstrations against the University to end the Vietnam war. I thought a sit-in demonstration against the University was misdirected. I suggested the he should demonstrate against the government; the University was not at war.
He said that his movement would become stronger, and eventually I would agree with him. I asked, what if I didn't agree with him, even later? He flashed anger and told me that if I didn't agree on my own, he would make me agree. I saw that as the end of the discussion.

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We Must Spend or We Are Going to DIE!
04/2009 - EasyOpinions by Andrew Garland (satire, excerpt)

From: Ruling Class
To : Public
Re : We must tax and spend now, or we are all going to DIE!
We don't want to tax and spend (cough), but we must react to the crisis that we have identified. We are going to borrow, spend, and tax reluctantly to support our actions. The alternative is DEATH. No one wants that.
So what if you are poor in the future? At least you will be alive, and we will continue to guide you through supportive government to help you out of poverty. We will create and assign the jobs of the 21st century. Your children will pay most of the taxes, and we are training our children to have the public spirit that will allow them to rule wisely.

The Stimulus Resort Town

2009-10-27T03:02:00.004-04:00

Politicians like the idea of stimulus spending because it justifies taxing, borrowing, and spending. Spending is always pleasant and gains friends and support. They claim that stimulus spending will make us prosperous because it multiplies wealth in the economy.

The Obama team claimsEasyOpinions: Let's counterfeit our way to wealth that each $100 of government spending creates $150 in new wealth, so everyone wins, and it doesn't matter on what it is spent.

Craig C's comment at Mises.org gives an analogy commonly used to illustrate how stimulus loans or spending multiplies production and trade. I repeat it here, revised.

People start in gridlock. A stimulus loan breaks the gridlock. They resume working and trading, and end up happy. The money involved is a true stimulus; it unlocks the local economy and is paid back. This is a vivid and amazing example. But, it is contrived and unreal, like finding five dominoes ready to fall by pushing just the first one.

Stimulus Story

It is rainy and quiet in a small resort town. It is a tough time. Everyone is in debt and lives on credit.

A government official enters a restaurant, lays a $100 bill on the counter, and tells the owner Frank that it is a stimulus loan.

Frank takes the $100 and runs to pay his debt to the butcher.
The butcher pays his debt to the farmer.
The farmer pays his debt to the supply store.
The supply store pays its debt for newspaper advertising.
The newspaper pays its debt to Frank at the restaurant.
Frank lays the $100 bill back on the counter.

The official smiles at all of the good he has done. He remarks that this is the Keynesian Multiplier in action; $100 in new money promoted $500 in production and trade. He takes back his $100 and leaves town. The town is now without debt and looks optimistically to the future.

That is supposedly how the Stimulus Plan works.

Reality

I like that story because it sets up a beautiful situation, just so. The government provides a "stimulus", the money flows around, everyone is happy, and it didn't cost anything, like a fairytale.

I like another version even more. Frank writes a bad check for $100. The check goes around the town and comes back to Frank, who tears it up. The check is illegal, but the government stimulus isn't needed. This version supports counterfeiting.

The less amazing, more realistic version of the story goes like this.

Restaurant owner Frank, impractical and desperate, owes everyone in town. He spent his last borrowed dollar rather than sell the restaurant to someone who could run it at a profit. He waits behind the counter for his creditors to call. He doesn't have $100 in the bank to pay the butcher.

Meanwhile, the butcher takes $100 out of his bank account to pay the farmer, and that $100 goes around the town. The newspaper pays Frank $100, and he pays the butcher.

We don't know why the butcher would extend credit to a restaurant with no money in the bank. Soon, Frank declares bankruptcy and sells the restaurant.

The Stimulus Story proposes a group of businesses all doing useful work for each other. They have already produced things and have traded among themselves. They only need to pay their bills. Any one of them can take $100 from its bank account to settle the chain of obligations. Usually, they all take $100 from their accounts to pay their bills.

In reality, a whole town is not caught in the trap of having no cash to exchange while selling to others on credit. A stimulus loan has little or no effect on current business transactions.

The flurry of payments settles $500 in past transactions, which makes it seem like the $100 has multiplied 5 times. It is a distraction from what the stimulus loan actually accomplishes.

The Real Stimulus Effect

The true value of a $100 loan is just the value given to restaurant owner Frank. Frank can buy an extra $100 of goods, pay debts, or save. (Paying debts or saving isn't so bad.)Click/Return to see below why this is not a burden on the economy.

If Frank is going bankrupt, he probably spends his loan, hoping for a miracle. If Frank is not desperate, he pays down his debts or saves the money. He is not going to risk the loan by expanding his business in a poor economy.

Say the money is a grant instead of a loan. Frank is even happier, but this doesn't lead to risky investment. It is his money now, and he doesn't want to lose it.

Government Spending

In a bad economy, people have debt and jobs are uncertain. It is natural for them to pay off their debts. What can a government do to "pump" money into the economy to buy goods for consumption? The government spends the money. (Note) If you must ruin an economy by artificially increasing spending on consumer goods, then government spending is about the only way to do it.
Government claims this helps the economy. Instead, it pays politicians and supporters, and builds voting support. The claim of helping the economy is a cover story.
The government must collect more tax from productive people to support these schemes..

It is true that a specific $100 in production may occur from an extra $100 in government spending. But, for every Frank who gets extra business, there is a John who has the money taxed from him. John buys $100 less from some businesses, removing $100 in uncounted production.

The total effect of the stimulus spending is that Frank gets $100 more business, and John buys or saves $100 less. That fails to "jumpstart" an economy, no matter how big the amount which is taxed and spent by the government.

Government Borrowing

The government can borrow the $100 that it spends at Frank's restaurant. Frank is happy, and John doesn't seem to be affected, at first glance.

Frank is happy with the extra business. But, this is not a sustained flow of money, and Frank does not install more tables. He hires only temporarily or part-time, if he hires at all.

Business owners read the newsEconomists Surprised That People Read the Paper
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06/08/09 - Easy Opinions
Leftist economists don't consider that people react to policy. People see the coming wave of taxes, regulation, and inflation, and they alter their behavior immediately. They stop investing and prepare for hard times.. They know the government is temporarily increasing purchases. They can't know what part of their sales is from stimulus and what part is from an improving economy, so they delay expanding and hiring. Worse, they don't know how increased taxes will affect sales in the future.

Business owners are being rational. It is better to miss some business by expanding later, than to expand early and risk bigger losses if sales drop. Ironically, the stimulus interferes with the sales signals and market stability that would encourage businesses to expand. This slows expansion and reduces employment.

The current stimulus is being distributed over a period of years, so it will interfere with business decisions for years.

• John prepares to pay

John knows that he will soon have to pay higher taxes to pay off what the government is borrowing. So, he lowers his spending and saves for that future expense. He overestimates; it is better to spend too little than too much. The government creates uncertainty by proposing many, confusing, new and increased taxes.

The result is that Frank gets an extra $100 in business. John reduces his consumption spending by $100 or more, and instead buys safe investments. This does not improve the overall economy, but it does produce a different demand for goods, helping some businesses and hurting others. Unemployment rises as people must change jobs between businesses, and people must take jobs at lower salaries while they learn new skills.

Politicians arrange photo-opportunities with businesses that have government contracts. They don't advertise the many businesses that shrink or close because their sales have declined in a disrupted economy.

Politicians point to improved businesses and call for increased stimulus spending to stop layoffs at other businesses. This is clueless.

Creating Money

The government can "create the moneyClick/Return for detail below. All money is created by the Federal Reserve Bank. The government usually gets to spend it first." and seem to take value magically out of the air. The government first raises taxes and borrows, but that doesn't satisfy its desire to spend.

Creating more money causes all money to lose some value through "inflation". Prices go up as store owners notice they are selling all of their goods on hand. They raise prices following price increases by their suppliers. They wonder where the extra demand (money) is coming from, and why supplies do not increase to meet that demand. The answer is that government is increasing demand without producing much to increase available supplies.

This steals value silently from everyone with a job or a bank account, and it falls more heavily on the lower and middle classes. Their wages fall behind inflation and their savings are more in cash, bank certificates of deposit, and bonds, which lose value as prices go up.

So, Frank happily spends or saves an extra $100, and $100 is silently skimmed from the value of all money. The transfer of value is like a tax, but the result is more negative due to business uncertainties and dislocations.

Some business owners see increasing sales, and wonder if they are from a better economy (more production all around) or from inflation. Other businesses suffer as their customers buy different goods. Some people save more as they see prices going up, or possibly spend more to beat future price increases. Business becomes less predictable.

Notice that the government properly considers counterfeiting to be a serious crime. But, politicians call it "fiscal policy" when they create money out of thin air and spend it to promote projects for their supporters.

Disinvestment

People are productive because they have knowledge and tools, personally or through their employer. A person needs a hammer to build a house, and a power-nailer builds faster and at lower cost. A small shop can make a few hammers. It takes a large factory to make many hammers and power-nailers, and much effort to work out ways to make them better, safer, more durable, and cost less over time.

There is a big risk in building a factory, and many lose money. Sometimes, the owners become rich through knowledge, planning, management, and some luck. It is fascinating that these people become despised as "the rich", when their wealth comes mostly from practical achievements that help others to a productive and comfortable life.

Progressive tax rates04/2009 - Easy Opinions
A comparison of the 2006 tax rates and total tax contributions by adjusted gross income. take more money from high earners as a percentage of their income. The idea of a stimulus extends the idea that the rich should pay more of their lazy money to others who will spend it and create a growing economy.

Here is the problem. The rich are the major investors in companies, and so in factories. Money taken from them does not get to those investments. Instead, it goes to Frank, who buys more consumer goods or invests more conservatively in bank accounts. Investment that would create jobs is drained away to create some overtime for current workers.

"Soak the rich" is bad policy.

High productivity produces most high incomes. There is no moral basis for taking a higher percentage of that money from the people who have earned it; they aren't bank robbers. The government is acting like a bank robber, taking money from those who have it, as pure politics and power.
Taking that money removes it from the people who have the most judgment and ability to bear the risk of building new companies. The government is much worse at this.
"Soak the rich" puts the non-rich out of work or reduces their incomes. That isn't a good tradeoff.

Large Incomes, Skill, and Luck

You may think the rich are partly lucky, so they shouldn't keep all of their money. Do you also think that lottery winners should split their winnings? They are 100% lucky, and do much less to produce a productive society.

Successful actors and athletes are admired because their abilities are on direct display. We like watching them, and we understand the basis for their incomes, even if there is some luck involved. We don't yell at them to take less money, because we understand that they are worth it. They would not have put in long years of training and sacrifice if they didn't have a chance to make it big.

The skills of successful businessmen/women are not directly on display. But, we can see that they produce products and they create jobs to make those products. Products and jobs provide for better lives. Yet, people are easily angered by the large incomes of some businessmen. We should understand that, like athletes, they are worth it. They would not have put in long years of training and personal risk if they didn't have a chance to make it big.

Details

Spending, Paying Debts, and Saving

We hear that 70% of the economy is consumer spending. The quick reaction is to 03/2009 - EasyOpinions: Cargo Cult Economics
Government sees that people spend more during prosperous times, and wrongly concludes that higher spending causes prosperity
I get it. People use umbrellas when it rains, so using umbrellas causes it to rain.do something, anything, to increase this spending. Government tells us that spending is good and saving is bad.

This has now moved to the strange idea that if the public won't spend enough, then the government will do it for them. This is the idea that the government can spend its way to our prosperity, taxing along the way.

Actually, paying debts, saving, and investing are all types of spending.

Paying debts is the completion of past spending. If spending is good for the economy, the debtor has already done his part. Paying off the debt prepares for future spending. Not paying the debt would cause economic disruption.
Saving lends money to a bank, which supports spending by other people. Credit card debt supports consumer spending. Housing and car loans support buying those durable goods. Loans to businesses help them produce more.
Investing is a high-powered use of resources at a higher risk. Investing directly supports new businesses, major business expansion, and the creation of jobs.

The amount spent on each of these is a personal decision. The "economy" is there to serve the individual, not the reverse. People should acquire the goods, savings, and investments that they understand and can support with their earnings.

Would it help the "economy" if the government forced you to take 10% of your savings and spend it on something? Only in the sense that "consumer spending" would go up. It would hurt you personally because it would disrupt your plans.

If you are saving money rather than buying a new car or a vacation trip, it is because you want the option of buying something more important in the future, maybe food and rent.

Go back

Creating Money

Is Money Worth Anything?

All U.S. dollars are printed or electronically distributed by the Fed, the United States Federal Reserve Banks. The Fed runs the U.S. Mint to print currency and stamp coins. It creates electronic money by sending authorizations to its member banks. Paper dollars are Federal Reserve Notes, literally small obligations of the Fed.

Each dollar is an obligation of the Fed to pay you a dollar. You are allowed to laugh at this. What does it mean to present a dollar to the government and be paid back that same dollar bill? Before 1935, the government would give you a definite amount of gold or silver, if you presented the dollar bill for payment. Since then, there is no obligation of the Government to give you anything for your dollar.

All dollars are created out of thin air, so why do they have any value?

There is an established market and price for trillions of dollars of real goods and services.
Dollars are defined by law as "legal tender". Any transaction can be valued in dollars for disposition by a court or for the collection of taxes.
The Federal Government levies taxes and you can use dollars to pay taxes.
The Federal Reserve has assets that are supposedly worth the dollars created.

There are trillions of dollars in private loans secured by tangible things, such as commodities, automobiles, and buildings. Some loans are secured only by future income, like credit card balances. All loans are obligations between people, and the supply of money represents these obligations, giving value to the money.

Inflation

The Federal Reserve Banks can abuse their power to create money, so that all money loses some value.

Inflation results when the Fed loans money to the US Treasury, creating money, which the government spends, without a resulting increase in tax revenues that can pay back these loans. Inflation is the loss of value in the money supply from bad loans made to the US Treasury.

The longer explanation of inflation requires knowing how a good bank can create trustworthy, electronic or paper money. This will wait for another post.

Go back

Links

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The Federal Reserve
Investopedia
An overview of the structure and duties of the Federal Reserve.

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Money Created Out of Thin Air
07/30/04 - Richard Benson, President Specialty Finance Group

[edited] Money is created in two ways. First, money creation comes from borrowing it and spending it. Second, it is simply printed up "out of thin air" by a central bank and used to buy something.

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The Record of the Federal Reserve
07/24/09 - LewRockwell.com by Erik Voorhees

[edited] The Federal Reserve System is fraudulent. Its effective purpose is to create a mechanism of deficit spending by politicians, through invisible taxation by monetary inflation. The Government buys services for its voters with created money at current prices. The voter's money buys less the following year, as the new money raises prices, and they are none the wiser.
From 1776 to 1912 (136 years):

A dollar would buy 11% more consumer goods in 1912 than in 1776.
$1,110 in 1776 bought the same bundle of consumer goods as did $1,000 in 1912, for comparable goods.
The dollar was a stable and slightly increasing store of value. You gained a little if you put it under your mattress.

The United States Federal Reserve (the Fed) was created in 1913 to "conduct the nation's monetary policy in pursuit of full employment and stable prices". "Stable prices" means that a dollar should buy about the same amount of consumer goods over time.
From 1913 to 2008 (95 years):

A dollar would buy 95% less consumer goods in 2008 than in 1913.
$50 in 1913 bought the same bundle of consumer goods as $1,000 in 2008, for comparable goods.
The dollar slowly sank in value. You retained only 5% of its value if you put dollars under your mattress during that time.

Americans should feel outrage about this. Yet, they are not very upset, and the vast majority has no clue. Americans are educated in Government schools, which barely teach basic accounting, let alone monetary theory. In public school, I was forced to memorize the names of every African country. There was no discussion of the nature of money or the economic principles which caused political turmoil in Africa.

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Keynes, Upside Down
02/02/09 - Richard Benson, President Specialty Finance Group

[edited] Too much borrowed money has left the private sector riddled with bankruptcy. Far too many loans were made on the probability of being refinanced, not on the ability to be repaid!
Bad loans could be refinanced into bigger bad loans while liquidity (willingness to lend) was flowing. Now, the refinancing has stopped. Millions of Americans and business owners are suffering and can't face the music.
Too many loans (liquidity) were made to people who could not pay them back. This caused mass insolvency. How can more loans and public borrowing be sold as the cure? It is government double talk. They are calling this insolvency a "liquidity trap" so they can print fresh money without guilt.

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Recipe for Economic Stagnation
07/21/09 - American Thinker by Andrew Foy and Brenton Stransky

[edited] John Maynard Keynes recommended government intervention. Milton Friedman recommended free markets and a predictable, boring economic policy.
The government followed Keynesian principles in response to the Great Depression. It created 15 agencies, increased spending by 220%, increased taxes by 68%, and increased the deficit to $24 billion.
Friedman proposed that government intervention prolonged the depression. His view has been validated over time. "Far from the depression being a failure of the free-enterprise system, it was a tragic failure of the government."

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Cargo Cult Economics
03/2009 - EasyOpinions

Government economists see that people spend more during prosperous times, and wrongly conclude that higher spending causes prosperity.

I get it. People use umbrellas when it rains, so using umbrellas causes it to rain.

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Let's Counterfeit Our Way to Wealth
02/2009 - EasyOpinions

The Obama team follows Keynesian economic principles. They claim that every dollar in government "stimulus" spending creates $1.50 in wealth.

The 1.5 wealth multiplier is part of the Keynesian myth that distributing money promotes a recovery. But, every dollar spent by government has to be collected as tax, sooner or later. Any money borrowed now takes resources now from some other, valuable use.

If the multiplier were true, then the government could license counterfeiting and we would all become rich. Actually, the government attitude toward printing money is very close to counterfeiting.

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Banks Create Money
08/09/09 - Ingri Mayne - CyberEconomics

[edited] For several centuries now most money has been in the form of bank debt. A checking account is merely money that the bank owes you, and paper money represents something that the Federal Reserve System owes you. (Try to collect this debt from the Federal Reserve, though, and see what you get.)
The creation and destruction of money is the creation and destruction of bank debt.

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Federal Reserve Ready To Buy Assets
07/29/09 - Telegraph Co UK - by James Quinn

[edited] The Fed may buy back U.S. Treasuries, support lending to small businesses, and support credit card and car loans. The Fed continues to buy large amounts of government-backed mortgage securities.

The Fed creates more money by buying assets. Usually, it limits itself to buying government debt, Treasury bonds. It is now directly buying other debt, such as bonds representing bundles of home loans (Mortgage Backed Securities).

If these debts are paid off, then the money created will not cause inflation. If not paid off, the losses show up as inflation, the decreased value of all money.

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