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Dec 9, 2010

Property and Pigs

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.

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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?

Dec 7, 2010

Your Dog Owns Your House

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."

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.

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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.

Nov 22, 2010

The Five Stages of Understanding the TSA

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.


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?

Nov 20, 2010

Health Insurance Thirst Mandate

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.

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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.

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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.

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Company Paid Health Insurance is Part of Your Salary

People are already personally paying for their "employer-paid" insurance. They don't buy it directly so (1) it doesn't attach to them when they change jobs, (2) and they can't shop for the insurance they might want.

Nov 14, 2010

Fed Imposes $600 Billion Tax

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.

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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.”

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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.

Nov 11, 2010

Eliminate Earmarks

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.

Nov 7, 2010

Comment - Caring and Reality

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.

Nov 5, 2010

Quip - Why more taxes for Obama?

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.

Oct 31, 2010

Why the Stimulus Package Failed

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 Spending Doesn't Work
10/01/09 - WSJ Opinion by Harvard economists Robert J. Barro And Charles J. Redlick

Our research shows no evidence of a Keynesian 'multiplier' effect. There is evidence that tax cuts boost growth.

Stimulus is probably the worst bill since the 1930s'
02/09/09 - Examiner.com by William Dupray

The Kennedy, Reagan, and Bush-43 tax cuts spurred the economy back into shape. By contrast, the FDR spendfest in the 1930's did nothing, like similar attempts in Japan and Argentina to spend their way out of recessions.

Obama's tax increases could kill economic recovery
05/14/09 - Examiner.com by Hans Bader

Harvard economist Martin Feldstein has advised Obama. He says, "the barrage of tax increases proposed in President Obama’s budget could kill any chance of an early and sustained recovery.” He compares Obama’s tax increases to the ones that contributed to the Great Depression and the “Lost Decade” of economic stagnation in Japan.

Congress Blew The Stimulus.  Beware A Double-Dip In 2010.
01/03/10 - Business Insider by Joe Weisenthal

Harvard economist Martin Feldstein  [edited]: 

I supported the $800 billion fiscal (spending) stimulus, to the dismay of my conservative friends. But, the design of the stimulus was was poorly done by Congress. It delivered much less than its price tag suggested.

So far, the stimulus has helped push the economy out of recession, but other negative forces raise questions about its durability. There is a significant risk the economy could run out of steam sometime in 2010.

Please, No More Government Spending!
The Daily Beast by Vernon L. Smith

Prof. Smith is the George L. Argyros Professor in Finance and Economics at Chapman University, and received a Nobel prize in Economics in 2002.

[edited]:  You were told that the stimulus was justified because it would start a recovery that would increase output (jobs) by more than its increased cost. But, you are skeptical that there has been any recovery, and think that you have been misled by the president and the economic experts.

Our best shot at increasing employment and output is to reduce business taxes, and reduce the impediments and cost of creating new start-up companies. Don’t subsidize them; just reduce their taxes, even as they become larger.

200 Economists Oppose the Stimulus Plan
01/27/09 - Open Market by Cord Blomquist

Mr. Obama says: "There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy."

The Cato Institute collected 200 economists who oppose the stimulus package, including 1986 Nobel Prize economist James Buchanan. He won for explaining how government economic policy is affected by politicians’ self-interest and non-economic forces. Those 200 signed this statement  [edited]: 

With all due respect Mr. President, that is not true.

You claim that all economists are now Keynesians and that we all support a big increase in the burden of government. But, we the undersigned do not believe that more government spending is a way to improve economic performance.

More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan’s “lost decade” in the 1990s.

It is a triumph of hope over experience to believe that more government spending will help the U.S. today. Policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to improve the economy.

Oct 28, 2010

Stimulus Produces Stagnation

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 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

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.


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.


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.

- -
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.

- -
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.

- -
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.

- -
Daniel J. Mitchell  reports on a few cases where governments realize that stimulus doesn't work.


Oct 14, 2010

Selling Us What We Won't Make

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.

- -
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.

- -
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.

- -
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.

Sep 17, 2010

Annals of Government Medicine

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.


02/27/11NHS 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.

02/14/11Death 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.

02/01/11Neglected 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.

12/29/10Man'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.

09/17/10Much 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.

08/04/10In 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."

07/31/10Dying 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.

07/28/10Britons 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.

07/18/10Saving 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,

04/29/10Berwick 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."

04/18/10Pay 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.

03/26/10Layoff 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.

03/21/10Downgrading 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.

03/06/10Dangerous 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.

03/05/10Shutting 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".

02/24/10400 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.

11/26/09Poor 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.

09/28/09Waiting 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.

Sep 5, 2010

Romer is Theoretically Correct

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 Advisors, 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].

[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 YodaDo 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?

Jul 25, 2010

Martian Gold

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.

A large part of the populace works for the government or on government supported projects, for money that has been borrowed or newly printed. The government is not building much of value to the public. So, what will those dollars and debts be worth in the future, when there is little of value to humans to exchange back for the dollars?