Tuesday, September 7, 2010


Economists sometimes use the “dig hole / fill hole” scenario as a way to illuminate a point. John Maynard Keynes, the Guru of Demand Side Economics used the example himself in his writings, though not as a serious remedy for anything, but rather as a springboard for analyzing ways to stimulate employment and demand.

Fast forward to today. Have you been on a road-trip lately? Remarkably, the Obama economic policy appears to be one of digging holes, and then filling them in again. Here’s how it works: First they dig the existing pavement down about 2-3 inches, and then they fill it right back in with 2-3 inches of hot, smelly, new asphalt. The road ends-up almost exactly the way it started, only marginally smoother. Meanwhile, we are all stuck in grid-lock while this make-work proceeds at a union-mandated snail’s pace. No wonder many Americans have given up looking for work entirely and just settle for the 99 weeks of unemployment checks. They can’t possibly drive around and look for work, much less get to their first day on-time!

Tomorrow Obama will announce that he wants to double-down on this losing bet with a new stimulus plan of 50 billion borrowed dollars aimed at, surprise surprise: re-surfacing roads, runways, bridges and tunnels. Is this dude serious?

Now that the idiocy of his economic plan has been revealed by the numbers, Obama himself is dropping like asphalt in the polls. Apparently his support was much like the holes being dug on the roadways:  miles wide, but only 2-3 inches deep.

Saturday, August 14, 2010

A Modest Proposal

Now that President Obama has come out in favor of the mega-mosque at ground zero , it opens up an opportunity to combine some of the Prez's most important priorities into one neat solution.  Recall that the head of NASA, Charles Bolden,  revealed to Al Jazeera that Prez Obama has directed NASA to make it's "Primary Mission" outreach to Muslims.  Recall also that Louis Farrakhan and his Nation of Islam (Obama is a supporter and ally) believe that there is a spaceship called the  "Mother Wheel" which orbits the planet and...well, nevermind.  So let's see, we need a giant place for Muslims to worship, check, we have the full resources of NASA, check, and there is already a Mother Wheel circling the planet, check mate.  Hmmm, I love it when a plan comes together!

Tuesday, June 8, 2010

Skim, Baby, Skim!

Hey, I'm no community organizer, but this oil slick is sure crying out for one.  Wouldn't it be great if someone figured out a way to organize the entire world so it would quickly mobilize and clean-up that oil for us?  Interestingly, there is an organizing technique called a "market" and when harnessed through incentives, it is the most powerful tool in any organizer's quiver.   If a decent community organizer was in charge today, he'd surely turn the market loose by paying a huge BOUNTY for any recovered oil. 

Imagine what a bounty of 10 times the going price for a barrel of oil would do:  Do you suppose an idle Saudi tanker or two, half-way across the world, might make a bee line to the Gulf of Mexico to skim millions of barrels of oil and make a huge profit?  Heck yeah!  Might you lease a monster boat and head for the Gulf if you were an unemployed sailor with some equally idle mates?  Would some Somali pirates turn their talents to skimming oil instead of ransom?  Might Turkish ships turn to skimming black gold instead of running Gaza blockades? You betcha! You betcha! And you betcha.  

But alas, community organizers who understand markets and incentives are in extremely short supply, so instead of a solution, we get threats of an "ass kicking".  Now who wouldn't want to sail around the globe and skim, baby, skim, for a good ole' ass kickin'?           

Tuesday, June 1, 2010

Ground Zero Mosque

By now you've probably heard about the 13 story mosque being proposed a stones-throw from ground zero in New York. The city has approved the plan and Mayor Michael Bloomberg has warmly embraced the mega-mosque as a symbol of American tolerance and freedom of religion. Yada yada yada.

This is not the last time we will be duped by “takia” (or "taqiyya"), the concept in Islam that amounts to a command to never speak truth to infidels. We hear the soothing words of the so-called “moderate Muslims” and repeat the unsupported mantra that most Muslims are vehemently opposed to terrorism and support tolerance and freedom of religion. That is absolute hogwash and The Mayor of New York should at least understand this and remain neutral. This mosque is an end-zone dance on the graves of the 9/11 victims and must be understood as such. As prominent New York Rabbi Joseph Potasnik stated, “Just because something is legal, doesn’t make it right.”

Yes, the Mosque should be allowed as a matter of law and so should my proposed project which will surround the 13 story mosque on all four sides:  First there will be the “Divine Church of the Naked Female” a 20 story building shaped like, well, a sexy naked female and built directly on the Mecca side of the mosque looking down on it. Next would be the new home of the “US Hog Farming Association”, a 15 story building shaped like a pig and just to the right of the mosque. On the other side would be a giant synagogue (no view of the USHFA bldg.) also towering over the mosque and shaped like either a Star of David or the State of Israel. To the rear and shaped like a large cocked working catapult complete with flaming catapult ball would be the new “Museum of Crusader Victories”, a 20 story monument to Christian victories during the Crusades.

Peace be upon you…

Stupidity Defined

If you’ll permit me another health analogy ( I just love ‘em!), what would you learn from the following scenario? After a lifetime of smoking, eating junk food, being sedentary, and feeling mostly ok, you then play a few minutes of basketball only to suffer horrible chest pains. If you were intelligent, you might heed the warning and quickly change your lifestyle, quit smoking, eat healthy foods, exercise regularly, and play basketball only within your fitness level. If you were downright stupid, and knew nothing about health, you might conclude the opposite and determine that exertion is just totally unhealthy. After all, you never had chest pain before! Obviously, exercise is way too dangerous and should be avoided at all costs while smoking, eating junk food, and sitting around is the way to never have chest pain again. Phew, glad we dodged that bullet!

The latter is exactly the policy equivalent of Barack Obama and the ruling Democrat party when it comes to the economy. According to their Re-Distributionist and Demand Side Economic Policies, free markets, hard work, risk, reward, and equality of opportunity are the bane of our economic system when in-fact, they are the healthy lifestyle and cardio-vascular excercises which have made us a vibrant healthy economy for much of our history. Re-distribution, Demand Side Economics, bailouts, government takeovers, and equality of outcomes are the cigarettes, junk food and sedentary lifestyles which are the official policies of our current government.

The next basketball game is going to be very interesting…

Thursday, May 27, 2010

Another Katrina?

If I told you there was a leak in a gold pipeline and gold coins were spewing out all over the bottom of the ocean, you would know some intrepid treasure hunters would be on the case recovering all that free gold. So why is precious oil washing up on the marshes of Louisiana and why has this become such an environmental disaster? Why doesn't BP offer a bounty for every barrel of recovered oil?  Is it possible that loose oil is just too difficult to recover? No, I don’t believe that’s the problem. This spill is a lot like Katrina in the sense that it shows how, for a number of reasons, we are incapable of taking care of ourselves in a crisis.

I used to be in the waste-water treatment business and I can tell you that, (this is going to surprise you), water and oil do not mix. Moreover, oil tends to float. Much of it is just sitting on the surface! The technology for separating oil and water is simple, cheap and plentiful. All we would need is a bunch of unemployed sailors, (like maybe fishermen who can’t fish), some barges with giant tanks, a bunch of huge pumps, floating skimmers, some hoses, and land and/or sea based oil water separators.

The problem with this is, the permits for all this would take some two years to get, the equipment would most likely have to be imported, the fishermen are getting unemployment checks so don’t need to work, there’s probably more money in a juicy lawsuit, the environmentalists want the issue around for political gain, and besides, the government will bail everyone out anyway, so why sweat! Meanwhile, the oil floats and spreads out.

Isn’t that just like Katrina? New Orleans didn’t have to worry about building their city below sea level in hurricane alley because the Government built them a nifty levee system and then threw hundreds of billions at them when it failed. Private donations are still flowing like water and they got to use the whole fiasco for political gain. It worked so well, they are rebuilding below sea level again.

Ben Franklin famously said; "Those who would trade liberty for security deserve neither."  Ronald Reagan went further and said;  “You and I are told increasingly that we have to choose between a left or right, but I would like to suggest that there is no such thing as a left or right. There is only an up or down -- up to man's age-old dream -- the ultimate in individual freedom consistent with law and order--or down to the ant heap of totalitarianism, and regardless of their sincerity, their humanitarian motives, those who would trade our freedom for security have embarked on this downward course."

We always think of totalitarian regimes as those led by a strongman like Saddam Hussein, Fidel Castro, or Kim Jong il, but is it possible that all that's needed for totalitarianism to flourish is a culture of dependency and an illusion of security? 

Monday, May 24, 2010

Aspirin was Invented in Europe, Right?

There are about 60,000 miles of blood vessels in the human body. Yet if a pinpoint sized blockage occurs in exactly the right spot, it can quickly kill a person with 59,999.99 miles of otherwise healthy blood vessels. All it takes is one strategic blockage to bring the whole system down. Want an aspirin?

With that in mind, consider the line of argument you may have heard about the financial meltdown and how it could not possibly have been caused by subprime loans and the Community Reinvestment Act (CRA). The argument goes something like this: “Yes, there were some subprime loans that went bad and some of them were even mandated by the CRA which Bill Clinton re-wrote along with help from Barack Obama and ACORN to force banks to make really bad loans and yes, the bad lending was massively encouraged by Fannie Mae and Freddie Mac which again was championed by Clinton, Obama, ACORN, the Congressional Black Caucus, and the entire Democrat Party with an assist from some key Republicans including even George W Bush. But there were nowhere near enough of these government sponsored bad loans to explain the systemic meltdown we saw in 2007 and 2008. Nothing to see here. Move along.”

What is so fascinating about this argument is that I’ve heard it from some of the same economists and “experts” who argue that Greece may cause a chain reaction and bring down the Euro, then Europe, then the Northern Hemisphere, and finally the World! So we are being asked to believe that a country with about 2% of the entire GDP of Europe can bring down the whole world while Fannie Mae, Freddie Mac and the CRA couldn’t possibly have been the blockage that gave the financial system a coronary?

Can both of these views be right? Is most of Europe healthy to start with? Was the rest of the US mortgage market healthy too? What if there is both disease and a strategic blockage? I’m jus’ askin’.

PS You may want that aspirin just in case…

Tuesday, May 11, 2010

Economics, Morals, and Linkage

Let's do a simple thought experiment:  imagine a world where you could ingest any substance you wanted, and some other anonymous sucker would suffer the consequences. Want a whole cheesecake? Fine! Eat away and some Mongolian or Kazakh would put on the weight. Want to get drunk on whiskey and beer? Go ahead. Some African or Israeli will get the hangover. Like fried foods? Not to worry. Live on fried chicken and french fries and some other sucker will suffer the coronary.

How long do you think we'd survive as a species in that world? I'd give us about a week. The only thing that's kept us alive all these centuries is the accountability of knowing that high risk behavior could kill us. End accountability, end the linkage, allow the amoral transfer of unlimited risk to anonymous others, and we are doomed.

Guess what? That is the economic world we live in and the death spiral is playing out in various places around the world including the US.

What do Greece, California, healthcare, runaway deficits, the mortgage meltdown, rising taxes, and high unemployment all have in common? Yeah, I know they are all in the news, but that's not the answer. No the correct answer is that in all cases, these things got to crisis levels because of Demand Side Economics (DSE) and its breakdown in Economic Linkage. Economic Linkage is the degree to which benefactors and beneficiaries are in a direct relationship. Once the link is broken, the amoral nature of DSE is obscured thus opening the door to the death spiral. That is the scenario we are seeing played out today.

In a previous post I defined Demand Side Economics (DSE) and this would be a good time to read it, or re-read it. Go ahead, follow the link. I can wait... The Irony of Keynes - Demand Side Economics

Ok, now that you have the background, you may be asking; Why would we fall for DSE time and time again after being burned whenever it is tried? And how do we get around the moral problems of DSE redistribution? The answer is Linkage. No linkage, no direct moral confrontation. We are allowed to act in morally ambiguous ways when the victims are anonymous. This is why Air Force pilots have an easier time dropping a bomb on a city than an infantryman does killing one person in hand to hand combat.

In Greece, the Greek beneficiaries of DSE who could retire at 53 with full pay and sail the Mediterranean knowing that some German would keep working and eventually bail out his bankrupt government was acting rationally, though not morally. The Californian legislator who kept himself in office by delivering DSE goodies to his constituents while bankrupting his country and state knows Washington will bail him out and stick the bill with some hard-working unborn innocent in Kansas. He is acting rationally, but not morally. American taxpayers and voters know they are passing debts onto their children and grandchildren, but hey, they like their social security, medicare, mortgage deductions, and new right-to-healthcare more than their obligations to someone else's kids. They are acting rationally but amorally too. The thing is, we are good at morals when faced with judgement face to face. But what if the poor sucker who has to pay for our greed is someone we will never have to face? This is how civilizations die.

Saturday, May 1, 2010

Voter Avoidance Tax

The VAT is coming. By now, enough trial balloons have been launched that it is beginning to look like the movie “Up” where the entire house takes flight under a colorful canopy of helium filled gum-drops. The “Value Added Tax”. The name alone is enough to make statists get a tingly sensation running down their legs. What is it about this particular tax that so sparks the imagination of Big Government types? Well, for one it’s a hidden tax. Second, it's a stealth tax. And third, it is a tax that no voter will ever be aware of paying. Wait a minute, all three of those things are the same! That’s just it, the hidden nature of the VAT is it’s only “Raison D’etra”. (that’s French for we’re all screwed...)

The VAT collects a ton of money, requires a huge expansion of police power, no one pays it directly, and politicians can raise it endlessly without ever being held accountable. In short, it is the perfect tax from the government’s perspective. From the citizens perspective, not so much. When you hear VAT, think “Voter Avoidance Tax”. It’s the perfect crime.

Thursday, April 29, 2010

The Biggest Derivative of All

So all of Washington has declared war on "Synthetic Derivatives" and the institutions which issue and trade them.  Did it ever occur to these geniuses that the biggest "Synthetic Derivative" of all is the US Dollar?  Chew on that one for a moment. 

Goodbye Supply Side

(This is in response to an article, "Goodbye Supply Side" , which appeared in the May 3rd issue of National Review)  

In “Goodbye Supply Side”(National Review, May 3), Kevin D. Williamson blurs the definitions of Supply Side Economics, the Laffer Curve, and their relationship to each other in an otherwise cogent piece about runaway government spending by both parties. Supply Side Economics and its opposite, Demand Side Economics, deal with the behavior of individual economic actors and their propensity to create economic activity under certain circumstances. The Laffer Curve deals with government revenues and its relative levels under certain circumstances. While taxes are involved in both formulations, that is the extent of the overlap. One is about government and the other about the economy. Mr. Williamson blurs the lines in an attempt to discredit one by disproving the other but succeeds in neither attempt.

One way to square the circle for Mr. Williamson would be to state the definition of Supply Side Economics in contemporary terms and by doing so, solve the conundrum of spending, taxes, and growth which he is addressing. The contemporary definition of Supply/Demand Side Economics is as follows:

    • Supply Side Economics is the theory that People free of government imposed wealth re-distribution* will maximize the Supply of labor and the desire to produce, which will maximize the Supply of goods and services and hence, maximize economic activity. (Production Rules!)

    • Demand Side Economics is the theory that Government imposed wealth re-distribution* will maximize the Demand for goods and services and the desire to consume, which will maximize the Demand for labor and hence, maximize economic activity. (Consumption Rules!)

*In both cases the wealth re-distribution can be from taxes or regulation and may be from rich to poor, generation to generation, state to state, group to group, etc.

You’ll notice that these contemporary definitions hinge on government imposed wealth re-distribution which is the root cause of overspending and the heart of the dispute between these two theories. Prior to the death of The Constitution (pick your date), we had a self-limiting government which performed a few essential things which allowed the US to prosper like no other country on the planet in an un-intentional and un-equivocal Supply Side proof. Now that we have un-limited government, we can never control spending without a return to The Constitution and will most likely end up in a death spiral of debt rate-spreads and currency devaluation. Think Argentina and Greece on steroids. Goodbye Supply Side indeed.

Tuesday, March 30, 2010


The following post is copied from it’s origin text except the words rape and rapist have been changed to coup d’etat and offender. I hope this helps with the adjustment.

Oh, and to all those optimists who believe Obamacare repeal is possible? Ask any rape victim if that is an option! (Also, to any rape victim, I apologize for stretching the analogy.)


Every person going through a crisis (regardless of the type of crisis) progresses through stages of emotional adjustment. The following information is a simple guideline for understanding what a coup d’etat survivor may experience during the period of adjustment after a coup.

There is no set time-line. Adjustment is an individual, personal process; it varies from person to person, and situation to situation. Some may spend a great deal of time in one stage and only touch lightly on another. The survivor may also encounter a spiraling effect while passing through a number of the stages over and over again, each time experiencing them with a different intensity.

Anyone close to the victim may also experience these stages as s/he, too, adjusts to the crisis of a coup d’etat.

Offering information to the survivor during this stage is not helpful, as s/he will likely remember very little, if anything, about what occurs during this time period.

•DENIAL—“Not me, I’m fine.” “This can’t have happened!” “It’s not that bad.”
Not yet able to face the severity of the crisis, the survivor spends time gathering strength. The denial phase serves as a cushion for the more difficult stages of adjustment that follow.

•ANGER—Rage, Resentment… “What did I do?” “Why me?”
A survivor’s anger may be the result of having experienced a loss of strength or loss of control over her/his life. The anger may be directed toward the offenders, a doctor, the police, or anyone else, including her/himself.

•PLEA-BARGAINING—Rationalization… “Let’s go on as if it didn’t happen.”  “I should be finished with this by now.”
This is another form of denial wherein the survivor sets up a bargain: s/he will not talk about the coup d’etat in exchange for not having to experience further pain. The other half of the bargain is that friends and relatives will also stop talking about it and pretend that it never happened. In so doing, s/he continues to deny the emotional impact the coup d’etat had on her/his life.

•DEPRESSION—Denial no longer works… “I feel so dirty, so worthless.”
If the survivor is warned of this stage ahead of time, s/he may not be so thrown by this experience. Though painful, this stage signifies s/he has begun to face the reality of a coup d’etat. As s/he allows the negative emotions to surface, s/he should be reminded that these feelings are normal and will not last forever. S/he should, however, be aware of symptoms of severe depression during this stage, for example: drastic changes in sleeping or eating habits, compulsive rituals or generalized fears taking control of her/his life. Professional counseling may be advisable.

•ACCEPTANCE—“Life can go on.”
When enough of the anger and depression is released, the survivor enters acceptance. S/he may still spend time thinking and talking about the coup d’etat, but s/he understands and is in control of emotions; s/he can now accept what has happened.

•ASSIMILATION—The coup d’etat is put into perspective.
By the time the survivor reaches this stage, s/he has realized her/his own selfworth and strength. S/he no longer needs to spend time dealing with the coup d’etat, as the total coup d’etat experience now meshes with other life experiences.

Friday, March 26, 2010

Constitutional Music

In 2008, the Supreme Court barely upheld the second amendment by a narrow 5-4 decision in DC v. Heller. The second amendment is all of ONE SENTENCE LONG and we’ve been debating its meaning for 220 years. It couldn’t be simpler. Yet it barely squeaked by with nary a vote to spare. A similar case, McDonald v. Chicago, is in the court right now and as usual, all bets are off despite that one, single, simple, clear, sentence.

Now we have a new “right to healthcare” paid for by others. This week, a President with no private sector experience along with his similarly inexperienced party, rewired 17% of the US economy with the stroke of a pen and a new 3000 page law. Remember, the second amendment is one sentence long! How are we going to interpret our new 3000 page right to healthcare? Of course, unlike the right to bear arms, which hangs from a thread, the right to healthcare is not in the constitution.

Nor is the “right” to Social Security, Medicaid, or Medicare, but the court has never done anything about them either. These programs are like “Deem and Pass” amendments, unofficial changes to the constitution that we have selfishly agreed to allow because, hey, we like free stuff. All the while, we shamelessly stick our kids and grandkids with the bill, but we’re worth it, right?

Roe v. Wade is based on another non-existent right, the so-called “right to privacy”. This right was based on a “penumbra” or weak shadow, cast by the bill of rights. Seriously, that’s how they justified it. The imaginary right to privacy was conjured-up by lawyers looking to find exactly what they needed in the constitution.  It is made-up. Yet that hasn’t stopped this law from surviving for some 26 years.

We just watched the spectacle of the President berating the Supreme Court in his State of the Union Speech because they had the temerity to uphold the first amendment in Citizens United v. FEC.  Again, that was a narrow 5-4 decision on the really complicated first amendment. (Another behemoth at one sentence long!)

In short, rights that really are there, in clear language, must fight to within an inch of their lives, while imaginary rights, like the latest one, are cheered through with parades and marching bands.

So I ask: If the constitution can mean anything, is it not really meaningless? Picture an orchestra warming up. There is no rhythm, no melody, no key, no limits, and no beauty. Just avant-garde, progressive noise. That is the music of our modern US constitution.

Tuesday, March 16, 2010

The Healthcare Gecko - Revisited

Here’s a question for you: Why is there no healthcare Gecko? Wouldn’t it be great if 15 minutes could save you 15 percent or more on health insurance? For that matter, where is the Progressive girl with the red lipstick selling health policies? Is it possible that this is the real problem? Is it possible that the reason this is a crisis is that there is no such thing as a true individual market for healthcare? The fact is, only about 5 percent of the insured buy their own health insurance. The other roughly 95 percent get their insurance from the government or their employer. For car insurance the numbers are reversed and there is no similar crisis in that market. Now that Warren Buffet, the other guy from GEICO, has spoken out on healthcare and recommended starting from scratch, perhaps he’ll push for an individual market. Then again, he would be accused of having a conflict of interest, so on Mr. Buffet’s behalf, allow me to make the belated case for the healthcare Gecko. 

First, how is it that we ended up almost entirely removed from our healthcare purchases? The original sin dates back to FDR and WWII when wages were frozen and companies found a loophole by deducting benefits. Like many loopholes, this one grew into the monster it is today and along the way it carved in stone the expectation that healthcare is someone else’s responsibility. That expectation has led us down a path towards distorted markets, rigid employer-paid insurance, ever increasing government involvement, and skyrocketing costs. Meanwhile, the car insurance market keeps innovating and improving.

Comparisons of car insurance and health insurance are of course not always appropriate. The President is fond of comparing mandatory car insurance with a mandate for health insurance. I suspect Mr. Obama knows the difference between mandated liability coverage, and a mandate to cover one’s self. These are not comparable. I’m not aware of any state that mandates insuring your car, only the harm you may cause to others. I suppose one could argue that society is harmed when a person receives medical care and doesn’t pay, but I would suggest that those who are indigent be covered by Medicaid and those who are not, pay their medical bills or be penalized. Ask any hospital administrator what it’s like collecting money from patients today. Then ask an auto mechanic. The latter has it much easier.

Some may say healthcare is way more expensive and complicated than car insurance and hence individuals can’t be expected to understand it or afford it. Did you ever try to read your auto policy cover to cover? And while car insurance itself is much cheaper than medical coverage, did you know that individual Americans spend on average four times more on transportation than they do on healthcare? Is your car really four times more important than your health?

Some may say that owning a car is a choice but healthcare is a right. Well if that’s the case, we should amend the constitution because that right is not currently there. Incidentally, It would be the first time since slavery that one person would have the explicit right to compel another to work for his benefit! In fact, if you think about it, any government entitlement not fully funded by its recipients, amounts to a claim on the labor of others. Most of the time, we accept that burden to help the needy, but too often we are just enriching ourselves and passing those claims onto future generations through deficits. Pretty selfish don’t you think? Is that the way you want to fund your perceived right to healthcare?

Short of that, here’s a way out led by the healthcare Gecko, and the cost is neutral to all parties involved: Step one: Eliminate the tax deduction for all employer paid health insurance, and Step two: Offset the tax consequences with a reduction in payroll taxes. That’s all it would take to establish an individual market and finally begin the healing process.

Here’s how it would work: Employers losing the deductibility of health insurance would be compelled to transfer the policies to their employees and gross-up their wages accordingly. The result would be marginally higher taxes for both the employer and employee which would then be offset by a commensurate drop in payroll taxes. It may not be exact for each individual, but the aggregate would be completely neutral.

TV commercials would begin running instantly showing piles of cash with googly eyes, cavemen, talking lizards, and girls with red lipstick. Employees would be able to control their own healthcare decisions and take full advantage of their positive lifestyle choices. If you are a tri-athlete working for a donut company, which group would you rather be rated with, the tri-athletes or the donut tasters? Those currently without employer coverage would suddenly have a multitude of offers thrust at them from companies clamoring for their business. They’d also have more money available to buy insurance due to the lower payroll taxes.

To be sure, there are other issues in addition to cost that an individual market alone cannot address, but those are subjects for another day. Suffice it to say that once voters are made the masters of their own healthcare destiny, the other issues like subsidized insurance for long-term pre-existing conditions, portability, and tort reform will all get addressed or politicians will pay at the polls. Currently, politicians are insulated from these issues because most people just blame their boss or the insurance company they are stuck with.

Of course, we would still have a subsidized public option called Medicaid for those unable or unwilling to participate in the individual market. But, as competition lowers costs and increases choice, we would likely end up with a much smaller and sustainable Medicaid. Wasn’t that one of the original reasons we were told this was a crisis?

Recall how we got here: It was a mistake; a loophole; an unintended consequence of a WWII wage freeze. Knowing that, wouldn’t undoing that mistake be a great place to start? The polls show that the people instinctively know this. Unfortunately, politicians have a long history of being able to convince enough people to stick the next generation with their bills, and because of that, Obamacare is a fait accompli.

Sunday, March 14, 2010

Healthcare Palestinians

There is a piece in the NYT today about how Jordan is stripping citizenship from long time Jordanians who trace back to pre-Israel Palestine. The Arab countries have long believed that the best way to destroy Israel was to maintain an army of angry Palestinian refugees. Keep them poor, keep them in refugee camps, keep them oppressed, and don’t ever let them assimilate into the vast Arab lands surrounding Israel. To a frightening extent, this diabolical and inhumane scheme has worked wonders and the lesson was not lost on those in the US who seek to destroy any semblance of a free market in healthcare.

For decades, proponents of socialized medicine and enemies of free markets have known that tax policy was twisting the healthcare market into a nefarious monster which forced Americans into employer-paid coverage. They knew we’d be uncomfortably tied to our employer, forever in fear of losing our jobs, angry at insurance companies we did not choose, and unable to insure ourselves. The simple fix of ending employer tax deductions was never to be allowed lest the dream slip away. In short, we were forced into healthcare refugee camps for crass political purposes.

To a frightening extent, this vile scheme has borne fruit and we are about to witness its bitter harvest…

Friday, March 12, 2010

Healthcare Diagnosis

This one is for any fence sitters on Obamacare. I sympathize with anyone who is busy raising a family, earning a living, trying to catch an occasional movie, and somehow hoping to keep up with current events too. Who has the time to fully research a complex issue like healthcare and understand a 2000 page government make-over?

When doctors approach a health problem, they are careful not to confuse symptoms with underlying diseases. That holds for any complex system like economics, computers, rockets, or automobile accelerators. When things go wrong, separating the underlying causes from the resulting effects can be mighty difficult.

This past Tuesday, there was an angry rally outside a meeting of insurance executives in Washington, DC. Protesters called for the “citizen’s arrest” of insurance executives for alleged crimes against humanity. I saw one sign that read “The Market is the Problem!” I’ve heard this before from supporters of Obamacare. According to them, the “market” is the sickness; it has infected the healthcare system, and government control is the cure.

This particular protest, like many in favor of Obamacare, was sponsored by labor unions who desperately want direct access to the US Treasury’s printing presses and insurers currently stand in the way. I’m not suggesting every supporter of Obamacare is a union member, but unions are really motivated here and they are helping shape the debate. They need a scapegoat and insurers and “the market” are rich ones, especially in the wake of a financial market meltdown.

But is there really a functioning “market” in healthcare? Could a lack thereof be just a symptom of some other underlying disease?

Think of markets you interact with everyday. Take food for instance. You use your money, even if you spend food stamps which are issued to you. You choose your items after inspecting them and reading labels. You choose your sources. You price compare. And finally you decide how to consume the items you bought. At every stage of the retail food market, there is direct linkage between the buyer and the seller and a direct exchange of value. Every market that functions properly has these same attributes and linkages.

In healthcare, the linkage has been broken since WWII, to the point that now, there is no direct exchange of value and no direct linkage between buyers and sellers . It started with an unintended consequence of a WWII wage freeze when companies were allowed to deduct health insurance while individuals were not. This seemingly innocent tax tweak, has rendered any discussion of a functioning “market” in healthcare ludicrous. There is no such thing. Thus, “the market” can’t be the disease if in fact, it was the first victim!

When was the last time there was any connection between a health service you received and the payment you made? That $25 copay? It doesn’t qualify. The $400 you paid for your kid being born? I don’t think so. The $5 prescription at the pharmacy? No. Even if you buy your own insurance, the linkage has been ripped away due to “first-dollar” coverage.

Once corporations were given an advantage over individuals, the race was on to maximize the value of the deduction. That led to “first-dollar” coverage instead of actual insurance. When that happened, the perception that healthcare was no longer the responsibility of the individual set-in. Medicare was just a logical extension of that mind-set. If your employer pays for your healthcare until you retire, how can you be asked to suddenly take-over at age 65?

After Medicare took over for those over 65, the market was officially dead. Between Medicare, Medicaid, and SCHIP, roughly half the medical services provided in the US are already socialized. Prices are distorted beyond recognition as providers must make all their profit from half their business. All but a fraction of the remaining “market” is paid for by your employer. The necessary linkages and exchanges for a functioning market are simply non-existent.

Those insurance company executives who were being threatened by the angry protesters, do not answer to individuals. They have not done so for over 50 years. They work for your boss, not you. That makes them a convenient scapegoat, especially for the union workers who see them standing in the way of the government trough.

Democrats, once they understand that there is no such thing as a functioning market in healthcare, need to ask themselves why it has not been fixed after all these years. For that, they need look no farther than the nearest mirror. Their mantra, at the expense of the American people has been; never let a good scapegoat off the hook!

The fix has been around for years. End the employer deduction, and offset the tax implications with lower payroll taxes. Companies would transfer the health policies to their employees, gross-up their wages, and pay lower payroll taxes in exchange. Employees would make more money, buy their own policies, and pay lower payroll taxes to offset any tax implications. This simple fix would restore a functioning market, at least for the remaining un-socialized half.

The poor would end up with an improved Medicaid, and the rest would have unprecedented access to health services through competition. Costs would be driven down and innovation up just like in any other market. Is your cell phone better and cheaper today than it was yesterday? How about your music player?

Would that be it? No. We’d still have to end Medicare, which would be much easier once everyone saw that they can easily and cheaply buy their own insurance. We’d still have to subsidize long-term pre-existing conditions, we’d still have to allow inter-state competition, and we’d still have to cap malpractice claims.

But the cost crisis would be over, and that would be a political waste for some. This is the underlying disease.

Tuesday, March 9, 2010

Anyone Else Think This Toyota Thing is Creepy? - Part II

Early on in this Toyota saga I determined this was a takedown of Government Motor's biggest NON-UNION competitor.  But that was my gut as an observer, backed up only by the nuggets laying right on the surface.  Well, thanks to others who dig deeper there's more.  I defy you to read this piece on the Toyota Takedown by LibertyChick and not feel really nervous about what happens when governments and unions own big companies, and then join with their other branches, the lawyers and pop-media, to destroy a foreign non-union competitor.  When the history of this is written, we will wonder why we failed to connect the dots sooner.

Monday, March 8, 2010

Anatomy of a Myth IV – Obama is in More Danger than Other Presidents!

Have you seen the many references to the mortal danger President Obama is in from potential assassins? The latest piece appeared today in the UK Guardian . I’m not surprised we are seeing these stories because racist whackos could be an additional threat for Obama, but make no mistake about it, Presidents face danger as all modern ones have found out.  That said, Barack Obama is statistically much safer than even George W Bush was!

The tragic fact is that virtually every modern president has been the subject of some kind of assassination attempt. Every one. That’s not to excuse it, but to highlight that danger is part of the office. The job is not for the faint-of-heart. Some nut is going to try and fly a plane into your house (Nixon, Clinton, Bush 43), or blow you up (Kennedy, Bush 41, Bush 43), or just try to shoot you (Truman, Kennedy, Ford, Carter, Reagan, Bush 43). And that is all of them post-WWII!

But, going back all the way, your chances of actually taking a bullet are almost twice as bad if you are a Republican. Five have been Republicans, (Lincoln, Garfield, McKinley, Ford, Reagan) and three have been Democrats (Jackson, Truman, Kennedy).

As far as actual assassinations, three were Republicans (Lincoln, Garfield, McKinley) and only one was a Democrat (Kennedy). In short, your chances of being killed are three times worse if you are a Republican! Moreover, Kennedy, the only Democrat was a tax-cutting supply-sider. If you look at it that way, Barack Obama will die in his bed as an old man. Now, if he could only quit smoking…

Friday, February 19, 2010

Best Thing I've Read on the Financial Meltdown

This is the best thing I've read on the financial meltdown, (Thanks Cato) and if you are brave enough to read it, I'd ask you to consider a similar line of thought on healthcare.  Start by going back to WWII and the freeze on wages when companies figured out they could add insurance, write it off, and still dodge the freeze, which eventually led to Medicare, which eventually led to rising rates, which eventually led to...

Hat Tip: Instapundit

Cato: Perfect Storm of Ignorance

Friday, February 12, 2010

Where Have I Seen This Before?

So Barack Obama wants to sit down with Republicans and talk about healthcare. Thirteen months into his presidency and after shutting them out for the entire time, he wants to open a dialog. What ever happened to: “We won. Sit down. Shut up. We will clean up your mess. But we don’t want to hear from those who made the mess!”? Meanwhile, over at the House, Nancy Pelosi has announced that they are just going to bend some rules and ram the Democrat health bill into law with “reconciliation”, a ploy meant for budgeting and not major social engineering. Meanwhile in the Senate, Harry Reid has his own plan for sneaking his bill into law. This begs the question for Republicans; who is really in charge, and is there a credible partner for negotiating?

All these shenanigans remind me of what Israel goes through with the Palestinians. The Israelis make a deal with the elected leader of the Palestinians, who winks and nods to the militants, and they go and blow up a pizzeria or a bus. This cycle repeats on and on until finally the Israelis realize that there is no point in talking because no one is in charge! But they have to talk, because if they don’t, world opinion will turn on them even more than it already has for being a prosperous nation amidst all that Arab poverty. Besides, they get blown up whether they talk or not, so they might as well talk.

The Republicans, if they stay true to the Constitution and keep winning elections, will have learned a lesson that the Israelis have known for a while; Talk softly, but carry a big friggin’ stick!

Thursday, February 11, 2010

Obama Really is the Messiah!

Barack Obama truly is The One, The Messiah, or at the very least, a major Prophet. He has managed to do something that hasn’t been done since slavery. No, not the American kind, I’m referring to the biblical Egyptian variety, back when Moses was The One they’d been waiting for. Like Moses, Obama has managed to unite the people and start them on their journey to salvation, and just like biblical Egypt, the people have found comfort in their founding principles and are heading back to the Promised Land. Unlike ancient Egypt, this time the people got united by accident.

But are we really united? Are we not a seriously divided nation? Yes, we are divided in many ways, but I believe we may be more united than we think. In fact, I’ll bet you a gazillion dollars that regardless of your political views, for roughly half of the last 2 years, you had zero trust in the guy in the White House, thought he was lying through his teeth, thought he was doing unconstitutional things, and were sick of seeing him on your TV. Does that describe you? Are we not united here? The point is, no matter who we trust or don’t, or who we vote for, roughly half the time, the other guys are in charge! And it’s not like the ones we mistrust ever go away. There are still laws on the books from Washington (yeah, that loser.) Heck, we still have that useless Louisiana Purchase Jefferson stuck us with! You think, your cool guy is in, and the other jerk is out? Think again.

Our government is like a giant nightmare version of the Garden of Eden that has never been pruned. Sure, it started out simple and beautiful when all we had was our Constitution, but along the way we bit the apple, and now anything can be justified as Constitutional. The Garden is an overgrown mess. When the Constitution can be anything, it becomes nothing. It’s as if everything ever planted in our Garden of Eden, good or bad, constitutional or unconstitutional, by every administration, has just grown, and grown, and grown, unchecked. How many federal programs, agencies, taxes, or laws can you name that have ever been phased out? Not many, right? Do you really want all those weeds clogging up your once heavenly Garden? Wouldn’t it be great if we could agree to do some trimming and weeding and get back to that Promised Land of Constitutional Government? See, we really are united!

After the State of the Union Address, Peggy Noonan, who writes a weekly op-ed in the Wall Street Journal, pointed out that Obama’s message was essentially (and I’m paraphrasing) “Washington is hopelessly broken, but if you allow us to control your entire life, we’ll make sure all your healthcare, energy, climate, automotive, banking, defense, housing, food, drug, and employment needs are satisfied.” Yeah, right. It’s laughable on its face, especially when you realize that half the time, the people in charge of your entire life will be the untrustworthy, lying, stupid, jerks you voted against! And say what you will, none of that is in the Constitution.

Unwittingly, Barack Obama has become our savior. I’m not suggesting that he is doing anything right, in fact, by being so spectacularly wrong, he has become the Prophet his followers promised. Look around. Everywhere you turn the pendulum is swinging back and this swing is bigger and more profound than any in the past. Of course, the pendulum is always swinging. Remember how after Bill Clinton’s “character” issues, the pendulum swung to Bush 43 who ran on bringing dignity back to the oval office? And after Bush’s lack of brains and communication skills, the pendulum swung to a much smarter guy? Notwithstanding the fact that he thinks there are at least 57 states, can’t pronounce Corpsman, and needs a TelePrompTer to talk to school kids; he really does sound smart most of the time.

(Not to get sidetracked, but speaking of sounding smart, when Obama talks about economics or defense in particular, he reminds me of a character in “Fast Times at Ridgemont High”. Remember Mike Damone, the sleazy cool kid who talks a slick game about the ladies, but eventually gets exposed as a complete novice and fraud? Here’s some dialog I clipped from IMDB:

  • Mike Damone: I mean don't just walk in. You move across the room. And you don't talk to her. You use your face. You use your body. You use everything. That's what I do. I mean I just send out this vibe and I have personally found that women do respond. I mean, something happens.
  • Mark Ratner: Well, naturally something happens. I mean, you put the vibe out to 30 million chicks, something is gonna happen.  
  • Mike Damone: That's the idea, Rat. That's the attitude.
  • Mark Ratner: The attitude?
  • Mike Damone: Yeah! The attitude dictates that you don't care whether she comes, stays, lays, or prays. I mean whatever happens, your toes are still tappin'. Now when you got that, then you have the attitude.
Anyway, Obama reminds me of a pseudo-intellectual Mike Damone. Yeah, it’s a stretch, so what, who cares?)

Getting back to the pendulum, this swing started long before Barack Obama became President. Don’t you remember feeling helpless as Bush was shepherding the tragic TARP bill through? You probably had the same feeling when congress unanimously passed the first stimulus bill and Obama was not President then either. Ditto when Bush expanded federal control over education and prescription drugs for Medicare. Yeah, this swing of the pendulum has been going for a hundred years and it’s about the Constitution and its demise as a check on federal power.

I realize this is a familiar charge. Whenever we don’t like what a politician does, we yell “Unconstitutional!” Remember the outcry over Bush’s warrantless wiretaps? It’s the oldest charge in the book, but can you ever remember it getting traction before? Why now? And why is Obama the Prophet if he didn’t even start the pendulum swinging?

Because Obama gave the pendulum such a huge push! Nobel Economist Milton Friedman used to refer to the “Frog-in-the-Pot” analogy when discussing the shredding of The Constitution. That’s the classic analogy about dropping a frog in a pot of boiling water only to see it jump right out. Put that same frog into a pot of cool water, slowly bring it to a boil, and you’ll soon have a happily poached frog. In this case, we are the frog, and the flame cooking us is being stoked by the bi-partisan enemies of The Constitution.

Obama has turned up the heat so much in such a short time, that the frogs are jumping in droves. Would there have been Tea Parties if McCain had won the election? I doubt it. John McCain would have been almost as much an enemy of the Constitution as Obama. He wanted many of the same things. Heck, Obama hasn’t been overturned by the Supreme Court as far as I know! That’s an honor few can share with John McCain. But still, I think we would have behaved quietly as we did under Bush. We would have just enjoyed the warm bath like the compliant frogs we are. But instead we see this today:

                      Photoshop Hat Tip: www.humblelibertarian.com via www.michellemalkin.com

So what changed with Obama?
  • For one, we are supposed to be a nation of Laws not Men. Our Constitution is supposed to be our guiding light, not our leaders. Then along comes Obama with his Messianic shtick and personality cult and it just goes against the grain of who we are.
  • Second, The Constitution allows for the government to collect taxes, and over the years, the government has devolved into a virtual redistribution machine. The constitution does not say that the government can directly redistribute wealth, and that’s been a line few politicians have crossed. Then Obama came along and woke us up.
  • Third is his rhetorical assault on The Constitution itself. He has made no secret that he holds The Constitution in contempt and this is a bit too much for those of us who think it is the very thing that made this country what we are. (Not that any document is perfect. But we say, if you’ve got a problem with The Constitution, there’s an app for that; it’s called an amendment!)
  • Fourth, is the sheer audacity of his redistributionist agenda and its unprecedented assault on future generations.
  • And finally, there is the perception that he is not engaged as Commander in Chief; a job at the Constitutional core of our executive branch.
Yes, absent Obama we’d still be dozing off in that pot waiting to become frog soup, but his brazen Coup d’├ętat woke us up. (Yes, I think you can call it a Coup even though we elected him. And the “p” is silent like in Corpsman for those keeping score.) In this case, it's The Constitution, not the government which Obama and the Anti-Constitutionistas seek to overthrow. Luckily, we are now awake.

Thanks to the Obama awakening, concerned Americans are protesting in the street by the millions. Massachusetts, of all places, just ended a super-majority in The Senate. The Obama Administration is retreating on every single one of its agenda items. No incumbent from either party is a sure thing unless viewed as a strict Constitutionalist. John McCain is being challenged in his home state from within his party. Atlas Shrugged is a bestseller. People are once again reading the Constitution, The Declaration, The Federalist Papers, and reviewing American history. For Chris sakes, one of the highest rated cable news shows is a guy teaching American history at a blackboard at 5 O’clock!

These are nothing short of miracles. Barack Obama is indeed the Messiah.

Thursday, January 28, 2010

Anyone Else Think This Toyota Thing is Creepy?

I don't mean to sound like a paranoid conspiracy guy, but does anyone else think this Toyota thing is creepy? Think about the timeline: 

  1. Non-Union Toyota of Japan  passes Union GM of the US as the world’s largest auto maker.
  2. Union support of Barack Obama helps him win the Presidency of the US.
  3. GM goes bankrupt and gets bailed out by the US government which hands a huge chunk of the company to the UAW UNION.    
  4. Toyota is accused of  unanticipated acceleration, a dangerous problem that is very hard to prove.  Toyota cites floor mats and issues warning.
  5. Complaints persist and the US government insists on a recall.   
  6. Toyota is forced by the US government to cease selling those models, an unprecedented move in automotive history.  
  7. Non-Union Toyota sales and stock crash.
  8. Union and US owned GM sales rise nicely.  

If you were around when Audi was practically forced out of the US based on a similar charge, you know that there may or may not be a real mechanical reason for un-anticipated acceleration. In the Audi case, the whole thing turned out to be bogus at best, and at worst, a coordinated attempt to take-down Audi, complete with a scary "60 Minutes" segment!  Now, I know the Toyota case involves fatalities and therefore requires serious treatment, and I also hear that there is a suspect part, but until the problem is scientifically solved, I remain suspicious of this weird coincidence of Government Motor's biggest competitor being smeared by such a ubiquitous claim as unanticipated acceleration...

UPDATE:  Oh, and I forgot that $1,000 "incentive" GM is now offering Toyota owners to switch brands.  Where does a bankrupt car company, owned by the US government, get $1,000 checks???
UPDATE II:  Oh, and did you know that Toyota closed its only UNIONIZED plant in 2009???

Wednesday, January 27, 2010

Anatomy of a Myth III – Markets are Partisan!

On October 14th 2008, three weeks before the presidential election, The New York Times published the eye-catching chart below: (follow link for full size version)
Full sized NYT Chart
The chart graphically shows how since 1929, Democrats in the White House were far better at producing positive stock market returns than their Republican counterparts, and clearly the message was that a vote for Obama was a vote for galloping prosperity while a vote for McCain was a recipe for financial disaster.  Oh my God, run for the hills!

They say that if you torture data enough you can eventually get a confession, and this chart proves it - Khalid Sheikh Mohammad got better treatment! And yet there is not a single number I dispute on the chart. No, the problem is not one of accuracy, but rather of timing and the very premises on which the chart is based. The fact is, by appropriately correcting just the timing problems I was able to reverse the conclusion of The Times, but unlike the Grey Lady I would not suggest that you invest a single dime based on these more relevant results.

First to the premises: In order for there to be some relevance to this chart, one would have to assume a minimum of five dubious premises:

   1. Party affiliation is the determining factor in a President’s economic policies.
   2. Presidential economic policies are isolated from congressional policies.
   3. Political parties have had consistent economic policies throughout history.
   4. Markets live in the moment and are not in the habit of discounting the future.
   5. Markets were either irrelevant or not measured before 1929.

Not a single one of these premises is strong enough to hang your hat on, let alone bet $10,000!

To wit:  Were JFK’s economic policies anything like Barack Obama’s? Were Nixon’s anything like Reagan’s? How about the idea that Presidential policies are isolated from congressional policies? Was Bill Clinton the same President before ’94 as he was after? And how about parties being consistent over time.  Is that valid?  Hoover, a Republican, was a protectionist and Clinton, a Democrat, was a free-trader; what about Reagan vs. Obama on the same issue?

As for the 4th and 5th premises, they are just laughable but correctable, and to that end I reworked the chart. To account for the fact that markets are forward-looking I used equity values from 6 months prior to Presidential elections when markets are poised to react to the political calendar and when Presidents are referred to as “lame-ducks”. The Times chart uses values from the exact date of inauguration which assumes that the market has made no adjustment for an incoming President's expected policies. Anyone who follows the market knows that it is concerned with little else but the future!  Finally, to account for the fact that there is nothing magic about only going back to 1929, I went back to 1900 which coincides with the dawn of statistical movements in the Standard and Poors Index for which there is data back to 1871.

Here’s what I found:

                                                     S&P Data Source: Yale Professor, Robert J Shiller

1. From 1900 to today, Republican Presidents yielded average annual returns of 4.66% and Democrats 4.05%, and that includes Hoover!

2. Even since 1929, excluding Hoover, Republicans beat Democrats by 7.13% to 5.03%!

3. The only way to get Democrats to beat Republicans is to start with Hoover (as the Times did) and then it’s Democrats, 5.03%, to 3.51% for the Republicans. Whew!

4. Many like to use the post-war period as an investment benchmark: Since WWII Republicans have whomped Democrats by 7.13% to 3.66%!

So, what does this prove? Absolutely nothing - except that you really shouldn’t pay too much attention to The New York Times for investment advice! For one, the correlation between parties and markets is too weak. Second, there is too much “noise” for a reliable correlation. And third, there is still the problem of the first three premises!

In short, vote for the guy or gal you prefer, and base your investments on other factors.

Sunday, January 24, 2010

A Contrarian on Bernanke

Listen to any Ben Bernanke detractor and they’ll sing basically the same tune, which goes something like this: “Ben Bernanke is a an excellent academic economist and an honorable guy who performed well this past year as Fed Chairman, but he was right there at Alan Greenspan’s side in the early 2000’s when interest rates were kept too low for too long. Those low rates helped cause the housing bubble which eventually burst and collapsed the global financial system in 2008.  That kind of negligence should not be rewarded with a second term.”

I have trouble disagreeing with much of that, except that there is a far better and more compelling reason to lay some blame for the financial collapse with Fed Chairman Bernanke. I haven’t heard the following argument from anyone in the economic press, so that could either mean I’m out of my mind, or everyone else is missing something. Read on, and judge for yourself.

First a little history: Below is the Fed Target Rates for the last 10 years. The period most Bernanke detractors are focusing on is the period of low rates from roughly 2002 through 2004 when he was Alan Greenspan’s right-hand man.

Ben Bernanke became Fed Chairman February 1, 2006 when the Fed Target rate had already been raised by Greenspan to 4.25%. The day Bernanke became Chairman, he raised the Target Rate to 4.5%, but he didn’t stop there. He kept raising until July 1, 2006 when the Fed Funds Target hit 5.25%. So from July 1, 2004 to July 1, 2006 the Fed raised it’s Target Rate from 1.00% to 5.25%, an increase of 425% in 24 months.

What effect did all those rate increases have on the yield curve and why would that matter? Well, as most economists will tell you, nothing screams recession quite like an inverted yield curve (when long term rates are lower than short term rates) and forcing one is economic poison.

In January, just before Bernanke became Chairman, the yield curve was essentially flat with a slightly positive bias, but that quickly changed. Bernanke’s first raise to 4.5%, resulted in a slightly negative yield curve and again, he kept raising the Fed Target all the way to 5.25% by July 1, 2006. By November 2006, there was a clear downward trend in yields. (see chart below).

Why did Ben Bernanke keep raising interest rates in the midst of a housing bubble, with an election coming up in November 2006, and a yield curve already threatening negative by late 2005? Why did he persist and force the yield curve decidedly negative by mid 2006 which threw us into recession and crashed the housing market? No one but Ben Bernanke knows for sure, but in my humble opinion, if there is a smoking gun against him, it is this and not the period from 2002 to 2004, before he was even Chairman!

In Hebrew, Shalom, which is Bernanke’s middle name, can mean Hello, Goodbye, or Peace. I say Goodbye, and leave us in Peace, but I don’t see that actually happening. In a political and economic climate where a tax cheat can get Senate approval to be Treasury Secretary, a reckless but honorable Fed Chairman is virtually a shoo-in.

Thursday, January 21, 2010

Magic Bullets Part VII – The Tax Ammendment

If you could wave a magic wand and make one amendment to the Constitution all by yourself, what would it be? Would you impose term limits? Would you rename the country after yourself? Would you make “Pants on the Ground” the national anthem? I know what I’d do: I’d end hidden taxes and get every person to participate.

My theory is that just about everything that is systemically wrong with our country stems from the fact that we don’t really know what it all costs and we don’t all share in those costs. This is of course, no accident. Politicians have been expert at two things, hiding the costs of their duplicity and getting re-elected. If we were to eliminate stealth taxes and get everyone to share the costs, profligate politicians would have their plans blow-up in their faces and the only ones re-elected would be those lowering costs and improving the efficiency of their enterprise.

Here’s how I would end stealth taxes and give everyone “skin-in-the-game” with one amendment to the constitution: The amendment would read as follows – “All federal domestic revenues shall be collected directly from the people and all taxpayers will pay the same rate and receive an identical pre-bate.”

The first question you may have is; (*feel free to use Larry The Cable Guy accent here) “What’s a pre-bate?” A pre-bate is a nifty way to not impact the poor while at the same time giving everyone skin-in-the-game. The way it would work is this: At the start of every tax period, an amount equal to the taxes paid at the poverty level would be sent to every taxpayer. This would in effect establish a zero bracket for the poor and a graduated net tax rate for those earning more than the poverty level. After that, every dime would come directly out of the pockets of the people. And there would be a single rate for every person with no deductions, period.

Here is an example of the tax system that would result. Incidentally, this could work for a system based on Income Taxes, Sales Taxes, or any combination of the two. The rates are for illustration purposes:

Tax rate = 40 % (This could be split roughly between 20% income and 20% national sales tax, for example.  Yeah it’s high, but it has to be to pay for what we’re now spending!)

Poverty rate = $15,000 income per year for this example.

Pre-bate = $6,000 per year or, $1,500 per quarter.

Using this example, everyone of age, who is legal, from Bill Gates to a homeless person, would get a $6,000 annual pre-bate.

A poor person would be able to earn and spend up to $15,000 and effectively pay zero taxes due to the pre-bate. Bill Gates, on the other hand, would burn through the $6,000 in a blink and end up paying an effective rate of 40% with no deductions. A person making $30,000 and spending it all would pay $12,000 in taxes, minus the pre-bate, resulting in $6,000 total taxes for an effective net rate of 20%.

So that’s how the pre-bate would work to graduate net tax rates despite there being only one rate and everyone participating. You may be asking; “Doesn’t everyone participate now?” To that, I’d have to answer yes and no. The fact is, some 50% of Americans are getting an illusory free-ride. The reason I say “illusory” is because many people incorrectly believe they pay no taxes. After all, many get a big rebate check in April and the politicians are always telling them they are going to tax only “the rich”. Eventually, people start to believe it. This is borne out in election after election when people are told that someone else will pay for their big entitlements like free healthcare, subsidized housing loans, extended unemployment benefits, and so forth. But there’s a problem: economies have a way of leveling these costs and spreading them around to the point that the cost becomes built into everything we buy and everything we earn. The notion that costs for huge new entitlements will be borne by someone else is like trying to pump water from only the deep end of the pool; if your pump is fast enough, there may actually be a moment when it will appear like the shallow end is unaffected, but trust me, that will not last!

Back to the wording of the amendment: “All federal domestic revenues shall be collected directly from the people…” By directly taxing only the people, there would be no more indirect taxes like payroll taxes and business taxes of any kind. Now, you may be thinking; “What, no business taxes? That’s crazy! Why give Corporations a free ride?” My answer: because businesses already pay no taxes. Sure, businesses do remit taxes, but only after collecting the exact amount from their customers and employees. In other words, all corporate payroll taxes, income taxes, fees, etc. are actually just hidden taxes on individuals. These hidden taxes distort voter behavior and obscure the necessary transparency of our exploding public sector.

Put another way, a business is just a bunch of individuals, formed into a team and working toward a common goal. The team itself gets no vote and does not exist except as a legal entity. Taxing a business violates the very rule on which this country was founded: Taxation without Representation. Of course businesses do get represented, but only through money and lobbying. If we eliminate all business taxes and collect everything directly from the people, we are properly aligning taxation and representation. Of course, business lobbying will still go on to fight for regulatory and trade consideration, but the power will shift measurably towards the people.

So would this be simple to implement? All I can say is, it’s hard to conceive of a tax regime as complicated as what we’ve got. So yes, this would be simpler, better, and more efficient. Of course we’d still have to have some agency like the IRS that would administer collections, pre-bates, compliance, business rebates, and the like. That’s one dragon we can’t slay with this magic bullet.

What we would gain though is a population directly aligned with their government and a likely return to our founding principles of Constitutional Democracy. We’d once again have what Lincoln referred to as a: “Government of the People, by the People, and for the People.”

Tuesday, January 19, 2010

Kennedy’s Second Victim

We all know Edward Kennedy’s first victim, Mary Jo Kopechne, who tragically got in the car with a reckless and drunk senator from MA and paid for her mistake with her life. Today, after the special election in MA, we will likely meet the second victim, the Obama/Pelosi/Reid Democrat Party. Just like the first, they too hitched-up with the late Senator from MA who drove them off a bridge and now they too may pay the ultimate price.

The irony of the dream of socialized medicine dying along with one of its biggest sponsors is almost too rich to fathom. You’d think that by now everyone would have understood the dangers of being seduced by Uncle Teddy.  As the old saying goes: “Fool me once, shame on you. Fool me twice, shame on me.”

Interestingly, the first sound blaring out of the PA on the west lawn of the Capital when they held the big healthcare rally this fall was The Who, and everyone at that rally sang along and pumped their fists; “We won’t get fooled again!” At least the descendants of another Massachusetts legacy, The Boston Tea Party, refuse to be victims.

Thursday, January 14, 2010

My Kid's Better Than Your Kid!

If he wasn't the stronger of the two candidates, I'd have to support Scott Brown anyway based on this: Ayla Brown Sings The National Anthem.  As far as I know, Martha Coakley has no kids, which is probably a good thing for her as it avoids comparison...

Monday, January 4, 2010

When Do We Stop Laughing???

When do we stop laughing???

John Brennan, the top counterterrorism official in the Obama administration actually said this weekend that there was "no smoking gun" in the Christmas Day panty-bomber incident! Huh? Is there a better description than "smoking gun" to describe a male terrorist who attempts to commit mass murder by barbecuing his genitals? I wish I could say the rest of Brennan's statements were less ridiculous. Sadly, they were not.