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…