No time to think

The administration is pushing both houses of Congress hard to pass health care bills before the August recess.  Reports are that the administration wants this badly enough to push it through on a purely partisan basis. Whether enough Democrats would be willing to entirely own the consequences of such woeful legislation remains to be seen. They certainly wouldn’t have gotten the stimulus packages through without significant Republican cover, and the Republicans may have learned their lesson (sometimes, even idiot dogs can learn new tricks).

But why the rush? Why is it SO darned urgent to push 1,000 pages of legislation through Congress RIGHT NOW? Well, the rush is on because the administration sees its approval ratings slipping (no surprise) and they don’t imagine that they’ll be able to strong arm as many Blue Dog Democrats in the fall as they might be able to right now. Plus, if they waited, well then someone might actually read the legislation. (Well, probably not any of the legislators… let’s not get silly.)

Instead of saving the federal government from fiscal catastrophe, the health reform measures being drafted by congressional Democrats would increase rather than reduce public spending on health care, potentially worsening an already bleak budget outlook, the director of the nonpartisan Congressional Budget Office said this morning.

Under questioning by members of the Senate Budget Committee, CBO director Douglas Elmendorf said bills crafted by House leaders and the Senate health committee do not propose “the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount.”

“On the contrary,” Elmendorf said, “the legislation significantly expands the federal responsibility for health-care costs.” — Washington Post

Well… duh.

So let’s see here, we’ve got increased health-care costs, higher taxes, and we’re going to limit access to care, reduce Medicare coverage for the elderly and, oh yeah, make private individual health insurance illegal. Sounds like business as usual.

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The end of insurance

Remember?

So let me begin by saying this: I know that there are millions of Americans who are content with their health care coverage – they like their plan and they value their relationship with their doctor. And that means that no matter how we reform health care, we will keep this promise: If you like your doctor, you will be able to keep your doctor. Period. If you like your health care plan, you will be able to keep your health care plan. Period. No one will take it away. No matter what. . . .

From IBD, (emphasis added)

It didn’t take long to run into an “uh-oh” moment when reading the House’s “health care for all Americans” bill. Right there on Page 16 is a provision making individual private medical insurance illegal.

When we first saw the paragraph Tuesday, just after the 1,018-page document was released, we thought we surely must be misreading it. So we sought help from the House Ways and Means Committee.

It turns out we were right: The provision would indeed outlaw individual private coverage. Under the Orwellian header of “Protecting The Choice To Keep Current Coverage,” the “Limitation On New Enrollment” section of the bill clearly states:

“Except as provided in this paragraph, the individual health insurance issuer offering such coverage does not enroll any individual in such coverage if the first effective date of coverage is on or after the first day” of the year the legislation becomes law.

So we can all keep our coverage, just as promised — with, of course, exceptions: Those who currently have private individual coverage won’t be able to change it. Nor will those who leave a company to work for themselves be free to buy individual plans from private carriers.

The public option won’t be an option for many, but rather a mandate for buying government care. A free people should be outraged at this advance of soft tyranny.

Washington does not have the constitutional or moral authority to outlaw private markets in which parties voluntarily participate. It shouldn’t be killing business opportunities, or limiting choices, or legislating major changes in Americans’ lives.

It took just 16 pages of reading to find this naked attempt by the political powers to increase their reach. It’s scary to think how many more breaches of liberty we’ll come across in the final 1,002.

Making private insurance illegal is the surest way to ensure that the quality of medical care will decline and that medical costs will rise.

Dunce cap

Speaker Nancy Pelosi seems set to deliver a vote on the “cap and trade” bill today.

Analysis of the bill has been notoriously murky, partly because the Reps voting on the bill haven’t actually read it.

This is a familiar pattern that should trouble everyone, regardless of where they stand politically. Congress repeatedly passing omnibus tax increases without reading the bills is bad news. It’s simply poor governance.

But hey, remember this one?

“Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.”

That’s still my favorite line from the campaign. The fact that he could say it with a straight face was just amazing.

But back to cap-and-trade. It’s nonsense. The mistake is in assuming that there’s actually some worthwhile point to reducing energy consumption; there isn’t. Reducing personal energy consumption can make sense if you’re trying to save money, but reducing global energy use? It’s just silly. We don’t want to reduce the amount of energy the world uses, we want to increase the amount of energy the world uses. In a very real sense, energy use is the fundamental definition of wealth. The more energy we use, the longer we live, the better our lives are, etc… etc….

So the issue isn’t energy consumption so much as fossil fuel consumption. But reducing consumption in the U.S. will do nothing to reduce global fossil fuel consumption.

Not a damn thing.

Why? Because fossil fuels are commodities. A reduction in demand in location A just means that there’s more available for location B. Reduce demand in New York and more oil gets used in the China. The energy market is a global market and local variations have little effect on aggregate demand. If we reduce our consumption all we do is lower the cost of fossil fuels in China, India, and Russia.

And from a strict conservation standpoint, shifting consumption from New York to China would result in more pollution, significantly more waste, and far more carbon emissions. First-world industry is remarkably efficient and clean–we extract as much energy out of each barrel of oil as we possibly can (and we keep getting more and more efficient). But all that efficiency is expensive and time-consuming; third world economies just can’t match that level of efficiency. Shifting demand from New York to China is a loss in terms of efficiency, conservation, and carbon.

So Congress will pass a meaningless, massive tax hike–a tax hike that will fall disproportionately on the poor by the way–without reading the bill. The bill will radically reduce American economic efficiency, cost trillions of dollars, and increase the amount of carbon in the global atmosphere. Way to go.

Update: Lest I be accused of just wanting us to stick our heads in the sand….

Let’s assume for a moment that carbon emissions are the most proximate cause of global atmospheric warming and that such warming would have catastrophic consequences for humanity. (I’m open to persuasion on the first and  increasingly doubtful of the second claim, but we’ll leave those issues aside for the moment and accept the dire warnings.)

Reducing carbon emissions globally is extremely difficult, not just as a matter of politics, but as a matter of enforcement. The simple fact is that the countries and factories most likely to avoid, resist, or cheat the system are those countries and factories that are the least efficient and the most responsible for gross carbon emissions. Further, reducing domestic energy consumption only lowers costs for foreign industry, which again, is far more likely to be less efficient and less clean.

The problem of pollution is, as most things are, a problem of poverty. Cleaning the waste of production requires capital investment, investment that is difficult for poor populations to afford. The best way to combat the effects of inefficient industry is to help increase their efficiency. In global terms, that means doing what we can to increase global wealth. That means increased trade, the elimination of trade barriers, including import quotas, tariffs and excise taxes. It means opening borders to allow increased immigration and emigration. It means working to improve basic sanitation and irrigation in the poorest countries, reducing civil strife and putting an end to racial and ethnic cleansing, and supporting human rights across the globe. It means reducing the wasteful kickbacks and obscene political appropriations that dominate most modern democracies, and it means ending the absurd tax laws that limit the flow of global capital.

In other words, good governance would do more in the long run to limit carbon emissions than anything. But good governance generally offers few opportunities for graft. The cap-and-trade bill, on the other hand… that’s graft-a-palooza.

Update: Over at Volokh, Jim Lindgren weighs in on the cap-and-trade bill.

The cap-and-trade bill, if passed by the Senate and actually implemented over the next few decades, would do more damage to the country than any economic legislation passed in at least 100 years. It would eventually send most American manufacturing jobs overseas, reduce American competitiveness, and make Americans much poorer than they would have been without it.

The cap-and-trade bill will have little, if any, positive effect on the environment — in part because the countries that would take jobs from US industries tend to be bigger polluters. By making the US — and the world — poorer, it would probably reduce the world’s ability to develop technologies that might solve its environmental problems in the future.

Update: From IBD:

The House of Representatives is preparing to vote on an anti-stimulus package that in the name of saving the earth will destroy the American economy. Smoot-Hawley will seem like a speed bump.

cost of cap and trade

incentives

I spend a lot of time railing about economics on this blog. One of the points that I keep hammering away at is that the science of public choice dictates that government agents are subject to the same economic laws as everyone else; they respond to incentives and act in their own interest.

Not always and not perfectly, but just as in the market, the aggregate analysis is correct. Politicians, bureaucrats, treasury secretaries, presidents and ambassadors respond in aggregate to incentives in the same way that everyone else does.

The problem is that the incentives for government–because their funding is forcibly extracted from the private sector–tend to be skewed in ways that run counter to the general interest. This is not to say that all government actions are inimical, but it is to say that over time, the incentives that drive government will undermine good works and reward graft, corruption and the arbitrary exercise of power. It’s not that everyone in government is feckless and corrupt, just that all of the incentives that surround them encourage them to become more and more feckless and corrupt.

But it’s not just people that are corrupted by ingrained incentives, it’s entire institutions.  Incentives work across large populations over time to effect results regardless of the intentions of the individual actors involved. That’s the “invisible hand” of the marketplace. The aggregated incentives of trade compounded across a large population over time result in consequences (most notably, increased wealth and opportunity) to the whole that no individual actor necessarily intends.

The same is true of government. The aggregated incentives of taxation and redistribution compounded across a large population over time result in consequences (most notably, a reduction of wealth and a reduction in opportunity) to the whole that no individual actor necessarily intends.

This quote from Timothy Noah (HT Glenn Reynolds) sums up difference in incentives quite nicely,

On Wall Street, financial crisis destroys jobs. Here in Washington, it creates them. The rest is just details.

It’s not that everyone in Washington wants to feast off the carcass of the productive economy, it’s just that… well, that’s the only food they have. Washington makes money when the rest of the country loses money.

Incomprehensible

I came across this quote today,

With U.S. interest rates near zero; with American consumers too poor and indebted to continue spending wildly; and with demand plummeting around the world, governments have to step in and run up deficits as they spend on projects that create jobs, generate income and permit workers to buy products.

It’s from this article about the global financial crisis. I know, why do I bother clicking through? But let’s, just for fun, parse this line of reasoning.

The prime rates set by the U.S. Federal Reserve Board are as near zero as they can likely get. And yet, these low rates have done little to budge actual consumer or manufacturing lending rates as lenders, brutalized by high default rates, are skittish about throwing good money after bad. American consumers are indebted and scared about the long-term prospects for growth and demand has fallen.

The solution to terrible debt, record loan defaults, and plummeting demand. Borrow more, of course. “Running up deficits” to increase spending and “stimulate” demand is doing nothing more than pretending that demand hasn’t actually fallen. When tax revenue declines and consumer spending falls, that indicates a contraction in the economy.

Borrowing money from our children so that we can spend money to pretend that we know what we’re doing is not good policy.

But wait! There’s more,

In addition to flexible but coordinated regulation, governments should also impose a small tax on financial transactions, such as buying and selling stocks, bonds and currencies. Such a tax would accomplish two objectives: It would discourage speculation by increasing the trading costs, and, in the near term, the tax would raise funds to pay for the costs of the meltdown.

Investors are unwilling risk accumulated capital because of the risk involved in lending and trading in a collapsing economy. That’s, after all, the argument for running up deficits: the private sector won’t spend, so the government should spend. Guess what the market response to a tax on “financial transactions” would be? It would sure as shit discourage speculation. But you know what? That’s what investment and lending are; they’re forms of speculation. If the economy is tanking because we’re illiquid and debt-ridden, how does decreasing the potential profit from lending do anything to decrease consumer interest rates or increase liquidity?

Then there’s this:

For balance to be restored, two things must happen.

First, the United States—which has disproportionately served as the market for global exporters—must increase its exports, either through devaluation of the dollar (something dollar holders fear) or industrial policies that encourage exports (not of financial services, but of manufacturing), or both.

And second, export surplus countries, particularly China, must raise wages, expand social safety nets and increase domestic demand. China’s stimulus program includes first steps in this direction, and its proposal for a global currency would also help redress financial and trade imbalances.

That’s all? All we need to do is retool the largest economy in the world by devaluing its wealth (making all Americans much, much poorer) and then have that economy revert to a manufacturing model it hasn’t embraced for decades and make stuff to sell to everyone else who are all even poorer. This buy high, sell low kind of advice.

He’s saying that we’d all be better off if America made stuff to sell to China than we are now, when China makes stuff to sell to America.  All China has to do is “raise wages.” Which it will do, how? Not by selling stuff to poor, dollar devalued Americans, that’s for sure.

Whatever they do, it would have to happen in the face of rising debt and decreased speculation.

Does this really make sense to anyone?

naked empire

There’s this from the Washington Post.

Too big to fail, too small to fail, too small to bailout, too small not to bailout, you’re spending too much money on employee compensation, you’re not spending enough money on employee compensation… the administration is all over the map. The dithering is breathtaking.

There’s this gem:

“We need you to put that assistance to work for the American economy,” Geithner said. “Many banks in this country took too much risk, but the risk now to the economy is that you will take too little risk.”

Seriously? Make more risky loans? That’s their solution? Make more risky loans??

I’ve said it before elsewhere, but it needs to be said again:

Geithner is so far out of his depth that his appointment to Treasury is a monumental embarassment to himself and the administration.

This from the NY Times.

“All across the country, there are people who work hard and meet their responsibilities every day, without the benefit of government bailouts or multimillion-dollar bonuses,” said Mr. Obama, who called the issue one of “fundamental values.”

“All they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules,” he said.

So Congress will give back their pay raises? What about the $93,000 per member expense accounts they just granted themselves? Will Congress end their franking privileges?

Will Rangel pay his taxes? Will Dodd tell us who else owns his Irish cottage? What about PMA? End earmarks? Will Congress submit itself to OSHA standards? What about energy consumption? Will Pelosi stop complaining about a lack of personal access to military Gulfstream jets?

It’s an issue of fundamental values, that’s for sure. The rules are just different in Washington.

And for the record, the last administration wasn’t any better. Nor was the last Congress. But neither got a free pass on their piles of sanctimonious, self-serving bullsh~t. This one shouldn’t either.

oh shit

This is not a happy chart:

oh shit!

That’s the growth in the money supply. Note the monetary expansion of the past year.

record deficits, failing banks, benchmark lending rates at near-zero, protectionist trade measures, tax increases, a helpless treasury… and just for good measure, wild monetary expansion.