Blatant Racism, Partisanship from the Obama Administration

The Justice Department has decided the blacks are too stupid to vote in a non-partisan election:

KINSTON, N.C. | Voters in this small city decided overwhelmingly last year to do away with the party affiliation of candidates in local elections, but the Obama administration recently overruled the electorate and decided that equal rights for black voters cannot be achieved without the Democratic Party.

The Justice Department’s ruling, which affects races for City Council and mayor, went so far as to say partisan elections are needed so that black voters can elect their “candidates of choice” – identified by the department as those who are Democrats and almost exclusively black.

How can their be equality when the government is belittling a population based on their skin color?  Does the White House honestly believe that blacks- and not whites- would be too confused in a non-partisan election to vote, leading to inequality?  This type of racially-charged pity insults not just blacks but all freedom-loving Americans, and it does so while interfering with the local electoral process that community overwhelmingly wanted.

America’s Affordable Health Choices Act of 2009 in Layman’s Terms

Before getting into a discussion of the health care “crisis” in America, let’s be clear on what the problem is:

The Census Bureau says 47 million Americans do not have health insurance, or 16% of the population.    Of those, 37 million are American citizens, or about 12%.  Of those, less than half make $50,000 per year or less.  And according to the Congressional Budget Office, 45% of uninsured individuals get insurance within four months.  So when referring to Americans who cannot afford health insurance, one is referring to about 6% of Americans, nearly half of those who soon find health insurance again on their own.  So that’s about 3-4% of Americans who are uninsured and making less than $50,000 per year, and what percentage of those have a major medical emergency that year?  (Remember that routine preventative medicine is very cheap.)  Young, healthy individuals often go, very deliberately, without insurance.  And let’s not assume that health insurance equates to health care: all people in America, citizens or not, are guaranteed emergency health care in every hospital in the country already regardless of their ability to pay.

Yet over 40% of Americans want health care reform, and those in power want to capitalize on that desire for better or worse.  I’ve stayed away from reading the specifics of the proposed legislation because I simply didn’t care what the proposition said; the mere concept of government intervention in health care is sufficient to reject the idea.  Even if I favored such intervention, this legislation is unconstitutional at the federal level under the 10th amendment.  But since I had not personally analyzed nor read an analysis of the bill, I’ve kept away from the health care debate.  Until now.

Duke University’s John David Lewis is parsing through H.R. 3200 in order to cut through all the political rhetoric and find out what the bill actually says.  From the introduction:

This bill is 1017 pages long. It is knee-deep in legalese and references to other federal regulations and laws. I have only touched pieces of the bill here. For instance, I have not considered the establishment of (1) “Health Choices Commissio0ner” (Section 141); (2) a “Health Insurance Exchange,” (Section 201), basically a government run insurance scheme to coordinate all insurance activity; (3) a Public Health Insurance Option (Section 221); and similar provisions.

This is the evaluation of someone who is neither a physician nor a legal professional. I am citizen, concerned about this bill’s effects on my freedom as an American. I would rather have used my time in other ways—but this is too important to ignore.

I admire this guy- it’s wonderful that citizens are taking such an active (and fact-based) role in government.  It has, unfortunately, taken a private citizen to do what government will not do: give straight talk on what this bill will immediately do and the very predictable results of those actions.  I don’t need to hear about the intents of politicians because their intents have little to nothing to do with their results.

This health care bill is every bit as scary as I feared it’d be, but this particular line from the analysis angered me the most:

2. By setting a minimum 70%  actuarial value of benefits, the bill makes health plans in which individuals pay for routine services, but carry insurance only for catastrophic events, (such as Health Savings Accounts) illegal.

Having health insurance as for emergencies only is, in my view, the best way to lower health care costs to whatever the most fair market value really is.  This bill outlaws the simplest, most reasonable solution to lowering health care costs- to decrease the roll of health insurance companies in America.  The American reliance on comprehensive health insurance is a government-started policy dating back to wage freezes during World War II.  Companies couldn’t compete with wages, so they offered full health coverage to attract employees.  Uncle Sam made these benefits tax free, but only when bought by the employer.  Thus started the spread of comprehensive health insurance, which didn’t really exist before that point.  Along with that seemed to come this health care “problem”, as folks call it.

So what if we reversed this tax benefit?  Health insurance would migrate from your employer back to you.  You’d buy it like you buy car insurance: you’d choose a policy very specifically tailored to you.  Perhaps most Americans would buy minimal insurance, there only for emergencies, much as they do for car insurance.  Is this not a good thing?  The more people who pay for non-major, non-emergency procedures and tests out of pocket, the more the people will be aware of what they’re buying.  The market needs smart consumers, with transactions between a patient and doctor, and without an intervening third party whether it be government or private insurance.  By reducing the number of tests and procedures requested by patients for the sole reason that it is included in their current insurance policy, hospital resources free up.  This properly addresses the basic economic principle of supply and demand by decreasing demand and increasing supply.

Look at the prices for surgeries at a veterinary hospital.  They’re drastically lower than that of human care.  Don’t think it’s a fair comparison?  Somehospitals in America operate on a cash-only basis at drastically lower prices.  Why not encourage the spread of such practice?  This bill makes the most logical solution to lower, market-based health care costs illegal.

By design, the “Affordable Health Choices Act of 2009″ will instead increase demand (after all, it’s claiming to give more coverage to more people) while not addressing supply.  This raises prices, but other parts of the bill tell us how this natural reaction will be circumvented: by rationing and/or price-fixing.  From the bill, determination of readmission will be done on pure statistics; feedback based on doctor/patient relationships will not be entered into the equation.  This is rationing- prohibit enough people from getting procedures and demand on hospitals will fall.

Even less desirable is the other suggestion in the bill- a government entity determining fair costs for medical procedure, not the market.  Private insurers try to do this, but they are kept in check by an open market and competition.  Government price-fixing always- always- results in shortages as low prices persuade professionals to leave that market.  This decreases supply while demand stays the same, and since prices cannot rise due to government, shortages ensue.  Hospital equipment will age as hospitals try to cut costs by keeping old, obsolete equipment, just as it has in other countries with socialized health care.

What other results can Americans expect?  To add insult to injury, the decisions of government are not subject to judicial review, and federal officials may pull any personal information they need from your tax return (and question employers) to make their decisions.  Privacy out, unelected medical czar in.  Where in the Constitution is any of this authorized?

Much like medicaire, medicaide, social security, etc- the system will very likely become a great consumer of tax revenue from the general fund.  This means those with private-insurance will be paying for health care twice- once for their private insurance and once (through their taxes) for the government option.  This is very like the public school system, where some individuals find the public school system so unbearably awful that they sacrifice to pay for private schools instead.  However, this is very expensive for consumers and puts private institutions at a severe disadvantage against the subsidized public option.  Expect private insurers to shrink and many to disappear.

Obama himself has said he favors the elimination of private insurers, where the government becomes the only buyer of health care.  However, he believes that migrating to such a system will take time- doing it now would be too much of a shock to the system.  This health care bill is merely the seed to start the government ownership of the entire health care industry.

Cost is determined by supply and demand.  Government cannot control this.  Getting the best health care will always (and should) require great expense to somebody, and this is necessary and desriable to keep the industry moving forward so that technologies may trickle down and become cheaper for everyone long-term.  You, yourself, currently have the freedom to sacrifice and pay for expensive health care or to save money and buy cheap health care.  You have the freedom to buy a cheap or expensive car, a small or large house, and cable television and/or cellular phone service.

Freedoms should not be given up so willingly, for doing so tends to produce many unintended consequences.

Federal Reserve Buying Treasury Debt to Prevent Failed Auctions

The Fed is now buying a significant portion of the treasury’s debt so that its auctions don’t outright fail. This directly devalues the dollar which pushes away what’s left of legit investors, creating a downward spiral as legit investors flee.  Without cuts in government spending, this could lead to the collapse of the US dollar- exactly what (and how) Peter Schiff and others have predicted. Today’s news means the dominoes are already falling, and this time it’s not just speculation.

The original story broke here, with good financial discussion on Karl Denninger’s (from the above video) blog here.

If the Federal Reserve continues this practice, that could lead to a currency collapse.  If it does not, and treasury auctions fail, the budget of the United States government would have to shrink drastically and quickly- ending not just recent stimulus, but inevitably many other longer-running programs, too.  The state of California recently learned this lesson.  Looking at Congress’s spending history of late (which seems to have no boundaries), the former scenario of monetizing debt and creating inflation seems much more likely.

One might think the threat of either a currency collapse or a drastic withdrawal of “stimulus” money would hurt the stock market, but many are suggesting the stock market isn’t manipulated by traders like you and I.  Today’s stock market is instead propped up by Fed-favored banks creating yet another bubble, trading back-and-forth among themselves and incrementing the price of stocks each time.  When the market routinely goes up on bad news, how else can one explain the irrationality of the market?  The only explanation is manipulation: the stock market is rigged by insiders.  I would have thought this impossible years ago due to the incredible scale of the US stock market, but the numbers don’t lie: private investors aren’t much of a factor in today’s market.

The Federal Reserve and it’s partner-in-crime, the Treasury, have engineered the largest house-of-cards in the history of the world.  There’s no reason for the world to invest in America’s rigged market and furthermore there’s becoming less reason to treat a Federal Reserve Note (the dollar) as worth anything more than the paper it’s printed on.  The US economy and the currency it’s based on is becoming irrelavent; a creation of government planners in their computers, with absolutely no part of it based in the real world that markets must function in.

What the World Thinks of the Obama Presidency

You may recall Obama brought his presidential campaign overseas to campaign abroad.  Perhaps this was all about getting foreign campaign contributions, but regardless, our domestic press routinely heralded Obama as the choice of the world.

After Obama’s first 100 days in office, here’s what the world is saying:

“Hey, Obama has just nationalized nothing more and nothing less than General Motors. Comrade Obama! Fidel, careful or we are going to end up to his right.”

- Hugo Chavez, in a lecture

Perhaps Americans should refresh themselves on Hugo Chavez and his accomplishments since that is the road down which America is heading.  Hugo Chavez can see this future for America, why doesn’t our press (or citizens)?  Rarely do domestic news agencies label Obama as a Marxist, and perhaps because of this refusal to use these accurate- but unfavorable- adjectives, Obama’s approval ratings have remained high despite his widely disliked policies.

Some foreign press still report with the brutal scrutiny our domestic press was known for during the Bush era:

“The final collapse [of America] has come with the election of Barack Obama. His speed in the past three months has been truly impressive. His spending and money printing has been record setting, not just in America’s short history but in the world. If this keeps up for more then another year, and there is no sign that it will not, America at best will resemble the Wiemar Republic and at worst Zimbabwe.”

Only Michael Moore, champion of Cuba’s health care system, could celebrate such comments.  Americans don’t welcome Marxism, but too many are unable to see its onset through the fog of political spin.  Obama is a master magician in that way.  The article concludes:

“The proud American will go down into his slavery with out a fight, beating his chest and proclaiming to the world, how free he really is. The world will only snicker.”

- Mat Rodina, Pravda (form Sovient Union newspaper, officially part of the Communist party)

It’s true, the laughter has already started.  The US Treasury Secretary, Timothy Geithner, was openly mocked on his trip to China to reassure Chinese officials their American investments are secure.

Geitner: “Chinese assets are very safe.”
Audience: <loud laughter>

The shock here isn’t that one person laughed, but that most of the room laughed simultaneously.  The world- even Chinese students- can see what is going on.  Why do Americans have such blind faith in historically destructive policies?  The Chinese have experienced socialism and are, quite literally, laughing at our country for adopting it.  China’s official news agency, Xinhua, called protectionism, “A poison,” while Zhang Jianhua, head of China’s central bank research bureau, said the Obama administration is using, “Gangster logic” to explain the economy.

Some foreign leaders have had more tact, including Russia’s Vladimir Putin, who warned the United States about socialism:

In the 20th century, the Soviet Union made the state’s role absolute. In the long run, this made the Soviet economy totally uncompetitive. This lesson cost us dearly. I am sure nobody wants to see it repeated.

Nor should we turn a blind eye to the fact that the spirit of free enterprise, including the principle of personal responsibility of businesspeople, investors and shareholders for their decisions, is being eroded in the last few months. There is no reason to believe that we can achieve better results by shifting responsibility onto the state.

Unfortunately, Putin’s advice fell on deaf ears.  In fact, Obama is recently said to his supporters, “You ain’t seen nothing yet.”

Is the Pravda article correct, or will America- at some point- fight back against their more-left-than-Chavez, “Marxist”, “Protectionist” president?

Economy Rumblings – The Storm Coming?

The stock market is booming.  Even GM stock is up today, on the day it announced its bankruptcy and the destruction of its common stock.  How long can this irrationality last while reality shows the economy crumbling?  A reality check:

1) The housing/mortgage industry will fail. Last Thursday, 30-year fixed mortgage rates went up 30% in one day, showing the the Federal Reserve cannot manipulate interest rates forever.  Every person with an adjustable-rate mortgage will soon find their payments skyrocketing, and new-time home owners are going to find their payments going much more towards interest instead of capital.  Housing prices are going to fall rapidly, again, now that interest rates are rising, and banks will once again find themselves in trouble as homeowners default on their loans.  Remember who bought up a huge chunk of those mortgage-backed securities last time?  Now they’re in trouble, too.

2) Federal Debt is becoming (even more) unbearable. Last week, the Treasury auctioned off another $100 billion in US debt.  10-year bond rates spiked to their highest level since November.  Interest rates continue to rise quickly, sending Geithner to China to plea lie for their investments.  The treasury still has over a trillion dollars worth of debt to auction off, and doing so may become quite expensive.  The average American household has more federal debt obligation created on their behalf than they do mortgage debt, even at the peak of this mortgage crisis- now imagine the interest rate on that going up 66% from 3 to 5%.  How much tax revenue is the government willing to devote purely to interest on the debt?

3) The US Dollar is losing its value quickly. It is down against the Euro more than 11% in the past three months, and it fell 1.2-1.5% against most of the world’s currencies (including the Euro) on Friday alone.  Gold was up roughly 2% against the dollar with other commodities such as silver, copper, and oil going up even more. Bogus federal inflation numbers may not reflect reality, but consumers can plainly see everything in the market- from groceries to gasoline- is getting expensive quickly.  This shows two things- an increase in money supply (chart) and a worldwide lack of confidence in the entire United States financial system, particularly its central bank: The Federal Reserve.  They have good reason to be: the Federal Reserve is trying desperately to create inflation (devalue the currency).  Historically reliable economist Marc Faber has said last week, “I am 100 percent sure that the U.S. will go into hyperinflation.“

4) AAA Rating in trouble primarily because of reasons 1, 2, and 3.  Britain first, then us.  Rising interest rates show that regardless of what US bonds are rated at (and yes, America’s AAA rating was just confirmed again), investors no longer seek the dollar- or US bonds- as a place to flee for stability.  Bonds and the dollar both weakened last week despite North Korea’s missile testing; officially losing AAA credit status will make this situation worse.  Mortgage-backed securities were AAA rated until their complete meltdown, too.

5) US Businesses are Failing. GM’s bankruptcy is the largest industrial bankruptcy in US history and it failed despite getting tens of billions of dollars in support from the government.  Unconstitutionally, I might add.  Our government just spent trillions propping up failed business, causing the large bond auctions and inflation concerns mentioned above.  What happens when you tax the producers and reward the failures?  S&P 500 corporate earnings are lower than any time in history.

6) Unemployment will continue to rise. This is inevitable given #5.  Unemployment will continue to be a problem as long as failed business, who do not make money and thus cannot hire, are not given wealth taken (through taxes) from successful business and their employees, who make money and thus can hire.  The government solution here seems to be inflation, which will make US labor cheaper in the worldwide market.  That’s as good of a cure for unemployment as amputation is for a paper cut.  Expect the types of jobs in America to shift, too- service jobs will decline while manufacturing jobs will increase, but this won’t happen until lots of dust has settled.

Trade-offs and the Left

While watching the hilarity of Nancy Pelosi squirm and lie under questions regarding what she did or did not know regarding waterboarding, it struck me that a lot of the problems we now face are due to a single root problem that has almost wholly been created by the left:  the “magic bean” solution to problems.

What do I mean by this?  Real problems have complex solutions that require complicated trade-offs.  A problem that does not have any trade-space is not really a problem.  For instance, say I love Starbucks coffee in the morning.  However, I discover that I can get a better tasting cup of coffee for half the price at McDonalds, which happens to be located right next to the Starbucks.  What possible reason would I buy a Starbucks coffee?  If the McDonalds’ coffee is better, cheaper, and the commute is similar, then the solution is obvious, go to McDonalds.

Unfortunately, real problems rarely come in this form.  More likely, the problem would require a trade-space.  For a simple illustration of this, let’s say that the McDonalds’ coffee tastes better and is half the cost, but the commute is an extra 15 minutes.  Well, 15 minutes is a lot in the morning when you are rushing out of the door late for a meeting, not to mention that the gas cost of an extra 15 minutes on the road might hover around $2.  With the commute included, the cost of the two products is similar, but the McDonalds coffee still tastes better.  However, now I have to balance out an extra 15 minutes in traffic against better tasting coffee.  The solution is no longer obvious and various people would choose different options.  Some people would value better tasting coffee, others would value the extra 15 minutes.

How does coffee choice relate to politics?  The political choices that we face are immensely more complicated that the choice of what brand of coffee to drink in the morning, with much broader trade-spaces.  However, if you were to listen to the left, you would be wholly unaware that a trade-space even existed for many of the problems we face.  Each problem is treated as though the solution is obvious rather than a complicated balance between competing requirements.  To give three relevant examples:  torture, energy, and health care.

Does torture work?  To listen to the modern left, not only does torture undermine our moral authority and reduce our world standing (whatever the hell that means), but it doesn’t even work and it produces completely unreliable information!  Framed like the above, there is no trade-space and no reason to actually contemplate using torture for any reason.  If it doesn’t work, what’s the point?  The problem with this statement is that it rests on fundamentally flawed logic.  Torture does work, especially when the information can be corroborated with external sources.  Torture wouldn’t have been used for all of recorded human history if it simply did not work.  Even the most recent examples with Khalid Sheikh Mohammed and Abu Zubaydah show that waterboarding extracted far more information in a shorter period of time than non-coercive methods.  None other than Barak Obama indicated at the usefulness of the technique when he stated:

So, you’ve got a harder job, and so do I and that’s okay … Over the long term, that’s why I believe we will defeat our enemies: because we’re on the better side of history.

Why would the CIA’s job be harder if the technique was not useful?  By admitting that it will be harder to protect the nation by not using waterboarding, Obama is implicitly acknowledging that there is a trade-off.  By not using coercive techniques, we are undoubtedly exposing the nation to a higher risk of a future successful terrorist attack in exchange for whatever benefit might be bestowed by the world believing we are nicer people.

The argument between these various trade-offs is something that should be had in a mature and open democracy.  Instead, we have the absurd notion that coercion doesn’t work and only acts to negatively cast the US in foreign relations.  Why have we ended up here?  Because the left is afraid of an open and honest debate regarding these measures, because they believe given the various trade-offs, the people might decide that coercion is okay in certain situations (as polls have indicated).  Instead of having that honest debate, the argument has been ridiculously shifted to whether or not coercion even works.  The only way the left can win the argument is by recasting the facts to indicate that there exists no trade-space: we lose nothing by not using coercion, we only benefit.  The “magic bean” solution rears its ugly head.

Energy is the next big dishonest argument being had in the US at the moment.  Take for example this article from the NY Times:

The Obama administration is using Earth Day for launching another all-out effort to sell the American public and key lawmakers on “green jobs” as the solution for the United States’ environmental and economic woes.

Let’s ignore the fact that America’s economic woes were created by horrible credit policies endorsed by the Federal government and have nothing to do with energy or the environment.  Instead, let’s imagine that high energy prices were the direct cause of current economic woes.  Why hasn’t the private sector fixed the problem by buying solar panels and wind generators to power their operations?  The cost of so-called “green energy” is so prohibitively high that it cannot compete with traditional energy sources even when those energy sources double and triple in price.  Even BP, who spent millions to rebrand themselves as “Beyond Petroleum”, had drastically reduced investment in “green” technologies because the technologies are not ready to supplant fossil fuels anytime soon.

The cost of energy is the direct cost of doing business, much like the cost of labor or the cost of materials.  If energy prices increase, then the price of products or services that a company sells is going to go up.  As anyone who has read the first paragraph in an economics textbook knows, as the price of something increases, the demand decreases.  By forcing US companies to pay an energy premium, in effect, they make doing business in the US that much more expensive.  The same thing happened with labor in the US steel and auto industries.  How did that work out?

The real sham going on here is that there is no urgency to address these so-called problems immediately.  Currently known reserves of fossil fuels are sufficient to keep us moving for at least the next 75 years (41 years of oil, plus very conservative estimate of coal to oil processes).  Even if you believe the worst case hysterical predictions of global warming alarmists, over that same time period, we are only talking about a 4.8 degree change in Earth’s temperature, hardly catastrophic.  Does anyone honestly believe that we will not have better energy solutions on the table in 50 years that might actually have a chance of being cost competitive with current technologies?  This is why the left must act NOW.  In 50 years, the problem will most likely have fixed itself and there will be no need for government intervention in the energy market.  I’m reminding of an analogous problem in 19^th century America:

While the nineteenth century American city faced many forms of environmental pollution, none was as all encompassing as that produced by the horse. The most severe problem was that caused by horses defecating and urinating in the streets, but dead animals and noise pollution also produced serious annoyances and even health problems.

The environmental problems associated with horses very rapidly disappeared with the emergence of the automobile.  What looked to be an insurmountable problem was solved through technological innovation.  There is no reason to believe that there won’t be a similar innovation that does away with fossil fuels.

All of this shows that energy is a complicated problem with a complicated trade-space.  Do we wait for new technologies to be invented that make green energy competitive to fossil fuels?  Do we accept that by raising the price of energy in this country, we push businesses to operate elsewhere, in places that do not place a heavy energy burden on industry, thus losing jobs to foreign markets?  Or, do we pretend that the environmental problems are so dire that we cannot wait another moment, that green energy will simultaneously cost more but boost national employment, and that global fossil fuel markets will not respond to the absence of the largest energy user on the planet?  The “magic bean” solution.

Before I step down off of my soap box, there is one more example that I would like to illustrate: health care.  The new story on the left is that health care can be fixed by nationalization and that costs can be controlled by efficiency savings.  We can simultaneously improve quality, access and cost, despite all historical evidence that you can never move all three of these traits in the same direction at the same time.  Quality and access can be improved, but it is going to cost you.  Rationing reduces access, but frees money to improve quality and decrease costs.

So what are we missing?  Two of the biggest costs in the health care industry are related to health care provided to those nearing the end of their life, and in litigation suits.  Both of these issues are riddled with morally explosive trade-offs that can only be explored with a mature national debate, a debate the left convinces us isn’t necessary. Currently, almost 80 billion per year is spent on caring for those in the last year of their life.

Estimates show that about 27% of Medicare’s annual $327 billion budget goes to care for patients in their final year of life.

As the population ages, this fraction is only going to grow, consuming ever larger amounts of tax dollars.  Other nations with socialized health care have recognized this problem and have addressed it by rationing end of life care.  The UK has even gone to the extremes of not treating non-terminal older patients for entirely treatable problems, because they are not deemed socially worth the expenditure (a social worth, I’m sure, that does not extend to the Parliament that makes the rules for the little people).  While you can make an entirely rational argument for why older people are not worth the health care expenditure, it’s not an argument that is being made prior to health care nationalization.  Instead, all we hear is how great a national health care program will be, without any regard for the inevitable costs that will eventually force difficult decisions.

The health care industry is also riddled with lawsuits, forcing doctors to pay exorbitant malpractice insurance rates.  This exposure to lawsuits is evident to pharmaceutical companies, who directly pass their extra costs onto the consumer.

The drug maker Wyeth, for example, has set aside a reserve of $21 billion to deal with litigation related to the obesity medication Fen-Phen. Merck’s exposure to Vioxx lawsuits may total as much as $50 billion, the report notes.

While I don’t think many non-lawyers would argue that the industry is not held accountable enough by civil lawsuits, how would a government run system reduce lawyer related expenditures?  If you argue that the government cannot be sued, then you essentially reduce accountability to zero within the profession.  If you leave the system unchanged, then taxpayer funds will flow into the coffers of law firms the nation over.  Does anyone believe that this cash flow won’t become publicly charged with the government running all aspects of health care?

Health care is problem that requires a mature national debate.  With an aging population, these costs are going to be increasing dramatically unless some very difficult economic and moral choices are made.  A free market approach would allow people to choose the level of care they are comfortable with.  Are you willing to pay an extra 100 dollars a month throughout your life to ensure sound end of life care?  Would you rather have the 100 dollars?  The point is that these decisions need to be made and they require economic trade-offs.  The left is obscuring that these trade-offs exist and that they will require difficult and costly decisions.  Instead, we are left with the notion that a national health care system will increase coverage, decrease costs, and improve quality.  The “magic bean” solution.

While all of these issues are infinitely more complicated that I have described above, the point is that there are no easy no-cost decisions.  Each of these topics requires a mature open and honest debate, a debate that the left is trying to convince the nation is entirely unnecessary.  Instead, the left wants the hard decisions to be made behind closed doors by bureaucrats who will probably be held to a separate set of rules than they setup for the rest of us.  Do you trust these bureaucrats to make these decisions in the best interest of your nation and your family?  No, neither do I.

Spinning the Federal Budget

The NYTimes declare’s, “Obama Unveils New Budget Cuts.“

That’s a headline that would appeal to the vast majority of Americans who favor small government, if only he had actually cut the budget to government.  He has not done so, despite his own spin:

“We can no longer afford to spend as if deficits do not matter and waste is not our problem.”

As the Heritage Foundation points out, Obama is completely spending as if deficits do not matter.  The money “saved” by cutting military spending has gone back into a general fund for use on other projects, already approved as part of the largest federal budget in the country’s existence.  The deficit has grown tremendously, and none of the “cuts” have gone towards debt payment:

The President already proposed a specific discretionary spending level, and Congress has already approved a budget that would spend $1,086 billion on regular discretionary spending in FY 2010. The discretionary savings proposals affect only the composition of such spending. Thus, even if the entire $12.5 billion in discretionary spending cuts are enacted, the savings would automatically be plowed into other programs to maintain discretionary spending at that level. So this exercise is about reorganizing-not reducing-government.

Even on the entitlement side, $3.6 billion of the $4.6 billion in 2010 savings comes from phasing out the subsidized student loan program, with all savings redirected into expanded Pell grants. There is virtually no deficit reduction from these reforms.

Let’s be totally clear: Obama has increased the federal budget immensely.  He’s shuffled around some funds around so that he can have a public-relations victory and at the same time rewards some new special interest groups.  But the amount of money reallocated is so minuscule, the only newsworthy item here is how alarmingly desensitized Americans are to talk of large federal budgets (or perhaps how large the federal budget has become in comparison).

I made a graphic to show what each American household’s tax obligation is in 2010 (excluding the vast amount of stimulus money and monetized debt from the Federal Reserve) versus the savings Obama is bragging over.  Draw your own conclusions:

FY2010 Federal Budget Obligations Per Household

I think the graph speaks for itself.  Obama will spend nearly $23,000 on the median average household next year, but he’s holding a press conference (and the media is running with it) over a measly $144 worth of reallocation within that budget.

Migration, Liberalism, and Growth

Anecdotally, we all know that people tend to move from blue states to red states.  It’s one of the reasons I am such a strong proponent of states’ rights; if people don’t like the rules and taxes of one state, they are relatively free to move to another state more in-line with their beliefs and their pocketbook.  It’s much easier to move from state to state than to change nationality.  Since our boy wonder is quickly turning the whole nation into a blue state basket case, I wanted to study the real trend of people migrating within the US and compare the migration data to state political affiliation.  To do this, I used the US census estimates for migration between 2000 and 2008, concentrating on domestic migration rather than total migration.  The rational for this decision is that I want to know how current citizens feel about their state and international migration would swamp some of these trends for major immigrant states such as California and New York.  I then used the data from the last three presidential elections to weight states on how liberal or conservative the state trends.

Migration

To begin, I took the downloadable csv census file and for each state, added the net migration from 2000 to 2008 to give the total migration for each state.  The net migration is then divided by the base population in 2000 to generate a percent migration

Next, I took the percent return from the last three elections and averaged the percent return in each state for the Republican candidate and the Democratic candidate.  For instance, Massachusetts went 33% for Bush and 66% for Gore in 2000, 36.9% for Bush and 62% Kerry in 2004, and 36.2% for McCain and 62% for Obama in 2008.  The average Republican score for Massachusetts is 35.4% while the average Democratic score is 61.3%, yielding a Republican Advantage Score (RAS) of -26%.  The full scatter graph is shown as Figure 1, where the x-axis indicates the RAS and y-axis indicates the percentage migration in or out of the state between 2000 and 2008.  In general, the more left on the chart the more liberal the state and the more right the more conservative.  As you move up on the chart, more people are moving into the state and as you move down, more people are fleeing the state.

Figure 1. Migration vs political affiliation

When I first plotted this scatter graph, I was a bit disappointed.  Naively, I was expecting to see a line that showed people flocking from blue states toward red states.  While you can clearly see that people are leaving the most liberal states, the data is noisy indicating that people migrate for a variety of reasons.

To further refine the study, I classified each state as: Very conservative, conservative, moderate, liberal, or very liberal.  I used the scatter plot to assign percentages such that each group would contain roughly the same number of states.  Any state with a RAS larger than 15% is very conservative, between 5% and 15% is conservative, from -5% to 5% is moderate, from -15% to -5% is liberal, and smaller than -15% is very liberal.  This gives 13 states as very conservative, 10 states as conservative, 10 states as moderate, 8 states as liberal, and 9 states as very liberal.  Now, I took the total population migration within these groupings as a percentage of the total population contained in these states relative to 2000.  What I found was that very liberal states had a net -4.8% migration, liberal states had a -2.2% net migration, moderate states had 2.9% migration, conservative states had 3.6% migration, and very conservative states had a 1.7% migration.  If you subtract Louisiana from the tally, as its migration is heavily negative due to hurricane Katrina, conservative states have a 4.7% total migration.

When total averaging is included, people do flock from liberal states to conservative states, and the trend is very strong.  Not surprisingly, the migration is concentrated from heavily liberal states toward moderate and conservative states, but not as much into heavily conservative states.  This is most likely due to two factors.  First, people are socially not comfortable moving from heavily liberal states into deeply religious and conservative areas.  Second, the heavily conservative areas are not as developed as the moderate and conservatives states, meaning that they cannot economically support a large influx of new people.

If we look at the five states where the out migration is the highest, we see that three of these five are very liberal, one is liberal, and the only one that is conservative is Louisiana where the out migration was due to Katrina.  Looking at the top five states where the in migration is the highest, we see two conservative states, one very conservative state, and two moderate states.  Again, this data highlights the fact that people flock away from the heavily liberal states and into moderate and conservative states.

When people see the relative economic opportunities afforded by liberal policies compared to moderate and conservative policies, they overwhelmingly choose to move away from the former into the latter.  Given this unmistakable trend, why is it that people then vote to implement the very policies that people are flocking away from given a choice?

Growth

The answer to this question is primarily concentrated in the time response of the system to tax, regulation, and growth.  More taxes spent on social programs generally yield a short-term benefit that can be directly attributed to a given policy.  The negative results are generally seen in the economic growth numbers, which don’t start to show effects for years after a policy has been enacted.  Worse yet, because this time lag is substantial, it is difficult to directly attribute bad growth numbers to a particular policy.  The real trade-off between liberal and conservative economics is the difference between short-term benefits as opposed to long term economic growth.  According to Einstein, the most powerful force in the universe is compound interest!  Economic growth is simply compound interest paid on the entire economy.

From World War II to the 1980s, the US economy grew at an average rate of 1.8% compared to a 1.6% growth rate in the economies of the major European nations (see Ref).  From 1980 onward, the US growth rate increased to roughly 2.0% per year.  While these differences may seem small, they compound over time.  In Figure 2, you can see that after 100 years, an economy growing at 1.8% is a full 21% larger than an economy growing at 1.6%.  More striking, an economy growing at 2.0% is 48% larger than an economy growing at 1.6%.  Trading short term benefits for long term growth is a fool’s errand.  One of the major reasons that the US became the economic engine of the world was that it did not make this trade with the result that over the long haul, it greatly outpaced similarly placed western economies.

Figure 2. Growth vs. Time given three different growth rates.

What’s changing now?  In the last few months, we have seen the US flip to an entirely different economic model.  Instead of playing for long term growth, we see the US taking out the credit card to purchase all of the short term benefits that have slowed the major economies of Europe for the last 60 years.  Spent well (another argument for another time), this money very well might yield some short term improvement in the lives of citizens, essentially purchasing votes for the next round of elections.  Unfortunately, the debt incurred during this spending binge is going to greatly hamper the future growth of the economy.  Every dollar of money the US government has to pay back is a dollar that it must tax out of the productive sectors of the economy.  Instead of that dollar going to upgrade a factory or pay an employee, it is going to finance the debt that was incurred to provide short term social benefits.  You cannot look at Figure 3 without being astounded at how much debt the US is willing incurring over the next decade.  As sure as gravity pulls an apple to the ground, this debt will greatly slow the growth of the US economy for decades to come.

Figure 3. US deficit as the country transitions from Bush to Obama. Attribute to Gatewaypundit.

Summary

To summarize, the migration data presented at the beginning of this article unarguably shows that people move away from heavily liberal and liberal states to moderate and conservative states.  Given the ability, people flee high tax and regulation areas to go to places where the taxes are lower and they have more economic opportunity.  However, these liberal policies keep being enacted because the real cost of liberal economic policies are hidden in growth numbers that take years to show effects.  In effect, these policies gain the credit for their short term benefits, but don’t take the rap for the long term decline that they inevitably cause.  The result is that liberal economic policies tend to be political winners, while causing long term economic slowdown.  On a state by state basis, we clearly see these long term trends push their citizens into states with more conservative economic policies.  Ironically, the new transplants tend to support the same liberal policies that caused them to move away from their previous state to begin with, because the cost of these policies is again hidden in the long term growth trends that won’t become apparent for years to come.  This cycle is sure to continue until the liberal agenda completes its work and we all live like royalty, such as the citizens of North Korea or the old East Germany.

Nationalizing the Auto Industry

From the Wall Street Journal:

The feds have decided they should own a neat 50% of GM, yet that is not the natural outcome of the $16.2 billion that the Treasury has so far lent to the company. Nor is the 40% ownership of GM that the plan awards to the United Auto Workers a natural result of the company’s obligations to the union.

Yet Secretary Timothy Geithner and his auto task force, led by Steven Rattner, have somehow decided that Treasury and UAW chief Ron Gettelfinger will get to own a combined 90% of GM. If there’s a reason other than the political symbiosis among the Obama Administration, Michigan Democrats and the auto union, it’s hard to discern.

When you have politicians acting outside of their constitutional authority, it’s obviously political.  And there is clearly not constitutional authority for this, nor can I find legal precedent for acting outside the boundaries of traditional bankruptcy court.  So what’s up?  The article continues to explain the details:

The biggest losers here are GM’s bondholders. According the Treasury-GM debt-for-equity swap announced Monday, GM has $27.2 billion in unsecured bonds owned by the public. These are owned by mutual funds, pension funds, hedge funds and retail investors who bought them directly through their brokers. Under Monday’s offer, they would exchange their $27.2 billion in bonds for 10% of the stock of the restructured GM. This could amount to less than five cents on the dollar.

The Treasury, which is owed $16.2 billion, would receive 50% of the stock and $8.1 billion in debt — as much as 87 cents on the dollar. The union’s retiree health-care benefit trust would receive half of the $20 billion it is owed in stock, giving it 40% ownership of GM, plus another $10 billion in cash over time. That’s worth about 76 cents on the dollar, according to some estimates.

In a genuine Chapter 11 bankruptcy, these three groups of creditors would all be similarly situated — because all three are, for the most part, unsecured creditors of GM. And yet according to the formula presented Monday, those with the largest claim — the bondholders — get the smallest piece of the restructured company by a huge margin.

This seems to be by political design.

No kidding!  It’s hard to comment beyond the numbers, which speak for themselves.

Meanwhile, investors have learned their lesson about investing in American companies.  Chrysler’s investors were getting an equally bad deal, and the government was not willing to negotiate.  It’s no wonder private investors were hesitant to work out a deal with Chrysler:

It’s especially rich for Mr. Obama to blast the creditors for seeking “an unjustified taxpayer-funded bailout” while offering the UAW a 55% majority stake in Chrysler. He also praised the large banks that hold most of the Chrysler debt and supported the government plan. But of course J.P. Morgan and the other big banks are also recipients of billions of dollars in taxpayer cash and have a strong interest in playing nice with their creditor, Uncle Sam Obama.

The Chrysler creditors at least represent teachers, pensioners and retirees, among others. The Administration is advancing its own social and political agenda through its ever-deeper entanglement with Chrysler and General Motors. That explains why the government is giving 55% of the new Chrysler to the UAW’s retiree-benefit trust, a junior creditor, while those ahead of the trust in line get a mere 30 cents on the dollar.

Rush is calling this, “Right out of Juan Peron‘s playbook,” saying this is a three-step process:

1) You intimidate lawful debt holders into surrendering their legitimate claims in a bankruptcy, i.e., the bondholders.

2) You hand the company to your union allies.

3) You force state-owned banks — you don’t have to force them because they’re yours anyway… you force them to give up most of their claims in a bankruptcy.

Obama has never been one to take things slow, and he’s accomplishing these three steps in single deal.  I suppose the true step one was months ago, when the treasury used taxpayer dollars to loan the auto industry billions.  That began the unconstitutional relationship between government and the auto industry, or more appropriately the siphoning of taxpayer dollars to the auto industry.  This first step happened under George W. Bush.

What I do find incredible is how Obama has spun this.  “I don’t want to run the auto industry,” he said two nights ago on prime time television, contradicting all of his own actions.  He continued to say the government will be repaid in full for their loans to the automakers.  What spin- they are being repaid with ownership of a sinking ship.  Taxpayers haven’t been repaid except by shares they didn’t want.

We know taxpayers- who may invest freely, mostly- didn’t like GM or Chrysler by looking at their plummeting stock prices.  Yet the taxpayers now own a majority of the domestic auto industry anyway, courtesy of Uncle Sam, even though they have already overwhelmingly voted with their own dollars against it.  Except unlike normal shareholders, who may vote on how their company is run, the government has UAW chief Ron Gettelfinger calling the shots on their behalf.  He has never held the same interests as the consumer, company, or the taxpayer, and now he has more power and less accountability.

The whole system- and by that, I mean the auto industry and the taxpayers who fund it- will go down together.  Recall that communism never produced a good car:

(part 2)

DC Goes After Its Citizens

Using an obscure law that has not been enforced in recent memory, DC has decided that they can ticket your car in your driveway!

Beverly Anderson is mad as hell. She just started to get tickets for parking in her own driveway.

That’s right. The District of Columbia is ticketing people who park their cars in their own driveways.

“This is clearly an attempt by the city to extort money out of property owners,” Anderson tells WTOP.

Anderson has received two of the $20 tickets in the past month. Anderson has owned the Capitol Hill house (and the driveway, so she thought) for more than ten years and has never gotten a ticket. And she’s not alone.

As the government gains more and more control over every aspect of the American economy, remember that at street level this power will be yielded by unaccountable and unelected bureaucrats.  A government who can help everyone, can also take anything from anyone.  Property rights and individual liberty have become just words used to hide their very absence from everyday American life.