Semper Libertas - Liberty Everlasting

Health Insurance Reform and 18th Century Economists

2010-03-11T23:01:00Z

In response to this column by George Will in the Chronicle, I sent the following letter:

re: Obama is thinking in the Wilsonian tradition

Reading the quote from President Obama concerning his desire to implement a "very elegant, academically approved approach to health care" without any "legislative fingerprints" or the need for "negotiations", I couldn't help but think of what Adam Smith had to say about that approach over 200 years ago in Theory of Moral Sentiments: "The man of system ... is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. ... without any regard either to the great interests, or to the strong prejudices which may oppose it."

In the time since Adam Smith, the world has seen amazing progress. Human nature, however, seems to remain the same.

Sincerely,
Dave Smith
Houston, TX

Earthquakes, 19th Century Economists, and Broken Windows

2010-03-04T02:16:00Z

It is nearly as predictable as death and taxes: when a disaster of some sort occurs -- e.g., Hurricane Katrina, Missouri River flooding, or earthquakes in China -- after the dust settles and the rebuilding effort begins, some economist or pundit will bring up that ultimately, the disastrous event could spur some sort of economic stimulus. As Chileans are sifting through the rubble in the aftermath of their recent earthquake, sure enough, the following headline appears on this article on Forbes.com: "Chilean Earthquake May Boost Growth"; the first sentence in the subtitle: "If country can maintain immediate disaster relief, reconstruction efforts could stimulate economic growth."

The theory is that the rebuilding of an area following a disaster brings in new construction, creating jobs, spurring investment, and creating demand for raw materials and other products. Adding to the benefit, many times the buildings destroyed were older, less well-constructed, perhaps less energy-efficient, and often in the poorer areas of the afflicted area. The reconstructed infrastructure is then more modern, built to stricter standards, more environmentally friendly, and perhaps even more aesthetically pleasing. Sounds like a great deal, eh?

Unfortunately, such a thought process ignores a simple, fundamental aspect of economics: resources have alternate uses. In addition to the most tragic aspect of the earthquake, the loss of life, economically speaking the time, energy, effort, and money spent in rebuilding Chile (or Haiti, or New Orleans) could have been spent elsewhere -- was being spent elsewhere (or planned to be) prior to the quake. The economic activity from the reconstruction efforts in Chile we will see; however, the economic activity that won't occur elsewhere (both inside Chile and out) is unseen. Every dollar -- or Chilean peso -- spent on replacing a building in Santiago that can't be spent on, say, a new factory, or on new copper mining equipment (Chile is a major producer of copper).

The aspect of the unseen economic impact was identified by 19th century economist Frederic Bastiat in his "Parable of the Broken Window". In his story, a shopkeeper's window is broken by his young son. The window must be replaced, which of course "stimulates the economy" for the glass maker employed to replace it (and of course for any involved on an ancillary basis -- e.g., the labor involved in installation, the truck owner who transports the glass to the shop, etc.). The impact on the local economy is seen. But what isn't seen in this specific example is what the shopkeeper was going to do with the dollars -- or francs -- if he hadn't had to buy a new window. Perhaps he needed a new heating and cooling system, or wanted to expand the size of the store to put in a sushi bar, or even was contributing to a college fund for his glass breaking son or to his own retirement fund. Anyone of those activities could be better in the long run for the shopkeeper -- and perhaps even for the entire economy at large (who couldn't use another sushi bar?). That alternate activity and all the economic dominoes it might have toppled are gone, replaced by a smiling glass maker.

The same principle applies to government programs that incentivize particular economic behaviors. "Cash for Clunkers", for example, distorted the economic incentives towards buying a car for many. This was great news to auto dealers and manufacturers; however, what about the people for whom it really made more sense sans incentives to buy clothes, or health insurance, or braces for their children? And what about the businesses negatively impacted -- in an unseen way -- by that government-funded anti-stimulus? They will never know what hit them. At least they have that new F-150 in the driveway.

I think, perhaps, the best way to combat this kind of short-sighted thinking is to bring the broken window parable to life in a very practical, hands-on way: whenever someone mentions the "silver lining" of increased economic stimulus provided by a natural disaster, simply throw a brick through his window. If he complains, tell him you're stimulating the economy. Somewhere, perhaps a certain 19th century economist will be watching and smiling.

Innovation and Government

2010-03-03T14:25:00Z

In response to this Thomas Friedman column in the Chronicle, I sent the following letter:

re: America's future lies with Jetsons, not Flintstones

In discussing innovation, job creation, and capital investment, Thomas Friedman hints at some of the recipes for success but seems to remain transfixed by his belief that we in the US would be better off if we emulated China -- and he continues to support policies that run counter to what would help make the US economic climate more competitive.

It isn't government incentives or direction that we need more of -- such government intrusion on the marketplace skews development and innovation towards the pet projects and political cronies of those in government power, and politicians don't have the knowledge and understanding of what consumers want or what would power innovations.

Rather than government incentives, we need to remove the government disincentives to investment and innovation. Our current corporate tax rate is among the highest in the world -- and the Obama Administration is welcoming its forthcoming increase, while advocating higher taxes on capital investment. To paraphrase Paul Otellini (the Intel executive quoted by Friedman), this raises the "cost of operating ... after tax". Additional taxes and mandates associated with health care "reform" and "cap-and-trade" proposals by President Obama would only further raise the cost of doing business in America -- and make foreign markets more appealing by comparison.

If we want an American economy that hums along with Jetsons-like efficiency, we need to stop taxing ourselves into the Stone Age.

Sincerely,
Dave Smith
Houston, TX

Turnabout is Fair Play

2010-02-17T18:37:00Z

In response to this column by Thomas Friedman, I emailed him thusly:

Dear Mr. Friedman,

In your column "Global Weirding is Here", you suggest that "surely the silliest is the argument that because Washington is having a particularly snowy winter it proves that climate change is a hoax". I agree with your statement completely: one year -- even several -- does not necessarily indicate a trend. However, I remember vividly during the tragic hurricanes that seemed to be constantly hitting the Gulf Coast during 2005 (Katrina, Rita, etc.) global warming ("weirding") advocates who attempted to paint the active hurricane season as itself evidence of the existence of man-made (or, perhaps, man-exacerbated) climate change -- a phenomenon, we were told, about which the "debate is over".

For example, Robert F. Kennedy said "Now we are all learning what it’s like to reap the whirlwind of fossil fuel dependence which Barbour and his cronies have encouraged. ... Katrina is giving our nation a glimpse of the climate chaos we are bequeathing our children." Activist and author Ross Gelbspan wrote “The hurricane that struck Louisiana yesterday was nicknamed Katrina by the National Weather Service. Its real name is global warming.” Al Gore himself said (referring not just to hurricanes but to the spate of abnormal weather in 2005) "unless we act quickly and dramatically ... this, in Churchill's phrase, is only the first sip of a bitter cup which will be proffered to us year by year until there is a supreme recover of moral health."
Is the ribbing of Al Gore part of a "festival of nonsense", or merely giving him and his fellow travelers a taste of their own medicine? I would vote the latter.

Sincerely,
Dave Smith
Houston, TX

Update: the same column was reprinted in the Chronicle. I submitted an edited version of the above to the editorial page.

Newton's Third Law... of Protectionist Trade

2010-02-11T05:00:00Z

"For every action, there is an equal and opposite reaction." -- Sir Isaac Newton's Third Law of Motion

In his first major official action with regard to trade policy, President Obama followed in the footsteps of Herbert Hoover and George W. Bush by imposing tariffs on tires imported from China. In the words of President Obama's former minister, Jeremiah Wright: "the chickens have come home to roost" -- almost literally. China, as countries tend to do when one country's government blocks market access (see: Smoot-Hawley Tariff Act), China has now responded by imposing its own sanctions on American imports: namely, chicken products imported from the US.

The Chinese tariffs range from 40.1% to 105.4%, and include whole chickens as well as other poultry products such as sausage and chicken feet, which, according to the AP story, are apparently a delicacy in China. Hopefully, this represents only a trade skirmish, and not a full-fledged trade "war".

The action by China follows a familiar pattern. It is as if Newton'sThird Law of Motion were adapted and applied to the economics of tradeby Adam Smith and David Ricardo: for every protectionist trade action,there is an equal and opposite protectionist trade action. The real losers in this situation are , well, everyone. American chicken producers now have a smaller market for their product -- according to MarketWatch, Tyson Foods alone sold $224 million worth of chicken products in China in 2009. Chinese consumers lose as well -- they will have to higher prices and fewer choices when it comes to chicken products; MarketWatch reports that Chinese producers are unable to keep up with demand for chicken feet.

During the 2008 election, then-Senator Obama informed us that his election marked the moment when "our planet began to heal", "the rise of the oceans began to slow", when we "began to provide care for the sick and good jobs to the jobless", and in doing so "restored our image". Unfortunately, even the purveyor of such Herculean feats can't defy the Laws of Motion.

Mr. President, meet Sir Isaac Newton.

Coalitions, Voices, and the Two-Party System

2010-02-10T16:06:00Z

In response to a letter to the Chronicle editorial page titled "Get it done", I sent the following response:

re: "Get it done", by David J. Maschek
In his letter titled "Get it done" in Wednesday's Chronicle, Mr. David Maschek praises the intellectual diversity of the Democrats and criticizes the Republicans for "speak[ing] with one voice" -- implying a lack of intellectual diversity.

We have a two-party system in the US, so both parties are by definition coalitions of various interests. Whichever party in the minority has an incentive to stick together against a common opponent, whereas once majority status is attained, each of the coalition groups seeks action on a more specific agenda. This is the case regardless of which party finds itself in the majority or minority.

It seems rather amusing, then, that whenever a party changeover occurs inevitably the new majority party and its adherents criticize (typically with lofty self-righteousness) the new minority party's "lockstep" voting against the majority's agenda while praising their own ideological diversity. Both are nothing more than a reasonable reaction to the incentives that are endemic to the two-party system.

So relax, Mr. Maschek: the next time the Democrats find themselves in the role of the loyal opposition, they'll once again morph into a more singular voice, and, when in the majority, the various Republican coalitions will realize once again that they can't stand each other -- and will criticize the Democrats for a lack of diversity of opinion.

Sincerely,
Dave Smith
Houston, TX

Jobs And Occam's Razor

2010-02-09T23:01:00Z

In response to this news story in the Chronicle about a so-called "jobs bill" plan by Senate Democrats, I sent the following letter:

re: Senate Democrats unveil jobs package

The so-called "jobs package" unveiled by Senate Democrats on Tuesday could use a good shave -- by Occam's Razor. The idea behind Occam's Razor is that the simplest idea or explanation is typically the best one. Unfortunately, the Senate approach to creating jobs is unnecessarily complex.

Consider the payroll tax exemption proposal for hiring new workers: they would have to be unemployed 60 days or more to be qualified for the employer credit; not only would this require more paperwork, a bureaucracy to enforce, and perhaps lead companies towards hiring less productive or qualified applicants -- all of which would lead to less efficiency and therefore ultimately become a drag on economic growth. The draft outline contains other targeted, special interest "provisions sought by lobbyists for business groups, doctors and the satellite broadcasting industry".

Rather than requiring companies to jump through hoops to get tax relief, or providing government goodies for special interests, a much more simple, efficient, and effective proposal would be to decrease and simplify the tax burden on all businesses. Rather than sending money to the government (and winding through bureaucratic red tape), businesses would have more money to hire workers or to invest in equipment, construction, or other endeavors that also increase the demand for new workers.

Sincerely,
Dave Smith
Houston, TX

Getting Our House In Order

2010-02-03T04:04:00Z

In response to this editorial in the Chronicle, I sent the following letter:

re: Decoding Davos: Headlines from the World Economic Forum

In exhorting the United States to "get our own house in order" with respect to economics and prosperity, the Chronicle editorial staff certainly chooses a strange mix of remedies. On the one hand, "towering deficits and a ballooning national debt" are (rightly) mentioned as a drag on the economy in need of a fix; however, the editorialists subsequently criticizes the "gridlock" that has ensued over so-called "health care reform" -- the specific plans for which, as passed by the House and Senate, would add trillions to future deficits and debt, while restricting economic growth with tax increases, mandates, and prohibitions. Not a good recipe for curing an economic malaise.

The Chronicle then lists with derision a persistent "balance-of-trade deficit", ignoring the fact that such "deficits" in balance of trade (also known as the current account) correspond with a surplus in the capital account. When American consumers choose to spend their dollars on goods and services from foreign-based companies, those companies don't just bury the dollars in the back yard. Instead, those dollars are invested back in the United States -- in bonds, in stock shares, in factories, etc.

If the US wants to promote prosperity, it should promote the engines of economic growth: trade, entrepreneurism, innovation, production. Higher taxes and barriers to trade and investment promote none of those things.

Sincerely,
Dave Smith
Houston, TX

The Corporations Are Coming!

2010-01-28T04:43:00Z

Last night, major corporations took over the airwaves and broadcast two political messages. Then, they had commentary about the content and delivery of both speeches from government employees and paid political operatives. Many were using the opportunity of camera time to effectively lobby the government to enact various policies and advocate a political agenda.

According to much of the comment (largely negative) surrounding the recent Supreme Court decision -- Citizens United v. Federal Election Commission, in which the Court overthrew limits on corporate funding of advertisements concerning political issue advocacy -- our rights were trampled on by those corporations and their political message. Surely those who lambasted the decision will be incensed by last night's display? Surely those who have decried the forthcoming corporate takeover of elections are up in arms?

Don't bet on it. You see, last night's event was President Obama's State of the Union speech, followed by the Republican Response given by Virginia Governor Bob O'Donnell. The corporations in question were General Electric (owner, for the near future, of NBC, MSNBC, and CNBC), NewsCorp (owner of FoxNews and Fox Business Channel), Time Warner Corporation (owner of CNN), and so on -- corporations that have media divisions.

The case in question involves a group called Citizens United. According to their website, their mission is to "restor[e] our government to citizens' control" by "education, advocacy, and grass roots organization". They are a non-profit corporation, and they have produced films such as Broken Promises: The U.N. at 60, ACLU: At War With America (an irony of which to be discussed below), Rediscovering God in America, and the one that got them tangled up with the FEC: Hillary: The Movie.

The movie is advertised as being for the person who "want[s] to hear about the Clinton scandals of the past and present" and is billed as "the first and last word in what the Clintons want America to forget". The movie was produced by CU to influence the 2008 election against Mrs. Clinton's candidacy. Unfortunately, however, while Citizens United is a non-profit organization, under the rules of McCain-Feingold campaign finance "reform", corporations are banned from advertising and other activities during certain time periods during elections; the FEC decided that advertising and showing Hillary: The Movie fell under those restrictions.

Citizens United had a broad range of support in their fight against the FEC from speech advocacy groups all along the conventional "left-right" spectrum. The aforementioned American Civil Liberties Union -- a target of CU derision in the past -- filed an amicus brief on behalf of the group, as did the AFL-CIO (unions were included with corporations in the ban). They acted alongside such conservative groups as Alliance Defense Fund and conservative lawyers such as Theodore Olson (chief advocate for George W. Bush in the aftermath of the Bush-Gore election in 2000 and later the Solicitor-General in the Bush Administration).

In standing with Citizens United, the Court recognized something simple and fundamental: the actual wording of the First Amendment: "Congress shall make no law... abridging the freedom of speech, or ofthe press; or the right of the people peaceably to assemble..." There is nothing in the wording to suggest that such prohibitions are accorded only when the laws in question concern individuals but are null and void when free, voluntary associations of individuals (or, for that matter, coerced associations, as unions often are). To uphold the prohibition imposed by McCain-Feingold, the Court would have to take the position that while Tom and Joe have free speech rights, should they pool their resources together, they then forfeit those rights.

There are many potential other pratfalls had the Court upheld the campaign prohibitions. They would have essentially taken the position that a group of voluntarily-allied citizens would be banned from making a documentary or an interview of a particular politician, but a corporation like CBS would have no such restrictions on, say, a 60 Minutes piece. This creates what would seem to me to be a huge inequity in the law, and a major source of potential government censorship.

As the author of the majority opinion, Justice Anthony Kennedy, wrote, "If the First Amendment has any force, it prohibits Congress from fining or jailingcitizens, or associations of citizens, for simply engaging in politicalspeech. ...When government seeks to use its full power ... to command where a person may get his or her information or whatdistrusted source he or she may not hear, it uses censorship to controlthought... The First Amendmentconfirms the freedom to think for ourselves."

Hear, hear.

Tell Us What We Want

2010-01-21T14:22:00Z

In response to this article in the Chronicle, I sent the following letter:

re: Gut-check for Obama and Dems on health care overhaul

Commenting on the recent election of Republican Scott Brown to the US Senate in Massachusetts and the impact on the health care "reform" bills that passed the House and Senate -- against which Mr. Brown campaigned -- House Speaker Nancy Pelosi claimed that "Massachusetts has health care. ... The rest of the country would like to have that too." My question to Ms. Pelosi is this: if the "rest of the country" is so enthusiastic about the Massachusetts plan for health care, why have more states not implemented similar plans?

In fact, Massachusetts's experimentation with health insurance reform is in line with the Founding Fathers' vision of the states as "laboratories of democracy" -- a marketplace of ideas instead of a top-down, one-size-fits-all approach dictated from Washington DC. States are free to emulate the Bay State's program if they choose, or mix-and-match with various policies as they see fit. That's the beauty of federalism.

Ms. Pelosi presumes to speak for what 300 million people "would like", and implies that without an expensive, intrusive, inefficient government overhaul, there is no access to health care. She is wrong on both counts.

Sincerely,
Dave Smith
Houston, TX

More Equals Less?

2010-01-21T06:31:00Z

In response to this editorial by Froma Harrop in the Chronicle, I sent the following letter:

re: Taxing bankers is justified, but it should only be a start

In her paean to higher taxes, Froma Harrop states (erroneously) that "there cannot be lower deficits without higher taxes", and notes (correctly) that the national debt increased during the Reagan Administration. Unfortunately, she is mistaking coincidence for causality. Yes, under Reagan the income tax rates were reduced; however, the revenue from federal income taxes grew by 56% from 1981 to 1989. Unfortunately, government spending rose by 69% during that same time period. The budget deficits during this time were not the result of a reduction in revenue, but rather an increase in spending.

The key to controlling the deficit and national debt is not to take more money from the paychecks of hardworking Americans, but rather to have our politicians spend less of our money.

Sincerely,
Dave Smith
Houston, TX

Deja Vu All Over Again

2010-01-20T23:46:00Z

The scene is set: a young, energetic Democrat is elected to the Presidency after years of Republican rule. Along with him, he gets Democratic majorities in both the House and Senate. He takes office with Congress ready to enact his ambitious agenda. One of his first big agenda items is an "economic stimulus" bill -- a big-ticket spending bill overflowing with pork barrel projects that are supposed to stimulate the economy. Buoyed by his popularity, and in response to promises made on the campaign, he undertakes a major overhaul of the national health care system, moving towards more government control with an expensive, bureaucracy-laden plan built on mandates, taxes, and European-style statism. While initially supportive of the endeavor in broad terms, the public starts to sour on the idea the more they learn about the details, and Republicans -- free market ideas spurned -- go on a disciplined opposition path against the bill.

As the debate heats up over health care, more of the public becomes disillusioned with the new President's hard-left movement after running as a candidate who would bring Republicans and Democrats together to solve problems. Hard-line Democrats dig in on health care, with some of the more moderate (and vulnerable) Democrats negotiating concessions. Then, finally, come the first two major elections since the President was inaugurated and the health care bill introduced. Republicans take over previously-Democratic governorships in New Jersey and Virginia, rocking the electoral landscape.

Sound familiar? No, I'm not talking about President Obama, his $787 billion "stimulus", cap-and-trade, health care "reform", and the recent victories of Bob McDonnell in Virginia and Chris Christie in New Jersey. Instead, I'm referring to 1993, and the first year of President Bill Clinton. The similarities are striking, yet it seems that Democratic politicians and strategists failed to learn the lessons of history -- and were thus doomed to repeat it.

The lesson becomes even more stark and undeniable when you consider what happened in yesterday's special election in Massachusetts -- yes, Massachusetts (!) -- where Republican Scott Brown upended Democrat Martha Coakley in the special election to fill the rest of the term of the late Ted Kennedy's Senate seat. There are differences -- the "ObamaCare" plans have actually passed the House and Senate (Clinton's plan collapsed without a vote in the House and Senate), and prior to the election Democrats in 2009 held a filibuster-proof majority. There was no special, dramatic race in early 1994 like we have in Massachusetts. But the parallels are certainly easily observable.

One interesting aspect is that when Obama came to office in January 2009 along with a Congress that had strengthened its Democratic majorities since taking the House and Senate in 2006, health care reform was discussed as a major priority. The line from the Democratic leadership was that a 1993-like failure on achieving government-centric "reform" couldn't be repeated, else the Democrats would suffer at the ballot box in a similar manner to that seen in the Republican takeover of Congress in the sea-change elections of 1994. So, to ensure that something -- anything -- passed, they begged, cajoled, bargained, and arm-twisted their way to slim votes.

Yet it appears that the Democrats learned the wrong lesson from 1993's failed attempt: the voting public wasn't punishing Democrats in 1994 for not passing a Big Government health insurance bill, they were punishing Democrats for attempting it in the first place. One need only to look at Senator-elect Brown's poll numbers versus Martha Coakley to see that as the votes on health insurance in the Senate began passing, as the deals became public knowledge and the public approval of the bill dropped, Brown surged. Even normally reliable Democratic voters in Massachusetts -- and certainly independents -- did not like what they were seeing. Now, while many Democrats in DC are urging caution, some are saying that (somehow) the election of a candidate whose top promise to oppose the current version of national health care "reform" is a sign to Congress and the President that the public wants them to pass... the current version of national health care "reform".

Brown also made a shrewd political point in opposing the "ObamaCare" (promising to be the deciding vote against it in the reconciliation vote): Massachusetts already has its own version of "universal coverage". To pass a national bill would be to have Bay Staters subsidizing health care for residents of other states. Thus, he made himself a viable option to people on both sides of the debate: hate the Massachusetts plan, and you certainly wouldn't want to see it implemented on a federal level;; love the Massachusetts plan, and you still get to keep it without raising your taxes to provide it to someone else.

Will the last chapter of the original story be duplicated in 2010 -- will Republicans ride a tide of "change" to control of both Houses of Congress? Or will the Democrats take the proper lesson from the "'Scott" heard round the world" in Massachusetts (tip of the hat to the Young Republicans National Federation for that one) and adjust their course? We will, of course, see in the coming weeks and months, as Democratic leaders deal with health care, cap-and-trade, jobs, and other issues. But in the meantime, it certainly seems like we've seen this movie before.

Selective Indignation

2010-01-13T00:22:00Z

In response to this story in the Chronicle, I sent the following letter:

re: White House defends health tax opposed by labor

One of the taxes and fees that the Senate health care "reform" bill included was a tax on "high-value" health care insurance plans provided by employers. Organized labor opposes this tax, arguing that it "“drives a wedge between the middle class and the poor" because "it would hurt union members who negotiated good health benefits instead of salary increases."

Interesting that organized labor groups like the AFL-CIO oppose this tax, but seem not to care about the taxes and fees opposed on those (both union and non-union) who choose instead to negotiate in favor of higher wages or other benefits instead of health care coverage -- the health care "reform" bills passed by both the House and the Senate contain individual mandates (taxes on individuals who don't carry health care coverage deemed sufficient by the government) and employer mandates (taxes on businesses that don't provide health insurance benefits).

It would seem that organized labor is engaging in selective indignation.

Sincerely,
Dave Smith
Houston, TX

Understanding Job Creation

2010-01-12T05:07:00Z

During the 2008 campaign, then-Senator Joe Biden made the famous statement that "the number one job facing the middle class, and it happens to be, as Barack says, a three-letter word; jobs. J-O-B-S. [sic]". It turns out, Biden, his former Senatorial colleagues, and those in his boss's Administration aren't just bad at counting letters, but bad at implementing economic policies that create jobs -- according to the Bureau of Labor Statistics, the unemployment rate remained unchanged at 10.0% for December following the loss of 85,000 jobs. The so-called "shovel ready" projects supposedly present in the so-called "stimulus" plan haven't been progressing quickly (according to the official "Recovery Act" website, of the $160 billion awarded in "federal contracts, grants, and loans", only $37 billion -- 13% -- has been awarded). But the Obama Administration is becoming more noteworthy on the jobs and economic development front not just for what it hasn't done, that is, promote economic investment, recovery, and growth, but for the negative things it is doing.

The White House famously (or infamously, as one prefers) pushed, prodded, and cajoled Senate Democrats to vote for the recently passed health care "reform" bill, and is currently involved in promoting the negotiations between the House and Senate to reconcile the differences in the two bills. But hidden within the Senate bill is a giveaway to a key Democrat-aligned special interest -- organized labor -- that works against job production:

Early versions of the Senate’s far-reaching health care bill said that small businesses with fewer than 50 workers would not be penalized if they failed to provide insurance. That was before labor unions in the construction industry went to work and persuaded Senate leaders to insert five paragraphs.

Their provision, added to the 2,074-page bill at the last minute, singles out the construction industry for special treatment, in a way that benefits union members and contractors who use union labor.
In this one industry, the exemption from the penalty would be much more limited, available only to employers with fewer than five employees. Construction companies with five or more workers would generally have to provide health insurance or pay a penalty — an excise tax of $750 per employee.

As Ronald Reagan said in his farewell address, "Common sense told us that when you put a big tax on something, the people will produce less of it." But of course, by forcing small businesses to either provide health insurance for workers or pay a tax, the Senate bill is effectively asking for fewer and/or smaller construction companies -- the government is disincentivizing the hiring of workers by artificially increasing the cost of adding new employees to the payroll.

Meanwhile, the US corporate tax -- already one of the highest among industrialized countries -- and taxes on capital investment, dividends, and individual income (paid by many smaller businesses) are set to increase as the "Bush tax cuts" expire, putting further downward pressure on employment growth. And that's not counting further taxes on business that will comprise the proposed "cap and trade" bill, already passed in the House and awaiting action in the Senate.

It seems Mr. Biden's counting skills are the least of our worries moving forward. The real problem is a fundamental lack of understanding of the economics of job creation, coupled with special interest pandering and government expansion. That's not good news for those in need of "J-O-B-S".

Epic Fail Times Two

2009-12-30T11:51:00Z

Everyone knows the old saying that opposites attract, but rarely do two disparate stories so clearly illuminate the same point as two major news items over the past several days. One is a tale of financial fraud, deception, and campaign cash; the other is the terrifying attempt of a bloodthirsty terrorist and the response of an incompetent government.

First, let's talk about money. The story of financier Allen Stanford is the Dixie version of Bernie Madoff. But the latest details in the Chronicle bring even more of the tawdriness into the limelight. Not unexpectedly, it appears that Mr. Stanford was quite a prolific donor of campaign cash to politicians on both sides of the aisle -- $2.3 million in all. He hosted a wedding dinner for one Congressman; he donated tens of thousands to the both the Republican and the Democratic Congressional Campaign Committees. He gave $100,000 to help elect George W. Bush; he treated other elected officials to "caviar, wine, [and] lobster" in "places like Montego Bay, St. Croix and Key Biscayne", the Chronicle reports.

His investments in government, unlike his financial defrauding scheme, paid out handsomely. He opened a "controversial trust in Miami", "killed" a proposal that would have hurt his money laundering operation, thwarted efforts that would have strengthened tools to combat illicit funds transfers, and bribed regulators.

Disclosure: I'm no expert in international finance. I don't know if the measures against which he lobbied (and towards which he donated) were actually good, necessary, or just -- many government attempts at "reform" are none of the above. However, it appears that regardless of which party was controlling the agenda, Stanford was ready with cash, and he appears to have gotten his way.

Now, switching gears: to terrorism, specifically the attempted Christmas Day Copenhagen-Detroit suicide bombing attempt. Luckily, the attacker (who was somehow able to smuggle explosives onto the plane in his underwear) was thwarted by alert -- and brave -- passengers. As it turns out, the US was warned about this would-be terrorist... by his own father. The would-be bomber paid with cash, and he carried no baggage. Yet while his name was on an official government list of suspected terrorists, he was not on the "no-fly" list, and his visa was not canceled (or apparently even reviewed).

Another disclosure: I have been on the Department of Homeland Security "watch" list -- I have a very common name, and apparently share a name with an alias of someone suspected of trafficking drugs (or something) between Mexico and the US. This has resulted first in my getting detained for extra interrogation by Customs officials when arriving back in the US from traveling to Mexico, and eventually to my not being able to check-in online for flights domestically. I was able to clear my name from the list (after I found out I was on it -- the DHS doesn't tell you) and all is now well. But if I can be flagged based on having a common name, how in the world can they not flag a suspected terrorist?

But it gets better (or worse, depending on your perspective). In her initial discussion of the event, DHS Secretary Janet Napolitano claimed that "the system worked". So while a note from your dad is enough to excuse an absence at school, being a suspected terrorist, a note from your dad, and post-9/11 airport security measures are not only insufficient to prevent someone from blowing himself up on a flight, "the system" is considered to be "work[ing]" when that happens. This can't be overstated: while Sec. Napolitano and President Obama later admitted that there was a "mix of human and systemic failures", the first reaction of our government was to claim success.

So we have a corrupt kleptocracy enabling an alleged money-laundering thief in return for campaign cash and lavish luxuries on one hand, and on the other we have a bumbling bureaucracy neglecting to protect the safety of its citizens even when supplied with useful, actionable intelligence. Two completely different circumstances, two epic failures.

Do we really want these people -- these incompetent, corrupt politicians -- in charge of our health care?

Civil Liberties Aflight

2009-12-30T11:22:00Z

I consider myself a civil libertarian. Central to my political philosophy is that the purpose of government is to protect individual liberty and property -- not to impose or enforce an agenda, whether it be "family" values or "progressive" values; these are things that should be left to the realm of persuasion, not coercion. I consider much of the so-called "Patriot Act" to be an unnecessary intrusion on liberties in the search for security; various parts of the act were expansions that the government had been trying to obtain for years.

All that said: why in the world do we not have more full-body X-ray machines at airports? I'll even grant voluntary "opt-out" provisions (with an opt-out that would result in a physical search).

Civil libertarians are barking up the wrong tree in fighting these security devices -- tools that are available now, and would make sneaking explosives onto planes more difficult by degrees of magnitude. The concerns are valid: as reported here, the full body scans leave little, if anything, to the imagination. But isn't that the point? If a potential terrorist is going to hide explosives, isn't he (or, eventually, she) going to hide it in the most difficult-to-find nooks and crannies? The Christmas Day bomber, Umar Farouk Abdulmutallab, hid the explosives in his underwear, and obviously with good reason: he was successful in getting past security with a deadly weapon.

Capitalism is based on voluntary exchange, but purchasing a service from a private company -- in this case air travel from an airline -- is not a fundamental right. If a person believes that air travel is too inconvenient, or too cramped or too policed, he has the right not to fly; there are certainly other modes of transportation available. No person would be subject to a "search or seizure" without prior knowledge of the rules of the game.

A sensible policy would be to require either a full-body scan, or, if preferred, a manual examination by a specially-trained security officer prior to boarding any flight. Personally, I would prefer that the airlines initiate such a policy on their own as a competitive advantage (wouldn't you rather participate in a flight on which you had a near sure chance that no explosives were aboard?), but given the special nature of airline travel and the fact that commercial airline companies tend to be either interstate and/or international in scope, I believe government action is appropriate if necessary. The Transportation Security Agency (TSA) could work with civil libertarians to ensure that privacy is protected as much as possible. Already, there are software tools to blur the faces of the scanned individuals, and the images should be destroyed as soon as possible following the scan.

That's not to say that distrust of the government on this issue is unfounded; post-9/11, the government took many steps in the name of security that truly did limit individual liberty, and, to add insult to injury, didn't improve safety and security. The famous Ben Franklin quote about sacrificing liberty for security (and leaving oneself with neither) certainly applies to many government actions. Not so with this.

The basic purpose of government is to protect the life, liberty, and property of its citizens. I certainly believe that government consistently steps outside these bounds needlessly, overwhelmingly, inefficiently, and intrusively on a daily basis. A little inconvenience, however, in exchange for a huge benefit is a net positive in this particular case. Let's put modesty aside (and perhaps do a few more situps) and implement a sensible scanning policy for flights into and within the US.

LUI Strikes Again

2009-12-17T04:32:00Z

Government often exerts itself on the free market (occasionally with great gusto and glee). Sometimes it is through tax credits -- a current program gives a tax credit of up to $6480 for people buying electric vehicles as an inducement for consumers to lower their so-called "carbon footprint". Sometimes it is through mandates and bans, such as the ban on the insecticide DDT, thought to cause cancer and threaten wildlife (particularly bald eagles). But it is important to remember that when the government acts to impede the marketplace -- even if the effort is genuinely well-intentioned or even necessary to protect public safety -- there are always going to be unintended consequences.

In the case of the electric car credit, the (presumably) unintended consequence was to subsidize golf cart purchases, as detailed in this column by John Stossel. With the DDT ban, while the bald eagle population made a comeback in the United States (commonly attributed at least in part by environmental scientists to the DDT ban), malaria deaths skyrocketed worldwide; in a National Geographic article, Robert Gwadz of the National Institutes of Health claims that the "ban on DDT may have killed 20 million children".

According to this Associated Press story, the Law of Unintended Consequences appears to have struck again. Across the country, communities have been switching traffic lights from incandescent bulbs to LED. The LED bulbs use 90% less energy than incandescent ones, and they last longer -- Wisconsin's state Transportation Department reports $750,000 in energy savings annually, and the bulbs installed 7 years ago are still in service, compared to 12-18 months for the old-fashioned bulb. Sounds great, right?

There's one problem -- an unintended consequence: because the LED bulbs are more efficient, they burn cooler. This is typically not a problem, but it is when there's a snow storm and blown snow obscures the traffic lights. With incandescent bulbs, the heat from the bulb would melt the snow. Not so with the cooler-burning LEDs. The result? Traffic accidents, at least one of which resulting in a fatality.

Several countries around the world, including Russia, the European Union, Canada, and the United States have taken things a step further, with their respective governments instituting a phaseout of incandescent light bulbs, culminating in an eventual ban (in the US, the ban takes effect 2012-2014 (depending on various characteristics of the bulb, as per the Clean Energy Act of 2007). There was, of course, some opposition to banning Thomas Edison's signature invention, notably because of the potential for mercury poisoning.

Is this all just academic? Well, consider this: if something as simple as changing a light bulb can result in fatality, just imagine what kinds of unintended consequences could be unleashed by a complete government overhaul of the entire US health care system. I shudder to think what damage LUI will inflict not just on the US economy, but on the health and welfare of individuals and families.

Let's Expand An Already-Bankrupt System

2009-12-16T18:47:00Z

More from the Chronicle: in response to this editorial chastising Sen. Joe Lieberman's opposition to expanding Medicare eligibility, I sent the following letter:

re: Say it ain't so, Joe

In advocating the expansion of Medicare to include 55-64 year-olds, the Chronicle editorialists seem to be ignoring reality; at the very least, they are certainly not reading the reports published by the Medicare program's own Board of Trustees, and apparently not reading their own editorials: while simultaneously calling Medicare a "proven, workable program" that is "praiseworthy" and "cost-effective", they note in "Biting the bullet" that cuts of $460 billion are necessary due to "inefficiency and waste".

The report of the Medicare Trustees (available at www.ssa.gov) does not paint a picture of Medicare as "workable" or "cost-effective"; rather, it states that "projected long run program costs are not sustainable under current program parameters" [emphasis added]. Again in 2009, Medicare is "expected to pay out more in hospital benefits and other expenditures this year than it receives in taxes and other dedicated revenues" -- that is, Medicare isn't self-sustaining, but rather must rely on general fund tax revenues.

It defies common sense to expand a program that is running deficits under its "current program parameters" and has trillions in unfunded liabilities -- a program that, were it a private business, would be seeking bankruptcy protection and face the ire of lawmakers and editorial boards.

Sincerely,
Dave Smith
Houston, TX

Let's "Ship" Even More Jobs "Overseas"

2009-12-16T18:27:00Z

There's a lot on which to comment in the Chronicle this week. In response to this story I sent the following letter:

Re: Shell shipping Houston jobs to India, Philippines

Mentioned within the story about Royal Dutch Shell's decision on "shipping Houston jobs overseas" is the fact that the labor costs for salaries and benefits in India and the Philippines are lower than here in the United States. Much of that differential can be attributed to a difference in worker training, qualifications, and overall job skill level. However, it is important to point out that the health care "reform" plan under debate in the Senate (similar to a version already passed by the House of Representatives) -- a plan endorsed by the editorial board of the Chronicle -- would only serve to increase the cost of benefits for US employees through the imposition of additional mandates, prohibitions, taxes, fines, and regulations. Further, the Obama Administration and Congress are seeking to impose increased corporate income taxes and capital gains taxes, not to mention the additional proposed costs associated with "cap-and-trade".

As the government actively works to increase the cost of payroll, investment, and commerce, we should expect to see more similar stories of "shipping jobs overseas" in the coming years and months.

Sincerely,
Dave Smith
Houston, TX

Big Government Takeover vs. Actual Reform

2009-12-16T06:06:00Z

In response to this editorial in the Chronicle, I sent the following response:

Re: Biting the bullet: Even in faltering, health reform needed

In advocating the imposition of the Democratic government expansion in the health care market, the Chronicle editorial staff makes the diagnosis correct but the prescription wrong. Yes: we do need to reform our health insurance system; however, enacting unprecedented government mandates and prohibitions, while raising taxes (during a time of continued economic instability, no less) does not "reform" the health insurance system in ways that empower individuals and families while reducing costs.

Efficiency and cost-effectiveness are increased by competition in an open market where consumers have choices and where businesses are competing for their dollars. Yet the so-called "ObamaCare" plan does nothing to end prohibitions against voluntarily buying insurance across state lines, group plans, or extending the same tax benefits to individuals and families currently enjoyed only by employers. These reforms would work for health care the same way competitive markets have worked to bring down costs (while increasing service quality) of cell phones, laptop computers, and elective procedures like laser eye surgery.

Instead, the government-centered plan imposes new fines, taxes,and individual mandates, while creating new bureaucracies and regulators. It subsidizes unhealthy lifestyle choices and potentially moves many younger, healthier adults out of insurance coverage (until, of course, they need treatment). It purports to cut hundreds of billions in "inefficiency and waste" from Medicare; yet Congress has never succeeded in making such cuts previously, and if they were so easily done, why not do them as a stand-alone bill?

True reform involves getting government less involved in the health care choices of individuals and families, not more. True reform would remove government barriers and obstacles, not increase them. True reform would empower consumers, not politicians.

Sincerely,
Dave Smith
Houston, TX