Monday, November 30, 2009
How much do you want to spend on health care? Never mind; it won't be you who decides if ObamaCare is passed by the Dems. Much could be done to improve our nation's health care system. Here's a short list:
1. Decouple health care from employment altogether. The pool of insured should be as large and diverse as possible --- the whole nation comes to mind. There is no justification for linking health care insurance to a particular company's employee pool. A large, diverse pool of insured persons maximizes the opportunities for spreading risk --- the insurance principle.
2. Require most people to purchase a "base" health care insurance policy (just as we require most people to purchase auto insurance). Evidently, if the decision is left entirely up to individuals, way too many people won't purchase health care insurance at all. Deciding what would be covered in the base policy will remain a political problem, but no more challenging than deciding what must be in a base auto insurance policy.
3. What would be covered in a base health care insurance policy would be prescribed by law; any insurance company selling health care insurance at all would decide how to price its base policy (keeps competition alive and well), but all such companies would be required to offer the base policy as part of their product offerings to be eligible to sell health insurance at all; the base policy should provide for catastrophic care; insurance is supposed to cover high-cost, low-probability events; ordinary health care that most people want should be met by individuals from their own wallets. Open market competition, not bureaucrats, should determine market prices for health care.
4. Expand the number of medical schools that train doctors and other health care professionals; remove the supply-side restrictions now in place. No one is talking about this part of the problem; supply-side restrictions have kept doctor incomes higher than they would be otherwise for decades. If you don't think so, try getting accepted to medical school, even with stellar grades.
6. Require doctors to give their patients a price list for all medical procedures they perform. We require food manufacturers to list calories on packages, so this idea isn't particularly extreme, really. Did you know how much your last medical treatment was going to cost? Neither did I. Would you buy groceries that way?
7. Fund drug research with federal tax dollars awarded through competitively bid R&D research contracts; once drugs are discovered and developed, produce and sell drugs at the cost of competitive production (a few cents per dose, typically).
8. Individuals who have income or wealth below a prescribed standard would have their base health care policy purchased for them from tax dollars. This would require a "means" test, of course, just like food stamps do.
Of course, once we move away from the principle of voluntary exchange, we won't find a better way for society to address the economic problem: how to satisfy virtually unlimited human wants using scarce resources in a social context. Any proposal other than voluntary exchange will have undesirable features.
So, my short list isn't a panacea. But the ideas I offer here whip the pants off what the Dems have come up with. That's because what I've proposed tries to preserve as much human liberty, dignity, and responsibility for self as possible, given the constraint that we've decided we can't stand to see people doing without health care.
The Dems, on the other hand, don't seem to be interested in liberty, dignity, and self sufficiency of most people. They appear to be mostly interested in turning everyone into a ward of the state --- which they, of course, expect to run.
Friday, November 27, 2009
CO2 is not a poison. The globe warms; the globe cools. Get used to it.
The simple bottom line of this economic history lesson from the recession of 1920 is that credit that comes from money creation is vastly different than credit that comes from households saving. Thomas Woods explains why. The federal government can't bring about economic prosperity by expanding credit that's founded on money creation. But that's exactly the plan BHO, the Dems, and the Fed have in mind.
Today's near-zero short-term interest rates are exactly the wrong prescription for economic recovery. Banks continue to acquire loanable funds at a near-zero cost, thanks to the Fed's holding down short-term interest rates (price fixing, plain and simple). The Fed's misguided monetary policy also encourages ever-growing federal government debt.
Debt costs less when interest rates are low. With near-zero short-term interest rates, the U.S. Treasury (under the direction of the 545) can keep spending money it doesn't have indefinitely. It was banks' and shadow banks' giddy, heedless credit expansion to unworthy borrowers, all founded on credit from money creation instead of households saving, that brought on the recession in the first place. Now, we're told that more of the same is the way out of the woods? Simply stupefying.
Yes, economic theory can be eye-glazing (and yes, even boring for some folks), but what we're seeing from the 545 and the Fed today isn't really that difficult to see through. Just follow the money. Who wins and who losses due to the fiscal policies (deficit spending run rampant) and monetary policies (exceptionally low interest rates coupled with financial bailouts) that are now underway?
1. Responsible savers lose; interest rates are now so low that retirees and near retirees who thoughtfully and prudently saved to support their golden years are now in danger of outliving their savings.
2. Irresponsible spendthrifts win; poorly run banks, poorly run auto manufacturers, and poorly run financial institutions (AIG, Bear-Sterns, Fannie Mae, Freddie Mac, GM --- need I go on?) are bailed out (too big to fail, you know); they get the profits, but not the losses.
3. The federal government (the 545)and other apologists for big government win; due to economic and financial crises the 545 created, we are now told that even more regulation and more government control of the economy will be necessary (to hell with voluntary exchange; dangerous, you know).
4. Middle-income tax payers and young tax payers lose; socialized health care will significantly transfer income from middle-class and young tax payers to the oldest generations in society (older folks need far more health care than younger folks).
5. Recipients of the federal governments' spending win; good time to be government contractor or a bureaucrat; good time to be in any industry the 545 favor (how do you spell "green")
6. In the end, working stiffs of all stripes will lose (that would be most of us); history shows us with abundant examples that economies that aren't based on voluntary exchange just don't work. Socialism, fascism, communism, and all other forms of government directed economies cause poverty and squalor. You can look it up.
This time it will be different, right?
Proposed Amendment 28 to the US Constitution!
"Congress shall make no law that applies to any citizen of the United States that does not apply equally to all US Senators and Representatives and Congress shall make no law that applies to any US Senator or Representative that does not apply equally to all citizens of the United States . All existing laws and regulations that do not meet these criteria shall be declared null and void!"
Friday, November 20, 2009
But critics of Hensarling's and Ryan's arguments should focus on the arguments and leave the authors' political party affiliation aside. What they have to say is solid economics. We didn't have a decade long recession in the 1930s for no reason. It wasn't an accident. You can read about it here.
Are BHO and his Dems setting the table for another extended recession? Hensarling and Ryan think so. What do you think?
Thursday, November 19, 2009
One wonders why the news alert below is supposed to be news. Why would anyone pay the slightest attention to what the CBO has to say about the "cost" of BHO's and the Dems health care bill? Is there some occasion or event about which the CBO has ever been correct? If there is, please show us.
The part about reducing the federal budget deficit is especially hilarious, if you can find it in yourself to laugh at such absurdities. With any luck, the WSJ will be running an Op-Ed piece shortly that shows us the absurdity of the CBO's pronouncement.
from The Wall Street Journal
Sponsored by NASDAQ OMX
Senate Democrats' health-care legislation has been estimated to cost $849 billion and to reduce the federal budget deficit by $127 billion over 10 years, according to a senior Senate leadership aide. The estimates, from the Congressional Budget Office, also showed that the bill would reduce the number of uninsured people in the U.S. by 31 million people. The result, the aide said, would be that 94% of Americans would have health-insurance coverage.
Murphy's basic observation is that the EMH is a tautology. If that's so, then the EMH cannot fail to be true any more than 2+2=4 can fail to be true, or that Bob=Bob can fail to be true. Tautologies are true by definition --- true because of what we mean by the words or symbols we use to make the statement.
It is certainly true that market prices for financial securities incorporate "all relevant and available information." To the extent that the EMH said nothing more than this, it would be a fairly unremarkable statement. For what would it mean if market prices did not include all available and relevant information? It would mean that traders, investors, and money managers were buying or selling securities randomly; that they were making buying or selling decisions on what they, as individual buyers or sellers, took to be non-information or false information. That would be preposterous, of course. Conclusion: Murphy is right. The EMH is abundantly true; it cannot fail to be true, given what we mean by "information." The real question is, so what? What are the implications of the EMH being true?
Most defenders of the EMH conclude that if the EMH is true, then an individual investor cannot "beat the market" consistently over the long run (here, the term “long run” does not focus mainly on calendar time, but on repetition; beating the market over and over, reliably and consistently). What does "beat the market" mean? It means to earn a risk-adjusted rate of return that is higher than the rate of return experienced by an appropriate risk-matching index of the broad market. In the terminology of stock traders and money managers and Wall Street, it means earning “alpha,” through the application of what are taken to be superior skill and understanding of the implications of information.
In financial theory, we speak of the "market portfolio," which comprises all assets in the world! Obviously, no such real portfolio exists. But we do have highly diversified index funds and ETFs that we take to give us a decent estimate of the rate of return for the market portfolio. Holding one of the available S&P 500 index funds, or the Wilshire 5000 index fund, or the Vanguard Total Stock fund comes close enough to the market portfolio for most practical purposes.
So, does a true EMH imply that individual investors cannot ever earn a rate of return higher than the rate of return available from holding a Wilshire 5000 index fund? No. The EMH doesn’t rule out any particular investor earning excess returns. That outcome can and does happen routinely. The EMH implies that investors cannot systematically and consistently earn excess returns over a lengthy time horizon of several years.
Some notable investors have outperformed the market over a long enough period to rule out chance. Warren Buffet flies to mind (at least over the first half or so of his notable career); Peter Lynch might qualify (although Lynch’s success with the Magellan fund might not have been measured appropriately on a risk-adjusted basis); William O'Neil and the CAN SLIM program might qualify; the Value Line System appears to "beat the market" (although some researchers argue that neither CAN SLIM nor the Value Line System earn “alpha” after considering all costs of using those systems). Logically, if someone devises a system that can consistently and reliably earn excess returns on a risk-adjusted basis, that someone better keep the system a secret. For if everyone comes to know the system, excess returns will be arbitraged away. Economists who conduct research about the EMH claim that no one has ever devised a market-beating system. Well, maybe someone has, but keeps the system a closely-held secret, in which case, the researchers will never learn about the system.
Some investors and money managers have predicted market crashes with what appears to be enough time-frame accuracy to avoid the large losses suffered by most investors when the stock market plunges. Some people (but only a few) do avoid market crashes by exiting stocks and bonds before a market crash occurs. What is not clear is whether the so-called “smart money” headed for the exits soon enough by luck, or by calculated and skillful interpretation of information, or perhaps even by possessing insider information.
The EMH says that market prices already have "baked in" all "relevant and available" information. We can quibble about what "relevant and available" means (which is just what the three forms of the EMH --- weak, semi-strong, and strong --- do), but that really isn't the point either. The EMH really says that no other superior source of information is available to tell investors whether a financial asset is over or underpriced, aside from the market determined price itself. In other words, the market price simply is the best estimate of the value of the asset, given all relevant and available information at the instant the market price is formed.
How could someone reach those superior judgments of value, leading to outperforming an appropriate (risk adjusted) market index of financial securities? First, they could be lucky. But we wouldn't expect someone to be lucky over a large number of trials. So, Warren Buffet does not appear to be just lucky. Second, someone could have information that guides her trades that no one else has. No mystery here. Possession of insider information and the ability to use it without detection of regulators would certainly generate excess returns. But because the volume of trades made using inside information would ordinarily be insignificant compared to total volume in a particular security, changes in market prices for the assets traded would likely be imperceptible. A third way for someone to earn excess returns is to interpret the same information that everyone has, but interpret it differently and more “appropriately” for buying and selling financial assets. Perhaps this possibility explains at least part of Warren Buffet’s phenomenal success. Or, maybe Mr. Buffet has just been lucky in an extended run of trials. The theory of probability does not eliminate that possibility, it just makes it highly unlikely.
What can we conclude? The EMH is certainly tautologically true, just as Murphy observes. But does a true EMH rule out the possibility of some investors outperforming the market portfolio consistently, measured over many trials on a correctly measured risk-adjusted basis? No. The EMH does not rule that possibility out. But the EMH does rule out the possibility that we all can somehow earn excess returns, if only we knew a little more or could exercise a little more skill.
As for inside information, we probably wouldn't have laws against it if it weren't something that happens. As for interpreting the same information differently and more correctly, we wouldn't have some investment advisors that get paid millions per year, year after year, if what they were selling had absolutely no value. You really can't fool all those high-net-worth individuals year after year for ever, do you think? Abraham Lincoln’s thoughts about fooling people comes to mind.
So, Professor Fama is certainly right; financial markets (at least in the developed world) are definitely efficient. But the assertions that some writers about the EMH routinely make are not correct. What is doubtless true is that only a few investors are able to outperform the market consistently. They are those with great luck, those with inside information, and those with unusual insights into what information means for the future. But the huge majority of investors (literally, most of us) will not be able to outperform the market consistently over the long haul. If the EMH and its implications were stated that way, I doubt if anyone would argue much about it.
Wednesday, November 18, 2009
Of course, Professor Boskin knows full well that the so-called fiscal stimulus bill wasn't passed to stimulate the economy, and in my opinion, BHO's bought and paid for economists knew it wouldn't from the beginning.
The $787 billion bill was payoff spending for the Democrat base, clear and simple. No serious economist is even remotely surprised that the government's largess didn't save us from a 10.2 unemployment rate.
Professor Boskin lays out a fist full of sensible policy prescriptions to get the economy working again. Do you think BHO and company will pay attention? Neither do I.
Friday, November 13, 2009
Thursday, November 12, 2009
Anyone paying attention over the past 24 months or so surely has no reason to have even a slight bit of confidence in the Fed. It is the Fed that caused the so called "asset bubble" (translation; malinvestment in subprime mortgages and commercial real estate). Yes, the Fed had help from Congress, but nonetheless, the Fed is the chief culprit, controlling as it does the nation's money supply.
Long ago, Milton Friedman explained why the Fed is a menace to the economy. Discretionary monetary policy is a ruse, a sham, a con game, and destructive. History --- including recent history --- shows this truth without equivocation. Yet, on we go, pretending that the Fed has some special crystal ball and some magnificent benevolence, able to conduct monetary policy (in secret of course) for the benefit of all.
If some one of the glorious Fed apologists who call themselves economists could explain to me why the price we call interest rates is a price that should be under the control of the Fed, I would be happy to listen. Any decent student in ECON 101 understands that price controls benefit some and hurt others. See if you can guess who the Fed benefits through its manipulation of interest rates.
Money is not real goods and services. Inflating the money supply does not cause real goods and services to expand, but it does benefit people who get to spend the new money first. See if you can figure out who gets to spend lots of the new money first when the Fed increases the monetary base. If you came up with the federal government as an answer, good for you. If you didn't come up with that answer, better luck next time.
See, also, if you can figure out who benefits from access to money at a near zero rate of interest, but turns around and lends that money to businesses and consumers at rates of interest closer to 10%. Now there's a real puzzler. The only puzzle I see is how so many Americans continue to be conned by the Fed and the banking system it heads.
Wednesday, November 11, 2009
Sad to say , lots of so called scientists who should be acting like scientists aren't. They are too overcome by their zeal for slowing economic growth to remain scientists who are dedicated to letting the empirical chips fall where they may.
It is sad indeed to see the world revert in the 21st Century to religious bigotry and such disregard for science and its powerful method of discovery. It's as if the 17th Century never happened.
Will the Al Gores of the world prevail? Will cap-and-trade enrich Gore and Nancy Pelosi, both of whom are so financially vested in "green"? I remain hopeful that by the 2010 elections, enough Americans will have seen through the hypocrisy of Al Gore and his willful ignorance of climatology to turn his investments in cap-and-trade to sand.
JOE LEGAL vs. JOSE ILLEGAL
You have two families: "Joe Legal" and "Jose Illegal".
Both families have two parents, two children, and live in California .
Joe Legal works in construction, has a Social Security Number and makes
$25.00 per hour and has taxes deducted.
Jose Illegal also works in construction, has NO Social Security Number,
and gets paid $15.00 cash "under the table".
Ready? Now pay attention...
Joe Legal: $25.00 per hour x 40 hours = $1000.00 per week, or $52,000.00
per year. Now take 30% away for state and federal tax; Joe Legal now has
Jose Illegal: $15.00 per hour x 40 hours = $600.00 per week, or
$31,200.00 per year. Jose Illegal pays no taxes. Jose Illegal now has
Joe Legal pays medical and dental insurance with limited coverage for
his family at $600.00 per month, or $7,200.00 per year. Joe Legal now
Jose Illegal has full medical and dental coverage through the state and
local clinics at a cost of $0.00 per year. Jose Illegal still has
Joe Legal makes too much money and is not eligible for food stamps or
welfare. Joe Legal pays $500.00 per month for food, or $6,000.00 per
year. Joe Legal now has $18,031.00.
Jose Illegal has no documented income and is eligible for food stamps
and welfare. Jose Illegal still has $31,200.00.
Joe Legal pays rent of $1,200.00 per month, or $14,400.00 per year. Joe
Legal now has $9,631.00.
Jose Illegal receives a $500.00 per month federal rent subsidy. Jose
Illegal pays $500.00 per month, or $6,000.00 per year. Jose Illegal
still has $ 31,200.00.
Joe Legal pays $200.00 per month, or $2,400.00 for insurance. Joe Legal
now has $7,231.00.
Jose Illegal says, "We don't need any insurance!" and still has
Joe Legal has to make his $7,231.00 stretch to pay utilities, gasoline, etc.
Jose Illegal has to make his $31,200.00 stretch to pay utilities,
gasoline, and what he sends out of the country every month.
Joe Legal now works overtime on Saturdays or gets a part time job after
Jose Illegal has nights and weekends off to enjoy with his family.
Joe Legal's and Jose Illegal's children both attend the same school. Joe
Legal pays for his children's lunches while Jose Illegal's children get
a government sponsored lunch. Jose Illegal's children have an after
school ESL program. Joe Legal's children go home.
Joe Legal and Jose Illegal both enjoy the same police and fire services,
but Joe paid for them and Jose did not pay.
Do you get it, now?
If you vote for or support any politician that supports illegal aliens...you are part of the problem.
It's way PAST time to take a stand for America and Americans.
Tuesday, November 10, 2009
Kashyap and Mishkin write to oppose the bill introduced by Ron Paul that calls for auditing the Fed. They do so in the name of central bank independence, claiming as the Fed and its apologists always do, that the Fed must be independent of the government to control run away inflation.
No, to control run away inflation, the Fed needs not to exist, as Ron Paul explains in his book End the Fed. The Fed is part of the government; it is not independent of the government. History shows plainly enough that it is the Fed that exacerbates --- if not causes --- booms and busts in the U.S. Economy.
Since 1913 when the Fed was born, the purchasing power of the dollar has gone from $1 to about 19 cents. I wouldn't exactly call that controlling inflation.
Sadly, most people do not understand enough about money and banking to understand why and how the Fed brings about inflation. Most people do not understand why and how the Fed causes booms and busts. Why would they? Our government schools don't require students to learn anything about economics, all the way from grade school through college, as a matter of fact. Instead, they learn about the hypothesis of how global warming is caused by excessive CO2 put into the atmosphere by humans trying to better their lives.
The Fed is anything but transparent, regardless of the claims of 400 economists who signed a petition against auditing the Fed. You will notice that Kashyap and Mishkin don't address any of Ron Pauls arguments. No, they just repeat the old, tired, misdirections that the Fed and all the economists who support the idea of a central bank have been mouthing for years.
The Fed and its apologists are not worried that we the people will catch them in the act. They know that the system erected in 1913 is far too complicated and opaque for the common person to understand. Best leave it up to the experts, right?
It will be interesting to see whether Americans will awaken from their euphoric stupor over BHO in time to keep Congress from further entrenching the tentacles of command and control in our lives.
The lessons of history are never learned well enough, especially by people like BHO who are supremely confident that they are the chosen one. Read this history if you want a glimpse of where we appear to be headed with BHO and the Democrat Congress.
Sunday, November 8, 2009
One of the most interesting questions about the health care overhaul now moving through Congress is how it would affect young adults. That legislation would force most or all Americans to purchase health insurance (an "individual mandate") and would impose price controls on health insurance ("community rating") that would limit insurers' ability to offer lower premiums to low-risk enrollees.
Those provisions would drive premiums down for 55-year-olds but would drive them up for 25-year-olds—who are then implicitly subsidizing older adults. According to the Urban Institute, many young people could see their premiums double, whereas premiums for older adults could be cut in half.
Massachusetts benefits from another type of subsidy that props up its regime of mandates and price controls: large subsidies from the federal government. In contrast, the United States as a whole has no external party it can exploit to subsidize a nationwide Massachusetts-style health care overhaul—unless Congress finances that overhaul through additional deficit spending, which is really just another way of taxing the young to subsidize the old.
The irony is that Barack Obama won the presidency with 66 percent of the vote among adults aged 18 to 29. That's a larger share than any presidential candidate has won in decades. Yet his health care overhaul could impose its greatest burdens on young adults.
One wonders if the young will stand by their man when the real terms of ObamaCare become evident.