As usual, Milton Friedman provided a clear, easy to understand explanation of what appears to be a complex economic problem. You can read the whole article here.
Why is health care any different from other goods and services? Why do lots of folks think everyone has a "right" to health care, but almost no one thinks everyone has a right to most other goods and services? I think the answer to that question is that we are simply unwilling to look into the eyes of someone suffering from disease or injury and ignore them. In other words, it's not health care that's different; it's the way we think and feel about people.
Lots of folks will be expending lots of ink over the next several months about health care in America. I recommend that we all read the brightest and best economic thinker of the 20th Century if we really want to understand the issues involved. Given the graying of America, I can't think of any other single issue that is going to be more important to understand. Read it here.
Monday, June 22, 2009
Wednesday, May 6, 2009
More Flawed Tax Policy
BHO is unhappy with our federal tax code. He notes that we have a tax code
If Obama really wanted to get serious about tax reform, he could embrace HR 25, the Fair Tax Bill. He could also visit the web page of Americans for Fair Taxation for easy to read explanations of why the Fair Tax would solve the corporate income tax problem he lamented about a few days ago. Adoption of the Fair Tax would solve a lot of other problems as well.
Better still, he could read the open letter sent to all members of Congress, the Senate, President Bush, and Bush's now forgotten tax reform commission. BHO could really give us change we can believe in by asking Congress to pass HR 25. That letter, signed by about 90 professional economists, provides a nice summary of the Fair Tax and why it's the right thing for America.
Will BHO do any of these? Let's just say I will be stunned if he does. After all, our President clearly wants more federal control of practically everything. Our convoluted U.S. Tax Code fits into that vision all too well.
The original Americans who ratified the Constitution would have been horrified had someone suggested that the federal government should withhold an income tax from the paychecks of Americans. In fact, the first Americans explicitly prohibited collection of an income tax in the first place, never mind withholding the tax from paychecks.
What's your personal average federal income tax rate? Don't forget payroll withholding taxes (i.e., Social Security and Medicare taxes). If it's 30%, then the 545 have declared that they own 30% of your labor. If it's 50%, then the 545 say they own 50% of your labor. You don't own all of your own labor services; it's the law. And you thought we were all free people, right?
Can we do away with federal taxation? No; that would be impossible, since we all seem to want something from government. But that doesn't mean we can't do a better job of taxing ourselves. The Fair Tax offers a completely practical way to improve the tax code. Give it a look.
"that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York."The 17,000 pages of the U.S. Tax Code say lots of other things even goofier than this. I would recommend that BHO read the tax code, but that would be cruel and unusual punishment. Even lawyers can't stand to read the tax code, much less understand what it says.
If Obama really wanted to get serious about tax reform, he could embrace HR 25, the Fair Tax Bill. He could also visit the web page of Americans for Fair Taxation for easy to read explanations of why the Fair Tax would solve the corporate income tax problem he lamented about a few days ago. Adoption of the Fair Tax would solve a lot of other problems as well.
Better still, he could read the open letter sent to all members of Congress, the Senate, President Bush, and Bush's now forgotten tax reform commission. BHO could really give us change we can believe in by asking Congress to pass HR 25. That letter, signed by about 90 professional economists, provides a nice summary of the Fair Tax and why it's the right thing for America.
Will BHO do any of these? Let's just say I will be stunned if he does. After all, our President clearly wants more federal control of practically everything. Our convoluted U.S. Tax Code fits into that vision all too well.
The original Americans who ratified the Constitution would have been horrified had someone suggested that the federal government should withhold an income tax from the paychecks of Americans. In fact, the first Americans explicitly prohibited collection of an income tax in the first place, never mind withholding the tax from paychecks.
What's your personal average federal income tax rate? Don't forget payroll withholding taxes (i.e., Social Security and Medicare taxes). If it's 30%, then the 545 have declared that they own 30% of your labor. If it's 50%, then the 545 say they own 50% of your labor. You don't own all of your own labor services; it's the law. And you thought we were all free people, right?
Can we do away with federal taxation? No; that would be impossible, since we all seem to want something from government. But that doesn't mean we can't do a better job of taxing ourselves. The Fair Tax offers a completely practical way to improve the tax code. Give it a look.
Monday, May 4, 2009
Contract? Who Cares About Contracts?
Here, Brenner and Hume explain how the four largest banks in the country have a huge stake in courts revoking contract law in the case of mortgages.
But what about simple principles of contract law and keeping one's word? If courts force owners of mortgages to accept cram downs of principle or interest in a mortgage contract, that's compulsion---unless, of course, fraud was involved when the mortgage was written.
But mostly, no one is alleging fraud. People who won't or can't pay their mortgage can walk away. That's what foreclosure is all about. So who is that is lobbying Congress and the courts to modify mortgage contracts?
But what about simple principles of contract law and keeping one's word? If courts force owners of mortgages to accept cram downs of principle or interest in a mortgage contract, that's compulsion---unless, of course, fraud was involved when the mortgage was written.
But mostly, no one is alleging fraud. People who won't or can't pay their mortgage can walk away. That's what foreclosure is all about. So who is that is lobbying Congress and the courts to modify mortgage contracts?
Liberty Loses A Champion
We lost a lover of liberty on Saturday with the passing of Jack Kemp. From the WSJ today,
Isn't it strange that BHO and his partisan supporters decry voluntary exchange markets, claiming that markets concentrate economic power in the hands of capitalists? Yet, all we have to do is look around to see that just the opposite is true. Voluntary exchange is, after all, voluntary. Government power is achieved through threat of and use of force. Which sounds moral to you?
Voluntary exchange markets are the most egalitarian, liberating, field-leveling social institutions ever devised. Barred by law from use of compulsion, markets require that buyers compete with other buyers to get what they want. Sellers must compete with other sellers to get the business of buyers. Voluntary exchange markets require that participants vote with their offers to buy and sell each and every time, offering value for value to get what they want.
Contrast voluntary exchange with politics. Politicians compete only in a tightly controlled game every few years for the votes of people who have extremely limited choices---choices from among those anointed by the major party power brokers. Politicians---funded by taxing the income of people who are productive--- concentrate economic power in the hands of the very few, the 545.
Jack Kemp understood that voluntary exchange coupled with lower taxes returns power and prosperity to the people. BHO and his supporters are evidently oblivious to this simple, historical truth.
Along with Senator William Roth of Delaware, Kemp proposed a 30% across-the-board tax cut. Though the Democrats who ran Congress combined with Old Guard Republicans to defeat it during the Carter Presidency, a GOP candidate by the name of Ronald Reagan liked what he saw. Reagan largely adopted Kemp-Roth as his own, campaigned on it in 1980, and the proposal eventually became the basis for the 25% income-tax cuts that finally took effect in 1983 and became the most successful domestic policy achievement of the modern era. The Kemp-Reagan policy mix of lower taxes to lift incentives, sound money to break inflation, and regulatory relief to unleash entrepreneurs became the foundation for the prosperity of the 1980s and 1990s.Kemp was a Republican, but his ideas were not about politics. He understood the value and morality of voluntary exchange markets. He understood that taxing away the income of the people to finance the schemes of the 545 leads to economic morass and concentration of power in the hands of the few.
Kemp's ideas and legacy continue to be relevant for today's Republicans, even if few of them seem to recognize it. The financial meltdown and recession have given President Obama a chance to revive a policy mix of higher spending and taxes, intrusive regulation and easy money. If those policies don't result in a sustainable expansion -- and history argues that they won't -- then Americans will again be looking for other ideas. Full article here
Isn't it strange that BHO and his partisan supporters decry voluntary exchange markets, claiming that markets concentrate economic power in the hands of capitalists? Yet, all we have to do is look around to see that just the opposite is true. Voluntary exchange is, after all, voluntary. Government power is achieved through threat of and use of force. Which sounds moral to you?
Voluntary exchange markets are the most egalitarian, liberating, field-leveling social institutions ever devised. Barred by law from use of compulsion, markets require that buyers compete with other buyers to get what they want. Sellers must compete with other sellers to get the business of buyers. Voluntary exchange markets require that participants vote with their offers to buy and sell each and every time, offering value for value to get what they want.
Contrast voluntary exchange with politics. Politicians compete only in a tightly controlled game every few years for the votes of people who have extremely limited choices---choices from among those anointed by the major party power brokers. Politicians---funded by taxing the income of people who are productive--- concentrate economic power in the hands of the very few, the 545.
Jack Kemp understood that voluntary exchange coupled with lower taxes returns power and prosperity to the people. BHO and his supporters are evidently oblivious to this simple, historical truth.
Thursday, April 30, 2009
Rule of Law? Forgettahboughdit
Greg Mankiw tells it like it appears to be going here.
Where is the Supreme Court when we need it? We're supposed to have three branches of government. Two of the three have evidently decided law doesn't matter any more. We need the third to do its job.
Maybe we could make an appeal to the 50 state governors. Texas seems to be ruminating about states rights. Did we elect a king? He seems to think so. Sadly enough, lots of the herd seem to be okay with that.
Bush and his crowd of financial geniuses started the ball rolling with Paulson's ham-fisted TARP. We have laws about what's to happen with banks that are insolvent, but they weren't followed by Bush or Obama. Why not?
Now we have the auto industry. We have laws about companies that are insolvent, too. But they are also not being followed. Why not? Instead, President BHO has decided that it's his domain to do whatever he wants to do. Does anyone else out there have a problem with that besides me?
Where is the Supreme Court when we need it? We're supposed to have three branches of government. Two of the three have evidently decided law doesn't matter any more. We need the third to do its job.
Maybe we could make an appeal to the 50 state governors. Texas seems to be ruminating about states rights. Did we elect a king? He seems to think so. Sadly enough, lots of the herd seem to be okay with that.
Bush and his crowd of financial geniuses started the ball rolling with Paulson's ham-fisted TARP. We have laws about what's to happen with banks that are insolvent, but they weren't followed by Bush or Obama. Why not?
Now we have the auto industry. We have laws about companies that are insolvent, too. But they are also not being followed. Why not? Instead, President BHO has decided that it's his domain to do whatever he wants to do. Does anyone else out there have a problem with that besides me?
Where Will We Go With Health Care?
Soon, very soon now, the 545 will have to make some decisions about our health care system. We Baby Boomers are beginning to get older now. Soon, very soon, some of use will double and triple our demand for health care.
Not to worry. Our loving, ever caring government will take care of us, right? Government will take care of everything, won't it? Just ask Chrysler and AIG. We'll have a health care czar, no doubt (probably an official board to go along with the czar, too, just to make it look more seemly).
The czar and her official board will tell all the rest of how much the hundreds of thousands of medical procedures and medical products the system will allow us to use. We won't have to worry about the cost, though, since the government will pay. The czar and the board will also tell us how much providers of health care services and producers of health care products will be paid.
But how will the czar know the right answers? Check this article out to learn just how impossible that task will be and why it has absolutely no hope of working out even remotely well.
Hey, this could work, you say? How do I know that it won't? Two answers; economic thinking and empirical evidence from places on earth where it's already been tried. Remember the Soviet Union? But that won't stop the "change we can believe in," will it. Incredible as it seems, we just don't seem to learn much from our previous economic experiments.
The 545 are bobbing and weaving right now about the future of medicare. So far, they've dodged the bullet. But the bullet is actually a guided missile. Soon, very soon, the missile will find its mark and the 545 will be forced by reality to fess up and admit that health care is really like all other goods and services---not free.
Producing health care requires real resources---natural, human, and technological resources. Owners of those resources will want to be paid for their use, just as you demand to be paid for the labor services you sell to your employer. When the health care czar starts telling us how much will be paid for those resources, things will get interesting.
We have been down this road before. All we really need to do is pay attention to what happened. But we the people evidently don't want to look. I repeat, remember the former Soviet Union?
Not to worry. Our loving, ever caring government will take care of us, right? Government will take care of everything, won't it? Just ask Chrysler and AIG. We'll have a health care czar, no doubt (probably an official board to go along with the czar, too, just to make it look more seemly).
The czar and her official board will tell all the rest of how much the hundreds of thousands of medical procedures and medical products the system will allow us to use. We won't have to worry about the cost, though, since the government will pay. The czar and the board will also tell us how much providers of health care services and producers of health care products will be paid.
But how will the czar know the right answers? Check this article out to learn just how impossible that task will be and why it has absolutely no hope of working out even remotely well.
Hey, this could work, you say? How do I know that it won't? Two answers; economic thinking and empirical evidence from places on earth where it's already been tried. Remember the Soviet Union? But that won't stop the "change we can believe in," will it. Incredible as it seems, we just don't seem to learn much from our previous economic experiments.
The 545 are bobbing and weaving right now about the future of medicare. So far, they've dodged the bullet. But the bullet is actually a guided missile. Soon, very soon, the missile will find its mark and the 545 will be forced by reality to fess up and admit that health care is really like all other goods and services---not free.
Producing health care requires real resources---natural, human, and technological resources. Owners of those resources will want to be paid for their use, just as you demand to be paid for the labor services you sell to your employer. When the health care czar starts telling us how much will be paid for those resources, things will get interesting.
We have been down this road before. All we really need to do is pay attention to what happened. But we the people evidently don't want to look. I repeat, remember the former Soviet Union?
Wednesday, April 29, 2009
Nothing New Under the Sun Redux
Doug French writes here about how old "change we can believe in" really is.
Obama is really just borrowing a few pages from history, as French's piece demonstrates amply. Of course, people who know very little history will have to learn the hard way that we've been down this road before. Sadly, we seem to have a voting majority of folks who fit neatly into that dubious category.
Friedrich Hayek wrote The Road to Serfdom in 1944. Ayn Rand wrote Atlas Shrugged in 1957. Both wrote about the inevitable, regrettable results of abandoning human liberty and voluntary exchange (my synonym for "capitalism," but without the baggage; "capitalism" is not actually a 4-letter word), although from substantially different perspectives. Both wrote in response to events of their times following FDR's vast expansion of government and its ham-fisted intrusion into our lives.
Here we are again, even though the lessons of history tell us where we are going and how it will turn out. This time it's different, right? Here's a question; why would it be different this time?
How is it possible that a majority of people in the United States either never knew or have already forgotten that government compulsion leads to human misery? How is it possible that a majority of people don't understand that the source of human prosperity is not a government that taxes and prints money to finance its theft of real wealth from those who created the wealth. How is it possible that a majority of people are genuflecting at the feet of a savior made man, even in the face of so much evidence of the inevitable outcome?
History tells us BHO is mistaken and that he too will simply take us down a road we've already traveled---a road we should know better than take again.
Obama is really just borrowing a few pages from history, as French's piece demonstrates amply. Of course, people who know very little history will have to learn the hard way that we've been down this road before. Sadly, we seem to have a voting majority of folks who fit neatly into that dubious category.
Friedrich Hayek wrote The Road to Serfdom in 1944. Ayn Rand wrote Atlas Shrugged in 1957. Both wrote about the inevitable, regrettable results of abandoning human liberty and voluntary exchange (my synonym for "capitalism," but without the baggage; "capitalism" is not actually a 4-letter word), although from substantially different perspectives. Both wrote in response to events of their times following FDR's vast expansion of government and its ham-fisted intrusion into our lives.
Here we are again, even though the lessons of history tell us where we are going and how it will turn out. This time it's different, right? Here's a question; why would it be different this time?
How is it possible that a majority of people in the United States either never knew or have already forgotten that government compulsion leads to human misery? How is it possible that a majority of people don't understand that the source of human prosperity is not a government that taxes and prints money to finance its theft of real wealth from those who created the wealth. How is it possible that a majority of people are genuflecting at the feet of a savior made man, even in the face of so much evidence of the inevitable outcome?
History tells us BHO is mistaken and that he too will simply take us down a road we've already traveled---a road we should know better than take again.
Monday, April 27, 2009
Negative Interest Rates: Yep, Pretty Goofy
Robert Murphy explains here why even a careful thinker like Greg Mankiw shouldn't be left alone to think too long all by himself. John Maynard Keynes warned about that.
The Fed has been giving us negative real interest rates whenever it wants to for a long time. When the rate of inflation is higher than the market rate of interest, the real rate of interest is negative. That's easy to see with a little example.
Suppose you lend me $100 for a year and we both agree that I will pay you 5% interest. At the end of the year, I give you back your original $100 plus $5 interest. Did you really earn 5% interest? Not if the rate of inflation was 10% during the year.
With an average inflation rate of 10%, the purchasing power of $105 is less than the purchasing power of your original $100 a year ago. So, you actually paid me to borrow your money. Thanks.
Have we ever had a 10% rate of inflation in the United States. You bet. From 1974 through 2004, the average annual rate of inflation came in at about 10.5% per year. Did lenders actually earn a negative rate of interest during that time. You bet. Market rates of interest were definitely below 10.5% for a good part of that period. Why would lenders do that? Because they didn't know the Fed was going to jack up inflation; they were fooled.
If you'd like someone to thank, you know who to look to. That's right; our old buddy the Fed. When will Mankiw, Bernanke, Geithner, and all the rest of the really, really smart economists figure out that interest rates are prices and that meddling with prices has consequences?
Some of us dumber economists already know that.
The Fed has been giving us negative real interest rates whenever it wants to for a long time. When the rate of inflation is higher than the market rate of interest, the real rate of interest is negative. That's easy to see with a little example.
Suppose you lend me $100 for a year and we both agree that I will pay you 5% interest. At the end of the year, I give you back your original $100 plus $5 interest. Did you really earn 5% interest? Not if the rate of inflation was 10% during the year.
With an average inflation rate of 10%, the purchasing power of $105 is less than the purchasing power of your original $100 a year ago. So, you actually paid me to borrow your money. Thanks.
Have we ever had a 10% rate of inflation in the United States. You bet. From 1974 through 2004, the average annual rate of inflation came in at about 10.5% per year. Did lenders actually earn a negative rate of interest during that time. You bet. Market rates of interest were definitely below 10.5% for a good part of that period. Why would lenders do that? Because they didn't know the Fed was going to jack up inflation; they were fooled.
If you'd like someone to thank, you know who to look to. That's right; our old buddy the Fed. When will Mankiw, Bernanke, Geithner, and all the rest of the really, really smart economists figure out that interest rates are prices and that meddling with prices has consequences?
Some of us dumber economists already know that.
Friday, April 24, 2009
Fire the Fed and Wall Street!
Here, Larry Kotlikoff and Ed Leamer describe a different system for financial markets that would eliminate or sharply mitigate recessions and the roller coaster rides in the stock market we've all been on.
Gregory Mankiw says here , in so many words, that he's not going to comment. Step up to the plate and take a swing, Greg. Tell us what's right or wrong, true or false, good or bad about Kotlikoff and Leamer's proposal. Don't be such a fading violet.
Here's my opinion. Kotlikoff and Leamer's proposal makes an enormous amount of economic sense. Who do you suppose will oppose it? That's right; the Fed and the politicians. See if you can figure out why they will oppose it. Who else will oppose it? That's right; stock brokers, investment bankers, commercial bankers, insurance companies, and all the other current financial market intermediaries that continue to fleece we the people daily.
The SEC and FINRA will also oppose the idea. Regulators insist on keeping their ham fists in everything. They would be out of a job. Do you realize that Bernie Madoff couldn't have done what he did if one simple law had been in place? That law would have made it illegal to custody the money of one's own investment advisor cients. Why don't we have that law? That's right; because the regulators don't want such an easy fix and because politicians don't either.
Financial markets do need restructuring. But not because bankers and brokers are greedy and everyone else is Mother Teresa. Financial markets simply need to be structured to take advantage of what we know about risk, human behavior, and economics.
Remember, we can't borrow what hasn't been produced and saved, regardless of how many times the Fed and it's apologist economists say we can. Kotlikoff's and Leamer's proposal would limit borrowing to what households actually save. What an idea. Once again, you see why politicians won't like the idea. How could the U.S. Treasury borrow without limit without the help of the Fed? It couldn't. Hmmm.
Kotlikoff and Leamer have proposed a way that makes sense and would yield massive benefits. How about telling your local congress person and BHO that you will not vote for them again unless they get behind the proposal.
Gregory Mankiw says here , in so many words, that he's not going to comment. Step up to the plate and take a swing, Greg. Tell us what's right or wrong, true or false, good or bad about Kotlikoff and Leamer's proposal. Don't be such a fading violet.
Here's my opinion. Kotlikoff and Leamer's proposal makes an enormous amount of economic sense. Who do you suppose will oppose it? That's right; the Fed and the politicians. See if you can figure out why they will oppose it. Who else will oppose it? That's right; stock brokers, investment bankers, commercial bankers, insurance companies, and all the other current financial market intermediaries that continue to fleece we the people daily.
The SEC and FINRA will also oppose the idea. Regulators insist on keeping their ham fists in everything. They would be out of a job. Do you realize that Bernie Madoff couldn't have done what he did if one simple law had been in place? That law would have made it illegal to custody the money of one's own investment advisor cients. Why don't we have that law? That's right; because the regulators don't want such an easy fix and because politicians don't either.
Financial markets do need restructuring. But not because bankers and brokers are greedy and everyone else is Mother Teresa. Financial markets simply need to be structured to take advantage of what we know about risk, human behavior, and economics.
Remember, we can't borrow what hasn't been produced and saved, regardless of how many times the Fed and it's apologist economists say we can. Kotlikoff's and Leamer's proposal would limit borrowing to what households actually save. What an idea. Once again, you see why politicians won't like the idea. How could the U.S. Treasury borrow without limit without the help of the Fed? It couldn't. Hmmm.
Kotlikoff and Leamer have proposed a way that makes sense and would yield massive benefits. How about telling your local congress person and BHO that you will not vote for them again unless they get behind the proposal.
Who's Lying?
According to Ken Lewis, CEO of Bank of America, Paulson and Bernanke told Lewis not to discuss BOA's take over of Merrill Lynch. In the WSJ today, we read
What does Lewis have to gain from his statements? What does Bernanke have to gain from his denial? The market will sort Lewis out, regardless of whether he's lying or not. But Bernanke is only 4 years into a 14-year appointment as a member of the Board of Governors of the Fed. He is also running for reappointment to a second 5-year term as Chair of the BOG of the Fed. Hmmmm.
News AlertSo, either Lewis is lying, Bernanke is lying, or both are lying. Is there some other way to interpret this contradiction in statements?
from The Wall Street Journal
The Federal Reserve didn't advise Bank of America or CEO Ken Lewis "on any questions of disclosure," a spokeswoman for Fed Chairman Ben Bernanke said.
Lewis has told New York's attorney general that then-Treasury Secretary Henry Paulson and Bernanke pressured him in December not to discuss issues with its pending purchase of Merrill Lynch.
"It has long been the Federal Reserve's view that questions of this nature are best addressed by individual institutions and their legal counsel, as they are in a position to understand clearly their obligations and responsibilities," the spokeswoman, Michelle A. Smith, said.
What does Lewis have to gain from his statements? What does Bernanke have to gain from his denial? The market will sort Lewis out, regardless of whether he's lying or not. But Bernanke is only 4 years into a 14-year appointment as a member of the Board of Governors of the Fed. He is also running for reappointment to a second 5-year term as Chair of the BOG of the Fed. Hmmmm.
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