Browsing the blog archives for March, 2009.

Geithner & the Dollar


China has become understandably nervous over the past few weeks. Obama’s massive spending will contribute to inflation, thereby reducing the value of the more than one trillion U.S. dollars China holds in its reserves. On Tuesday (March 24), China and Russia proposed greater use of Special Drawing Rights, a unit of account comprised of a basket of world currencies including the euro, pound, yen, and dollar. This suggestion underscores China’s lack of confidence in the dollar and a desire to hedge its risk by diversifying its currency portfolio. This is also a clear vote of no-confidence in Obama’s recovery plan.


Later that day, Minnesota Congresswoman Michele Bachmann asked Secretary Geithner if he would “categorically renounce the United States moving away from the dollar and going to a global currency as suggested this morning by China and also by Russia?” “I would, yes,” he replied. She posed the same question to Ben Bernanke, who offered a similar response. The story should end here, but it doesn’t.


On Wednesday (March 25), Geithner was asked a similar question at a CFR meeting in New York. Instead of defending the dollar, he said he was “quite open” to the idea. The dollar immediately fell on world markets, prompting Geithner to shift to damage control and “clarify his remarks.”


The left castigates the “one world government conspiracy theorists” from time to time. I tend to reject conspiracies, but Geithner is giving me pause. Could it be that the Obama administration is simply using the current economic downturn to justify a quick and heavy dose of Marxism? I believe so. In this instance, I just find it hard to believe that Geithner simply misspoke or inadvertently mangled a few words.


Consider other recent developments on the economic front. The National Center for Policy Analysis projects that Obama’s budget would more than double the national debt over the next decade, while even the socialists in Europe are refusing to join in his massive spending spree. Obama also seems fixated on regulating CEO pay and procuring the right to seize control of companies under certain circumstances. He’s even proposed limiting the deductibility of charitable contributions for high wage earners, arguing that their current tax breaks are too high because of their higher tax bracket. Just ponder the twisted logic here.


So what’s the connection among the notion of a global currency, massive government spending, regulating executive pay, taking control of private companies, and punishing charitable giving? All of these proposals would transfer power from individuals and firms to the public sector. They limit individual liberty, violate property rights, and compromise national sovereignty at the expense of the global Marxist ideal.


Perhaps you think we just need to give Obama and Geithner a chance to fix the economy. I’ve already seen enough. Obama’s proposals must be defeated and Geithner should be dispatched before he does any more damage. Fortunately, a number of Democrats are starting to express concern about the huge deficits, cap and trade proposals, tax hikes, and even gun control. Maybe there’s hope after all.


God, Atlas Shrugged, & Capitalism


I always get two questions whenever I offer a strong defense of capitalism: How can you claim to be both a staunch defender of capitalism and a Christian? And how can you cite Ayn Rand’s work so frequently when she was such a devout atheist? These are fair questions. I have good answers.


I don’t read a lot of novels, but my favorite is Ayn Rand’s Atlas Shrugged. The Atlas characters—from Dagny Taggert to the infamous John Galt—tell a story of an America that rejects capitalism. The movie is due in a couple of years, but the times in which we live demand that you read it now. When you do, you’ll see the U.S. today in the middle of the story.


You’ll also wonder how a 50-year-old novel can provide such an accurate depiction of the U.S. under Obama. The answer is simple. Contrary to his conjectures, the “change” Obama seeks is nothing new. Socialism has already been tried numerous times before and has proven unworkable. The former Soviet Union gave up the experiment 20 years ago. China’s still a largely socialist nation, but its recent economic gains are directly linked to the country’s shift toward capitalism. Cuba continues to adhere faithfully to a strict form of socialism and remains destitute. In essence, Rand’s depiction of a U.S. shift toward socialism says less about her prophetic ability than it does about her keen understanding of history and human nature.


Some argue that mixing capitalism and socialism need not result in the crisis Rand described in the novel. They argue that our European and Canadian friends seem to be doing OK with such a blend. I tend to agree, but I want an America that’s better than OK. One of the reasons the U.S. has led the free world is its ability to stay closest to the capitalist ideal.


I disagree with Rand and the adherents of her philosophy (objectivism) on one important issue, however. Because Christianity teaches individual obligations to others, Rand believed that it runs counter to the individual freedom and choice associated with capitalism. Objectivists see a conflict between the two major influences on the development of our nation, the intellectual and rational tradition of the Greeks and the morality of Christianity.


Rand is right to an extent. Forms of mysticism and religion can undermine the foundation of liberty that is necessary for capitalism to function efficiently. Indeed, some cite religion to defend redistribution economics, even suggesting that because Jesus was a socialist because He downplayed material wealth and commanded his followers to share with those less fortunate. Rand seems to have accepted this consistency between socialism and Christianity. She missed a key point, however, in part because some Christians also miss it. Neither Jesus nor any of the New Testament writers advocated any form of redistribution by a centralized government. Jesus never forced anyone to convert or follow any particular ethic. His commands were directed at individual believers who were to make allocate their individual time, energy, and resources accordingly.


This is an important distinction. Whereas Rand saw faith as an obstacle to liberty, rational thinking, and capitalism, others like Dinesh D’Souza (in his book, What’s So Great About Christianity?) see it as the “glue” that holds capitalism together. I agree with D’Souza. The moral foundation of our Judeo-Christian heritage has shaped our culture by teaching that we—as individuals—should not “take advantage of the system” and should be concerned for the well-being of others. It provides a means of addressing social concerns such as poverty without involving the government, which explains why assistance to the poor was available in the U.S. long before a federal government began redistributing income.


Many liberals completely miss this point. They chalk up guys like Bernie Madoff to a crisis of capitalism when in he really reflects a crisis of ethics. The broad Christian influence that helped shape our national culture has helped minimize corruption over the years, enabling capitalism to reach its full potential and spread prosperity. By the way, the current ethics crisis is by no means limited to business. Have you taken a close look at the hall of Congress lately?


The point here is that Christianity and capitalism are quite consistent. Those who ask how Christianity can be compatible with capitalism need to explain how it can be compatible with socialism’s basic denial of personal property rights. And my faith disagreement with the objectivists aside, I think their rational perspective represents a powerful way of thinking. They draw clear distinctions between liberty and socialism, as Rand depicted in her novels and essays. If you’re not familiar with her work, Atlas is a great place to start.


Cap and Trade


CAP AND TRADE refers to an economic system seeks to CAP the emission of greenhouse gases by requiring that those who emit them have government permits. The system starts by granting permits on the basis of historical levels of production and/or auctioning them off to the highest bidders. Those who hold the permits are free to TRADE them. There is an upside to such an approach. If you need to reduce economic activity to a certain level, a credit or auction system like CAP AND TRADE can be a fairly efficient means of doing so. It also provides an economic incentive for companies to reduce emissions. In other words, IF there is a dire need to reduce emissions, then CAP AND TRADE might be a reasonable approach.


The downside of CAP AND TRADE is clear. First, CAP AND TRADE legitimizes government control over industrial production, and I don’t just mean the U.S. government. Because the “problem” is global in nature, emissions control requires a global solution. This not only means government intervention in markets, but “world government” intervention in global business activity.


Second, CAP AND TRADE is a broad-based tax. Whenever a new cost is introduced into production, prices rise. Company profits might decline a little, but the lion’s share of the increase is passed along to end users. Almost everything we buy is linked to energy consumption and emissions. Expect inflation across the board.


Third, CAP AND TRADE redistributes wealth from more developed countries to less developed ones. Ostensibly, credits are initially allocated on the basis of population. Because developed nations consume more energy per capita, their firms will need to purchase energy credits from countries that produce less. Hence, the price hikes that result from CAP AND TRADE end up in the hands of the third world.


But—you might ask—what if we are really facing a global warming crisis? Without a costly solution like CAP AND TRADE, the outcome could be a lot worse. Indeed, the global warming thesis purports that CO2 emissions cause the earth’s temperature to rise. The subtext to this claim is that “unfettered capitalism” is the culprit. Presumably, production plants, vehicles, and industrialization in general are responsible for most of the emissions. Unless we cut back on industrialization, the icecaps will melt and our very survival will be at risk. Because one country’s reduction in emissions can be countered by another’s increase, a GLOBAL GOVERNMENT solution is necessary. CAP AND TRADE, carbon taxes, and other remedies have been proposed.


The weakness of the global warming argument is not the negative effects of CAP AND TRADE, however. If the global warming alarmists are correct in their predictions, then some form of CAP AND TRADE might be worth discussing. THE REAL WEAKNESS IS THE SCIENCE. I’ll highlight a few key points here, but I recommend Horner’s Politically Incorrect Guide to Global Warming and the Great Global Warming Swindle video for a more detailed look at both the science and the politics.


For the record, I’m a social scientist. In other words, I am an active researcher who analyzes the effects of what people do in business situations. It is fair to say that measuring what people do and why is different from measuring chemical properties or reactions. I am clarifying my background here because many proponents of global warming often insist that I—as well as 99.9% of the population—am simply not qualified to evaluate the global warming research. For this reason we should “trust the experts,” or at least the majority of scientists who support the global warming thesis. It is interesting that many of these same people constantly criticize free markets even though they lack any background or training in business or economics. The point here is that “trust the experts” is a smokescreen. While the research claims might be complicated at times, if it cannot be presented convincingly to an educated audience, you have every right to be suspicious. Frankly, Al Gore’s theatrical attempt was an abysmal failure.


The global warming thesis rests on two assumptions, that the global is warming and that man is the cause, what scientists call “anthropogenic global warming”. The first assumption was widely accepted a few years ago, but data now suggests that the globe may be entering a cooling period. Critics have focused primarily on the second assumption over the past few years, and for good reason. If industrialization emits CO2 and causes the temperatures to rise, then why haven’t global temperatures risen consistently over the past couple of centuries? Why is the track record of the climate models used to predict the coming catastrophe so poor?


Could scientists be wrong? Time magazine’s June 24, 1974 issue featured a fascinating article on GLOBAL COOLING. Many scientists were calling for stringent measures then to halt the coming ice age. Their folly is self-evident. Likewise, it is interesting to note that GLOBAL WARMING has been replaced with CLIMATE CHANGE in the popular press, lest we be reminded that recent data suggests that temperatures do not appear to be rising at the moment. I’ve studied the science and politics of global warming and I’m convinced that human activity has little or no appreciable impact on global temperature. The earth warmed and cooled long before industrialization and it will continue to do so. I could be wrong, so I support additional research to see if a stronger case for anthropogenic global warming can be made. In the mean time, destroying capitalism and thwarting economic development on a global scale is not warranted. In other words, I see CAP AND TRADE as a costly proposal that may not even solve a problem that probably doesn’t exist.


The fact that CAP AND TRADE proponents are perpetual critics of business tells us a lot about the politics of global warming. Estimates suggest that CO2 permits would bring in $650-900 billion to the government coffers in 2010, about twice the revenues from corporate income taxes. Eliminating the corporate income tax while instituting CAP AND TRADE would still result in a net increase in government revenues. If proponents are primarily concerned with “saving the environment” rather than seeking greater government control of the economy, when why not REPLACE the corporate income tax with a CAP AND TRADE or CARBON TAX of some sort that generates the same revenue for Washington? The answer, of course, is that CAP AND TRADE is a train headed toward global socialism. Many on board this train seem to be more interested in the socialism than in the environment.


Historically, free and productive economies have made the most environmental progress. The greatest examples of environmental degradation over the past fifty years can be found in the former Soviet Union and China. Dissolution of the USSR is well chronicled, and China seems to be coming to grip with its environmental challenges now that a shift toward capitalism is producing real economic growth. The point here is that government control stifles the very economic development that is required to fund and foster constant environmental progress.


CAP AND TRADE will be one of the greatest legislative battles we will have to fight, but we must win. Let’s hope we can convince enough moderate democrats of the folly before it’s too late.


Solving Healthcare


Healthcare is a complex problem. It’s an emotional, literally life and death issue, and it’s getting more expensive every day. I’m going to walk through the major issues in this blog. I’ll also put a proposal on the table.


Before I proceed, I want to underscore two points. First, the U.S. provides the best healthcare in the world. You can argue about costs or access, but the overall quality in unsurpassed. Second, private healthcare works for most Americans. An estimated 45 million Americans lack health insurance, which means that 85% have it, either through private or government sources. Many of the 45 million are covered by Medicaid or choose not to purchase coverage, so the number “left out” of the system is even lower. These facts should be obvious to most Americans, but they seem to be forgotten in the demand for “change.”


There are some key challenges with healthcare, however. Those who can’t afford care can get it anyway. Medicaid and other government programs provide health care for the poor and Medicare provides coverage for seniors. Further, the Emergency Medical Treatment and Active Labor Act (EMTALA) passed in 1986 guarantees emergency treatment to anyone regardless of citizenship, income, or legal status. The charges for those who do not pay for such care are inevitably absorbed by those who do. While arguably a humane policy, the EMTALA has made illegal immigration more attractive and has also created an incentive for some Americans to avoid purchasing health insurance. The most important part of a health care policy is that it covers you in the event of a major catastrophe. Why pay the premiums when that likelihood is fairly low and the government has provided a safety net?


What this means is that a complete free market solution will not be possible. The government will always provide coverage for a significant number of Americans. Many who can “afford” some coverage will simply opt out because of the high cost and the existence of the EMTALA safety net.


There’s a sad irony here. The wealthy never have a problem getting the health care coverage they need. The poor, covered by government programs, have fewer choices but receive care at little or no cost. The middle class—too rich for government assistance—pays inflated prices for its health care to help cover those who don’t pay at all.


There are two roads we should not take to solve this problem. Requiring employers to pay for coverage is NOT the solution. There is no moral reason why an employer should be required to accept financial responsibility for an employee’s health just because he or she is hired to perform a task. Offering health care benefits is a good thing, but it should not be mandated. Consider how costly benefits have contributed to the demise of the U.S. auto industry.


Nationalized health care for everyone is NOT the solution either. IT WILL RESULT IN RATIONING FOR ALL OF US. Some on the left claim that this is a baseless charge designed to scare Americans. I suggest that they read the British press, where administrators of arguably one of the best socialized systems frequently use the term “rationing” when they discuss the tough choices surrounding who gets access to expensive treatment and who does not. This is why many Brits purchase private health insurance. We simply lack the doctors and medical infrastructure to provide “free” healthcare to everyone without empowering bureaucrats to decide who gets coverage.


Here’s a second irony. Some in Canada and Western Europe chastise the U.S. as “the only developed nation without universal healthcare.” Perhaps they should remember that the U.S. represents the primary market for the development of many new treatments and drugs because of its private system. The U.S. is also the “safety net” for the wealthy in other countries who can’t get the treatment they desire or don’t want to wait in line for it.


HERE’S MY PROPOSAL: Replace all low-income health insurance programs with a no-frills universal plan. Other than basic preventive care (vaccinations, etc.), those covered could not choose their own doctors, would be responsible for sizeable co-pays, and could see specialists under the plan only when absolutely necessary. Only essential medications would be covered–no Viagra. Expensive, recently developed drugs without generics would be covered only in extenuating circumstances. Patients would be responsible for a sizeable amount of hospital or ER treatment each calendar year, perhaps $2000-3000. Private insurance companies could bid for the right to administer the plan in certain geographical areas. The point here is to provide a minimum level of no-frills treatment at a rock bottom cost. The details would need to be ironed out by experts in the field.


THOSE WITH HEALTH INSURANCE WOULD NOT BE INCLUDED IN THE PLAN. THOSE WITHOUT COVERAGE WOULD BE REQUIRED TO CONTRIBUTE TO THE PLAN THROUGH A FLAT PAYROLL TAX. Everyone in the plan would pay a flat percentage, perhaps 7.5% of gross wages. The federal government’s contribution would be capped in some definable way, perhaps 50% of the total cost.


Here are the advantages of my proposal:

1.       Everyone would have access to basic, no-frills coverage.

2.       Those in the barebones universal plan would be required to pay into the system. At present, many are not paying anything and have no incentive to use the system wisely. Most conservative proposals are designed to make it easier for individuals to obtain insurance in the private market, but they don’t address those who refuse to do so.

3.       Financing the plan with a flat payroll tax makes it more expensive for those who earn more, encouraging them to get their own private insurance. The goal here is to get as many Americans into private insurance coverage as possible.

4.       Private insurance premiums would decrease because the barebones plan would cover most of the unpaid medical bills that currently choke the system.


OK, there are some drawbacks:


1.       The no-frills plan would inevitably lead to some rationing. The advantage of my proposal, however, is that it would limit such rationing to those who are receiving government assistance through the no-frills plan.

2.       Some conservatives and libertarians would lament the fact that those without private insurance would be required to participate. I don’t like this either, but the truth is that those who “go it alone” inevitably ask society to step in when a medical emergency occurs. Given the EMTALA and America’s penchant for generosity, the American taxpayer will always underwrite catastrophic coverage for the uninsured. We may as well face it.

3.       Liberals would contend that such a plan would strap the poor with a hefty payroll tax. At a 7.5% rate, a family of 4 with a gross income of $25,000 would pay $1,875 a year for family coverage, a bargain even for a no-frills plan. The truth, however, is that other taxpayers would have to cover the rest of the expenses. Why is it unreasonable to require the poor to make a significant contribution toward their own coverage? How many American’s who “can’t afford” health insurance spend $1,875 annually for their cell phones and satellite TV? It’s critical that those benefitting from the program pay as much as they can.

4.       Once such a plan is instituted, socialists would constantly campaign for greater contributions from the general fund. This is a real problem. Perhaps changing the government contribution should require a supermajority.


As you ponder this proposal, keep in mind the multiple competing objectives we need to accomplish:

1.       MAINTAIN private access to the best system in the world and creative incentives for everyone to pursue private coverage.

2.       COVER as many Americans as possible.

3.       REQUIRE that recipients of federal assistance pay for as much of it as feasible.

4.       MINIMIZE the role of the government in the process.


My proposal is not perfect, but I think it does a better job meeting these objectives than the current system does, and it’s far superior to what we’ll get if we stay on the sidelines. Its real strength is the fact that it delivers a level of care to everyone without a government takeover of the system. Conservatives must take control of this issue with a comprehensive proposal that leverages the market and garners political support from moderates. If not, we may be in for a complete government takeover that will be difficult if not impossible to undo down the road.