Browsing the blog archives for July, 2009.

Cash For Clunkers

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Obama’s Car Allowance Rebate System (CARS)—better known as CASH FOR CLUNKERS—is another in a long string of wasteful government programs. Under CARS, you can get a $3500 or $4500 government cash voucher when you trade in your car for a new one that gets better mileage. The program is supposed to get inefficient polluters off the road and “jumpstart the economy,” but there is more to the story.

First, only those who happen to own a vehicle worth less than the $3500/$4500 voucher amount would benefit from the program. Those worth more can be sold or traded anyway. By providing an inflated trade-in value of $3500 or $4500, low income consumers are being encouraged to purchase a new car. Dealers and banks are eager to provide financing because the vouchers provide a sufficient down payment. But what happens if consumers can’t afford the payments down the road? The last time I remember the federal government “helping” consumers buy something they couldn’t afford was in the housing market, and we all know how that turned out.

Second, what about the poor consumer who drives a “clunker” but does NOT wish to incur debt to finance a new car as part of the program? He’s out of luck because older vehicles with values in the “clunker” range are now worth much more because they can be exchanged for government vouchers. As more Americans participate in the program, the supply of “cheap cars” will decline, thereby raising their market value. In other words, this kind of government intervention can make cheap cars driven primarily by the poor more expensive. The truly poor must either incur debt by purchasing a new car through the program or risk paying an artificially inflated price for their next old one.

As we can see, poor consumers who drive “clunkers” can either (1) incur debt to purchase or lease a new car, or (2) refuse to participate while the supply of old cars dwindles—and prices rise—as a result of the program. Any environmental benefit will be minuscule and only symbolic, especially when one considers the number of vehicles added to the roads everyday in countries like China and India. It’s hard to see any long term benefit here.

So what’s the motivation for the program? In my view, it kills two liberal birds with one stone. First, it subsidizes the auto industry, namely GM. This type of policy was easily predictable (see my earlier blog posts on the bailout) and always occurs when government entities try to “compete” in the free market. One way or another GM will be profitable again, even if taxpayers have to lose money to make it happen.

Second, the CARS program redistributes wealth. It’s likely that a high percentage of those eligible for this taxpayer-funded program are part of this 40% of Americans who do not pay federal income taxes in the first place. This taxpayer-funded program will transfer $1 billion of wealth down the economic ladder.

The CARS program is another Obama scheme designed to “correct” market inefficiencies. But government intervention that seeks to circumvent market realities usually fails in the long run. What’s my solution? Return GM to private ownership, let buyers make their own choices, and let the market resolve its own problems. Government meddling may be politically expedient, but is costly and usually delays the inevitable.

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Creeping Socialism

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What’s wrong with mixing a little socialism with capitalism? Isn’t it a good idea to pool our resources and share risks sometimes? If we do this when we buy insurance, then what’s wrong with government doing it? Aren’t the real solutions to our problems “somewhere in the middle?” These questions have been popping up in my conversations lately, especially when we’re talking healthcare. They’re interesting questions, but they point to a lack of understanding. I have some good answers.

Let’s face one fact at the outset. Some infiltration of socialism can never be avoided for practical reasons, such as government-funded projects to provide fresh drinking water to a community, pave a highway, or provide a police force. The Constitution allows governments to collect taxes for specific reasons. In many instances these decisions are left to the states to sort out, although the feds don’t seem to respect state authority much these days. Libertarians and conservatives don’t debate legitimate government activity, but argue for LIMITED (Constitutional) government at the federal and state levels, not a complete absence. In other words, the debate is not about whether we will have a government, but instead about how intrusive our government should be.

Socialism denies individual freedom of choice by confiscating resources from everyone for projects that may not be equally desired or used by everyone. For this reason, government action should be limited to what is Constitutional and essential. The former seems pretty clear to me, but the latter can be debatable at times. A good example is Social Security. Some conservatives argue that because our society simply will not allow its senior citizens to die in the streets, it is not fair for those who refuse to save for retirement to become a burden on society when they can no longer work. I happen to agree with this view, but I think benefits could be lower and start at a much higher age in exchange for a lower tax rate. In other words, social security is not about a retirement plan, but instead about providing the absolute minimum, thereby keeping society from having to support those who don’t save along the way.

If some basic type of social security system makes sense as a practical measure, could the same argument be made for healthcare? In other words, if society is going to pay for emergency treatment anyway (which is federal law), why not require everyone to have insurance to cover such treatment in the event of a catastrophe? This is a reasonable argument, but the key here is to provide just enough of a plan to keep people without insurance or who can’t get insurance for medical reasons from becoming a burden on society. It would follow that everyone without private insurance would have to contribute as much as they can afford for such coverage and that it should require HIGH DEDUCTIBLES and only cover the major expenses that would likely go unpaid. I already proposed such a plan on the blog, so I won’t repeat it here.

Some conservatives and libertarians have a problem with any mandated health insurance or social security whatsoever because both restrict our freedom to manage our own affairs. I would argue that requiring everyone without private coverage to contribute to a MINIMAL plan managed by private insurance companies might be the most liberty-oriented option on the table. This is an example of how some of us on the right hold different views, but our disagreement is not about principle (limited government involvement), but about the extent to which some sort of program is the most practical option given the alternatives.

The problem with healthcare proposals on the table, however, is that they are not about practical solutions for Americans who genuinely cannot access or afford basic medical care. They are about remaking the entire system so that HEALTHCARE BECOMES AN ENTITLEMENT. Yes, rationing would occur and a public system would be inefficient, but single payer plans and the so-called public option Obama has proposed are wrong for one simple reason: They force people into a collective beyond that which is both Constitutional and reasonable, and they require non-beneficiaries to pay the tab.

This gets us back to the third question I posed at the outset. Yes, insurance is a form of collectivism. The difference, however, is that it is VOLUNTARY AND MARKET-DRIVEN, so participation does not violate our freedom of choice. We are free to negotiate terms and purchase any policy we like. Of course, insurance might be required for practical reasons. Banks require that mortgage holders have property insurance to protect their collateral for the loan. States require that we carry auto insurance so we don’t violate the property rights of others if we are at fault in an accident and can’t pay their bills. In both instances, the insurance requirement kicks in because we choose to engage in an activity that puts someone else at risk. The same principle should apply to health insurance. It should be required only to the extent that not having it would place someone else (or society in general) at significant risk. Those who claim that such a minimum is not enough are free to enter the marketplace and purchase their own.

Voluntary, market-driven collectives are not only superior to government intrusion because they respect individual freedom, but also because they are VOLUNTARY AND MARKET-DRIVEN. Both the insurance provider and the customer can walk away from the arrangement when the coverage term is complete, which ensures that insurance providers will be responsive to the needs of their paying customers. In government collectives, there is no such incentive because individuals don’t have an option to go elsewhere. There is no competition to force greater efficiency because pressure on the bureaucracy is not limited to those who pay for the system. Individuals who receive benefits but pay little or nothing for them can band together and vote in representatives who will direct the bureaucracy to take more from the contributors and expand benefits from the non-contributors. The only voters in the private market are those paying for the service.

This type of confusion is commonplace these days. What we are really experiencing today is the creeping socialism from decades past. The federal government has usurped so much individual liberty that many Americans accept the notion that most of our problems can be found somewhere “in the middle.” The framers of our Constitution didn’t look to the middle for solutions, and neither should we.

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Another Stimulus?

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Obama economic advisor Laura Tyson has suggested that another “economic stimulus” is needed to prime the economic pump because the first one just wasn’t big enough. Although not officially speaking for the President, Tyson’s sentiment dovetails Vice President Biden’s lament that the “we misread how bad the economy was.” Could another stimulus be in the works? Andrew Wilkow (www.wilkowmajority.com) and I discussed this topic briefly on his show today, but I want to cover it again on the blog.

Obama and his team of “leading economists” told us earlier this year that the $787 billion stimulus was necessary for a 2009 recovery. It is worth noting the most recessions last 12-18 months, so a mid- to late 2009 recovery would have been expected anyway. We were told that most of the stimulus money would be spent in 2009 to create jobs, keeping the unemployment rate below 8%. With unemployment approaching 10% today, some are suggesting that $787 billion package might not have been enough.

This sounds familiar. After spending $15 trillion (estimates vary), progress in the “War on Poverty” has been limited to say the least. Federal, state, and local governments spend an average of about $10,000 annually per child in our public schools, yet we hear that massive additional infusions are still necessary. The problem is a philosophical one. Those on the left believe that government intervention can solve most of our social and economic problems. When a government program doesn’t work, they simply refer to it as a “step in the right direction” that requires more spending to achieve the desired effect. Leftists never abandon the big-government worldview despite evidence to the contrary.

Biden’s comments about the current state of the economy do contain a kernel of truth, however. The Obama administration DID misread the economy in January, which gives rise to 3 questions:

  1. If the Obama economic team is so talented, then why did they make such a costly mistake?
  2. What confidence should we have in his team’s current assessment of the economy?
  3. Did the lingering recession and increase in unemployment really come as a surprise?

The answer to the first question is self-evident. Obama’s far left economic team underestimates the power of capitalism and overestimates government’s ability to engineer growth. This is not a stellar group, and we should have no more confidence in its current assessment than in the original one. Biden left out an inconvenient truth, however. Hundreds of economists saw this coming and went on the record in January 9’s Wall Street Journal (http://www.cato.org/special/stimulus09/cato_stimulus.pdf). The Obama team still does not understand how to fix the economy but will likely continue to spend massive amounts of money we don’t have and until good things happen or we put a stop to it.

Of course, sooner or later our economy will experience some sort of recovery. But the first stimulus has already ballooned the deficit and sowed the seeds of inflation, which will eventually cause interest rates to rise. Keep in mind that low interest rates are needed to spur a lasting recovery in the housing market and we can see how much damage has already been done, and we haven’t even considered the negative effects of a looming health care entitlement expansion yet.

What’s my advice to the President? Stop the assault on capitalism and leave things alone. You’ll be surprised how quickly we can recover.

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Where is John Galt?

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Who is John Galt? If you’ve read Atlas Shrugged you’re familiar with the quip, and you know that Galt was known for his willingness to stand up to the collectivists. I’ve been looking for John Galt lately, but I’m having a difficult time finding him.

John Galt can be found on talk radio with the likes of Limbaugh, Levin, Wilkow, Church, Hannity, and Boortz. John Allison, Chairman of the Board at BB&T, is the John Galt of American business. Allison is a sage business leader who embraces high moral standards but openly rejects the arguments of the left. BB&T thrived under his principled leadership.

Many of today’s business leaders range from corporate opportunists to timid neo-capitalists, however. GE’s Jeff Immelt, for example, has snuggled up to Obama’s government control in exchange for a piece of the “clean energy” largesse. Wal-Mart’s Mike Duke is the latest deal-cutter, signing on to mandated employer-provided health care coverage in exchange for some influence on the program’s final design. Immelt seems like a bona-fide leftist, but Duke just seems to be willing to compromise his core principles.

Why is John Galt so hard to find these days? To answer this question, we must first ask what it takes to be a John Galt. An appreciation for liberty is obvious for starters, but the willingness to STAND UP for one’s principles is the real difference. It’s too easy to remain silent when coworkers ridicule individual rights at the water cooler. It’s too easy not to ask the guy building your house if he takes reasonable steps to ensure that none of his workers are in the US illegally. It’s too easy to accept the flawed notion that the excesses of capitalism must be balanced by government control. When push came to shove, John Galt refused to play along with the collectivists. It’s not easy being John Galt, which is why he is not easy to find.

Now more than ever, we need John Galt in Washington. Cap-and-trade and universal health care are two prominent pieces of legislation currently on the table, and final passage of either would create a tremendous economic burden on this nation. Meanwhile, some Republicans and many so-called moderate Democrats claim to be “undecided” or “negotiable” on these redistribution schemes, making final decisions not on core principles but on what feels right at the time. John Galt would have strong, clear views on issues such as these.

We also need John Galt is our state legislatures and town halls, in our large and small businesses, in our schools and universities, and anywhere else people are influenced and decisions are made. As we celebrate America’s independence, let’s remember that our great nation was founded by “Galt-like” individuals who were willing to remain steadfast, basing their decisions and positions on clear moral principles. With Washington decidedly to the left, none of us can afford to sit back and let others fight the intellectual battles. If you’re John Galt, thanks for standing for liberty. If not, now’s the time to draw your line in the sand.

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