Browsing the blog archives for October, 2009.

More CARS Nonsense

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Edmunds.com released a report several days ago suggesting that each incremental car sold during the CARS program (that it, sales that would not have occurred anyway) cost taxpayers $24,000. I’ve seen the analysis and it’s probably as good an estimate as any.

The White House challenged the Edmunds report earlier today, the details of which you can link to at www.autoobserver.com. There are a number of fallacies in the White House document, but one caught my attention.

According to a report issues by (Obama’s) Council of Economic Advisors, the CARS program will create 70,000 jobs in the second half of 2009. This claim would be laughable if it weren’t serious. Such a claim is shortsighted economics at best, and deceptive at worst.

Simply stated, government subsidies that temporarily increase demand for a product don’t create any jobs in the long run. Perhaps one could argue that automakers, suppliers, and related firms will need to hire more workers to meet the increase in demand. This might be partially true if cars purchased during the program would not have been purchased anyway, sooner or later. This is an especially weak argument, however as carmakers will hesitate to increase long term production because of one month of induced sales increases.

This type of Keynesian analysis also leaves out an important fact. When consumers spend MORE on one product, they spend LESS on another. If jobs were “created” in the auto industry because we spent more on cars, then weren’t they destroyed in various other industries where we spent less? The government central planners counter this argument by stating that consumers didn’t really spend less on other products because the government incentive picked up the difference. Even if partially true, the $2.8 billion spent on the program is TAXPAYER MONEY anyway. Sooner or later we will lose $2.8 billion of purchasing power because of this program, either through increased taxes or reductions in the value of the dollar should Washington simply print the bills. Those who accept this reality might still argue that something needs to be done to address the economy NOW because as Keynes said, “in the long run we are all dead.” But at a cost of $24,000 per car, it’s hard to argue that CARS did anything but squander $2.8 billion of taxpayer funds.

By the way, it’s time we start thinking about the long run. Decades of short term thinking—and a heavy dose of it this year alone—has piled up $12 trillion in debt. The average American family is already on the hook for about $100K of it. How much more can you bear?

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Promoting the General Welfare

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Many of those defending a federal government takeover of the healthcare system have not paused to consider if doing so is even Constitutional. Some proponents, however, cite the “general welfare” clause in the preamble as license for this and virtually every social program that comes along. This is simply wrong, and it’s time to set the record straight.

The preamble to the U.S. Constitution reads as follows:

We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America.

First and foremost, the preamble sets the stage for the Constitution and explains why it was written. The preamble does not define rights, responsibilities, or liberties.

Note the difference between PROVIDE and PROMOTE in the preamble. The founders used the word PROVIDE in reference to the common defense because the federal government would be playing a direct role in funding and control. The founders chose the word PROMOTE in reference to general welfare because they did not envision any such direct control.

Note also the use of the term GENERAL WELFARE. The word GENERAL suggests that government’s role will pertain to society as a whole, not select groups or individuals. In addition, the word WELFARE had a much different connotation when the Constitution was written than it does today. Welfare’s meaning was closer to “well being” at that time. WELFARE was not commonly used in the government context—such as “the welfare state”—until the middle of the 20th century.

The preamble simply states that part of the purpose of the Constitution is to foster a general well-being. How this might translate into specific activities is discussed in the text of the Constitution itself. In other words, the general welfare clause does not authorize any government activity whatsoever. End of story.

So the next time someone gives you the GENERAL WELFARE argument in support of healthcare “reform” or any social program, be sure to set him straight. You might also wish to ask him how a $12 trillion national debt is contributing to our effort “to secure the blessings of liberty to ourselves and our posterity.”

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Kerry’s Healthcare Ignorance

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The closed-door sessions to redistribute wealth in the name of healthcare reform continue today while our President who campaigned on greater transparency maneuvers behind the scenes. Amidst this hypocrisy, Senator John Kerry uttered one of the most profoundly ignorant statements I’ve heard in a long time.

Like those with preexisting conditions, older Americans pay more for health insurance because their claims are much higher, for obvious reasons. As a result, their premiums can be as much as 11 times those of young Americans. Democrats want to reduce the 11:1 ratio to at least 4:1, and some even want to reduce it to 2:1. A 2:1 ratio means that older Americans could be charged no more than twice as much for coverage than young Americans regardless of differences in risks or claims.

Speaking on this topic, Senator Kerry said the following: “Allowing insurers to charge older Americans vastly higher premiums simply because of their age is discrimination, pure and simple. Insurers must compete based on price, value and customer satisfaction, not by avoiding Americans based on their age or health.”

(Read the entire piece in the Washington Times if you like at http://washingtontimes.com/news/2009/oct/18/health-reform-bills-target-young-old-cost-gap/)

His ignorance begins with the first word, as it is not the business of the federal government to ALLOW any company—insurance or otherwise—to charge a given price for their products or services. His reference to AGE DISCRIMINATION is perplexing as well. Because bad drivers on average have higher auto insurance claims, they pay higher premiums. Likewise, life insurance premiums are based on a variety of factors. Age is one of them because all things equal, an older person is more likely to die within a given time period than a younger person. This is not very complicated.

Kerry also insists on telling insurance companies HOW they should compete, allegedly on “price, value, and customer satisfaction.” Requiring an insurance company to insure all applicants while restricting them from basing premiums on projected claims guarantees that the young and healthy will be overcharged and the old and sick will be undercharged. The old and sick would represent financial losses, so insurance companies would seek to ration their care as much as possible. There is no way around it.

If you support a “public option,” Senator Kerry’s ignorance illustrates precisely why the government should not be in the insurance business. Replete with the power to tax, redistribute wealth, and regulate insurance companies, the government provider is holding all of the cards. Whenever the marketplace is deemed unfair—which is whenever private companies make a profit—the Marxists in Washington can and will change the rules of the game.

It’s obvious that Senator Kerry hasn’t a clue how to run a business in a relatively free market where winners and losers are not picked by customers, not politicians. Just think…he was almost elected President.

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Grassroots Vigilance

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Wednesday evening I addressed WE THE PEOPLE OF BRUNSWICK COUNTY NORTH CAROLINA (www.wethepeopleofnc.com). The crowd included everyone from business leaders to retirees to a few Minutemen who traveled there from South Carolina. Everyone was united by a single cause, anxious to debate the issues, and serious about sending a liberty-minded representative to Washington in 2010. They understand the crisis of capitalism and freedom we are facing.

We discussed the folly of the President’s incessant stimulus mentality and Baucus’ wealth redistribution scheme disguised as “healthcare reform.” But one thing stood out to me during my visit. If you think the current wave of grassroots interest in reforming Washington is just about electing Republicans, think again. During both my presentation and the Q&A, the most vocal responses came when the Olympia Snow and Lindsey Graham were mentioned. Members of the group expect socialism from Frank, Dodd, and Obama; their real disgust seems to be more with those who CLAIM to uphold our values of freedom but have abandoned the cause. Alex Isenstadt  noted this Sunday on POLITICO (http://www.politico.com/news/stories/1009/28157.html). Just being a Republican isn’t good enough anymore.

It’s always encouraging to see likeminded Americans committed to real change. However, I was asked if I thought there was a realistic chance that we could turn things around. While these are not good times for conservatives, but there are a couple of bright spots. Americans are starting to see socialism firsthand, and many don’t like what they’re seeing. The light has also been shined on Democrats in Washington who identified themselves as moderates during the Bush years. If these so-called blue dogs vote with Pelosi, they will face the wrath of voters back home next year. This creates opportunities for conservative challengers who should have little difficulty distinguishing themselves from the likes of Pelosi and Reed in 2010.

With Obama in the White House and Democrat majorities in the House and Senate, our battle is definitely uphill. There’s a lot of work to do in the next 12 months, and we already have a huge mess to clean up if we can change the balance of power on Capitol Hill in 2010. WE CAN DO THIS, but if we want real change in Washington, we need to help educate our friends and co-workers about the issues we face NOW. Let’s keep fighting.

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Passing the buck

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Americans are becoming more concerned about the massive amount of government spending. Whether it’s a so-called economic stimulus, some type of bailout, or a healthcare proposal, even those on the left are starting to wonder how we are going to pay back the $12 trillion national debt we’ve already accumulated. With projections that the debt will double in the next 10 years, each family’s part is scheduled to rise from about $100,000 to $200,000. Even paying the interest on this amount of debt will be a long-term drag on the economy.

As Americans are becoming more aware of this impending financial debacle, our left-leaning politicians are turning more to “lest costly” approaches to funding their largesse. The latest attempt is Pelosi’s proposal for a windfall profits tax on insurance companies to help finance a piece of the coming entitlement. The idea here is that insurance companies would simply pay the tax and go about their business while the government gets a bump in revenue. Nothing could be further from the truth.

Business taxes are eventually passed along to the buyers. Investors rightfully demand a competitive return on their investments, so if Washington is going to take a larger chunk of a firm’s profits, it has no choice but to find money somewhere else. There are only two options here, raise prices or cut corners on its products or services. Either way the consumer pays the bill. Don’t be fooled—a windfall profits tax is an indirect tax on consumption.

There’s only one rational explanation for Pelosi’s proposal. She must assume that your hatred for corporate America—in this case insurance companies—will generate an emotional response of support. She also must assume that you’re ignorant of the economic reality that business taxes are simply passed down the line. She might claim that a particularly healthcare proposal will cost the government less because of accompanying hikes in business taxes, but we’ll pay for it either way. Whether it’s through higher taxes, economic stagnation due to more borrowing, inflation due to printing money, increases in our insurance premiums, or cuts in our insurance benefits, WE WILL PAY THE BILL IN THE END.

I just wish someone on the left would make an honest proposal that defines how we will actually pay for this massive healthcare entitlement. No smoke and mirrors, no assumptions about cutting fraud, waste, and abuse, and no passing the buck to evil corporations who must in turn pass it along to us. The reason they don’t is quite obvious. Only far leftists and zero liability voters (the name Andrew Wilkow gives those who don’t pay taxes anyway) would support this type of takeover of the government system if took a rational look at costs and benefits. This coalition isn’t quite sufficient to sustain an Obama presidency. The fact that Pelosi and others are starting to emphasize business taxes and fees as part of the financing is evidence that we’re starting to win this battle. Now is not the time to quit fighting.

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Closing the Loop on Cash for Clunkers

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More than 700,000 vehicles were sold in the U.S. as part of the $2.90 billion CASH FOR CLUNKERS program. Many on the left (and sadly a few on the right) labeled this program a success because Americans predictably took the free money. But the numbers for September are now in. U.S. auto sales declined by 23% last month. GM and Chrysler led the way in declines with 45% and 42% respectively. Honda sales declined 20%, Toyota 13%, and Ford 5%.

This was a no-brainer. During the CARS program, Democrats proclaimed that the spike in sales was evidence that the economy was turning around. U.S. Transportation Secretary Ray LaHood referred to it as a “wildly successful run.” Some auto executives even announced plans to INCREASE production next year to meet an anticipated long-term rise in vehicle demand. The CASH FOR CLUNKERS program only proved one thing—people like free money.

Look at it this way: Three groups of people participated in the program: 

  1. For people who would have traded in their cars anyway, the government payment was a giveaway that had no effect on purchase behavior anyway.
  2. For people who would not have traded in their cars without a subsidy, the program encouraged them to buy or lease a car they might not have been able to afford without Washington providing the down payment. Expect many of these folks to unload their cars during the next year.
  3. For people who would have traded in their cars in the next few months anyway, the program encouraged them to buy now instead of later. One month’s sales increase became the next month’s sales decline.

We can now confirm that there were many buyers in the third group. There is still no evidence that the program will have any long-term positive effect on auto sales, and I don’t expect any to be forthcoming. The bottom line is simple: Government stimulus programs don’t work.

By the way, another government giveaway is on the way. Consumers will get $50-200 of government money if they trade in their own appliances for new ones. Expect appliance sales to increase during the program, and then dip markedly when the free money ends. Also expect left wingers to applaud the program during the sales spike, but move on to other topics during the subsequent decline. Another $300 million down the drain.

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