Browsing the blog archives for March, 2012.

The forgotten issue in Obamacare

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Obamacare is unconstitutional. The federal government lacks the authority to compel citizens to engage in commerce. Let’s hope at least 5 of the 9 justices on the Supreme Court get this one right. But while this issue is the focal point of libertarians and conservatives, there’s a deeper concern that is sometimes overlooked.

The purchase provision in Obamacare is unconstitutional because crafters of the legislation wanted to retain the illusion that Americans would retain control of their own healthcare by purchasing their own insurance. This is the key funding mechanism for the scheme, but it could have been circumvented by going straight to a single-payer plan funded through (higher) tax revenues. Democrats are not united behind a single-payer scheme yet, so the purchase provision was as far as they could get. If the Supreme Court strikes down all or part of the plan, there’s nothing to keep the left from expanding Medicare, Medicaid, and other programs to achieve the same goal.

This reality exposes a problem that must be addressed, sooner or later. The 40-60 million Americans “without health insurance” come from various walks of life, but many are and will use the system without paying for it. The “lack of access to healthcare” is a problem, but the fact that many without coverage will shift costs to the rest of us is a major issue. I don’t favor a purchase mandate, but the current approach encourages free riders. If we are going to provide “emergency” health care to anyone in the country regardless of “ability to pay,” we must come up with a way to require that those individuals pay what they can and use the system more efficiently. This will involve some difficult choices about who has a right to various levels of healthcare without paying for it. Until this issue is addressed, the single-payer crowd will try to exploit it.

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Constitutional Ignorance

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A February 2021 USA Today/Gallup poll on Obamacare revealed some interesting statistics:

1. Americans are divided (45% vs 44%) on whether Congress did a good or bad thing by passing the law.

2. 72% of respondents believe the law is unconstitutional; 20% believe it is Constitutional.

A very interesting take-away point from this survey is being overlooked. If 45% of Americans believe Congress did the right thing by passing Obamacare and 72% believe it is unconstitutional, then about one-quarter of respondents are applauding Congress for passing an unconstitutional law. It’s impossible to pinpoint the exact percentage here, but 1/4 is a sound estimate given the data that is presented.

Put another way, about 1/4 approve of Congress behaving in an unconstitutional manner as long as they like the bill in question. This is chilling. The argument by many that the Constitution is a “living and breathing document open to interpretation” is being replaced by ignoring it altogether.

I bet most of the estimated 1/4 are not net federal income taxpayers.

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The Cost of Easy Money

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The Federal Reserve’s easy money policy has been keeping interest rates below the long-term expected rate of inflation. Many see this as a big plus for Americans struggling to survive the down economy, particularly those who wish to purchase or refinance a home. There are many reasons why this is simply not true, one of which I’ll focus on here.

We always purchase more of something that we otherwise would when we don’t have to pay full price. Artificially low interest rates allow homeowners to purchase a house below market price. Visit www.mortgagecalculator.org and you’ll see that the monthly payment for a 30-year. $250,000 mortgage at a 5% fixed rate (not including property taxes or PMI) is $1342. Raise the rate to 6% and the payment climbs to $1499. ¬†In order to keep the payment at the same level, you must must cut your mortgage by about 11%. Put another way, if the Fed keeps your mortgage rate 1% lower than the market would otherwise charge, then about 11% of your mortgage is being subsidized by a depreciating dollar. But this is not as innocent as it sounds.

First, there is no such thing as a free lunch. In fact, the subsidy is being financed indirectly through a weaker dollar. Whether it’s the cash in your wallet or your 401(k), each dollar you have declines in value to balance the system. In essence, those of us with any accumulated wealth are paying part of the interest. (A weaker dollar also drives up oil prices, as previously addressed on the blog).

Second, there is also a problem when people buy more house than they can afford, as the recent housing meltdown should remind us. When we create an excess of supply, prices rise in the short term because of the temporary shortage and then plummet when an economic shock hits and the oversupply is too much to hide. By encouraging Americans to buy more expensive homes than they can really afford, the Fed is blowing up the next housing bubble.

Third, in a free economy–one without a Federal Reserve controlling the price of money–interest rates rise and fall to maintain a balance between legitimate demand for capital and funds available in the private sector. When the Fed keeps rates too low, the demand for borrowed funds is higher than the supply available to fulfill it. By augmenting funds in the private sector, the Fed is pushing more money into the system than the private sector can support over the long term. This surplus is what some economists call malinvestment because it represents riskier loans that should never have been made.

Finally, artificially low interest rates drive down the returns on savings. As a result, Americans with extra dollars can’t even keep up with inflation without putting their money at risk, usually in the stock market. Those on fixed incomes or living on savings suffer the most as purchasing power is extracted from their monthly checks.

We’ve been told that easing will continue, but it’s time that we realize the cost we pay for this intervention, as individuals and as a society..

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The Chevy Volt Saga Continues

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When it comes to the Chevy Volt, the market has spoken. The Volt is not ready for prime time.

The facts are clear. GM sold 7671 Volts in 2011, short of its target of 10,000. GM sold about 1600 Volt in January and February this year, a far cry from the pace needed to reach the 45,000 target for 2013. The average household income of a Volt buyer is $170,000. Mainstream America is rejecting it.

Perhaps allegations of battery fires are to blame. Perhaps Americans are leery of a battery-operated car that can’t go beyond 40 miles before shifting to gasoline. Perhaps the $40,000 price tag is a bit steep. Perhaps the $7500 government subsidy isn’t enough.

There is little the President can do about these problems, except for one. On Wednesday, he proposed an increase in the Volt subsidy to $10K. Put another way, President Obama is proposing that $10,000 be transferred from taxpayers who choose not to buy a Volt to each taxpayer that does. $7500 was already $7500 too much.

In President Obama’s world, the Chevy Volt simply cannot fail. It’s a referendum on the GM bailout, the UAW, and “green” energy all rolled into one.

Apparently GE’s recent commitment to purchase 12,000 Volts wasn’t enough to boost sales. Don’t think for a moment that Obama’s ties to Jeff Immelt didn’t influence this decision. And don’t think for a moment that Immelt will actually drive a Volt on a daily basis.

President Obama simply does not respect markets. When consumer choice doesn’t deliver the outcomes¬†he thinks are best for society, the President castigates the producers or manipulates the markets altogether with taxes or subsidies. When healthcare and gasoline cost too much, greedy producers are to blame. But when solar energy and Chevy Volts cost too much, greedy or ignorant consumers are the problem. While the President doesn’t refer to consumers as greedy or ignorant, his actions tell the story. He blames us for consuming more than our “fair share” of global oil while bribing us with tax dollars to buy more Volts. To the President, American consumers just aren’t capable of managing their own economic affairs without a heavy dose of central planning.

Perhaps the Volt will be a competitive car one day. New technology can take some time to develop, and I don’t have any problems with the Volt per se. I simply oppose the use of taxpayer funds to pick winners and losers in the effort to improve energy alternatives. This includes bailout funds, special tax breaks for GM, and subsidies for those who purchase Obama-approved products. Markets can do this more efficiently without Washington’s interference. Obama’s interference with market activity is both costly to taxpayers and counterproductive for society.

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