Monday, August 31, 2009

Cultural-economic decline

Steven Malanga
Whatever Happened to the Work Ethic?
The financial bust reminds us that free markets require a constellation of moral virtues.

In Democracy in America, Alexis de Tocqueville worried that free, capitalist societies might develop so great a “taste for physical gratification” that citizens would be “carried away, and lose all self-restraint.” Avidly seeking personal gain, they could “lose sight of the close connection which exists between the private fortune of each of them and the prosperity of all” and ultimately undermine both democracy and prosperity.

The genius of America in the early nineteenth century, Tocqueville thought, was that it pursued “productive industry” without a descent into lethal materialism. Behind America’s balancing act, the pioneering French social thinker noted, lay a common set of civic virtues that celebrated not merely hard work but also thrift, integrity, self-reliance, and modesty—virtues that grew out of the pervasiveness of religion, which Tocqueville called “the first of [America’s] political institutions, . . . imparting morality” to American democracy and free markets. Some 75 years later, sociologist Max Weber dubbed the qualities that Tocqueville observed the “Protestant ethic” and considered them the cornerstone of successful capitalism. Like Tocqueville, Weber saw that ethic most fully realized in America, where it pervaded the society. Preached by luminaries like Benjamin Franklin, taught in public schools, embodied in popular novels, repeated in self-improvement books, and transmitted to immigrants, that ethic undergirded and promoted America’s economic success.

What would Tocqueville or Weber think of America today? In place of thrift, they would find a nation of debtors, staggering beneath loans obtained under false pretenses. In place of a steady, patient accumulation of wealth, they would find bankers and financiers with such a short-term perspective that they never pause to consider the consequences or risks of selling securities they don’t understand. In place of a country where all a man asks of government is “not to be disturbed in his toil,” as Tocqueville put it, they would find a nation of rent-seekers demanding government subsidies to purchase homes, start new ventures, or bail out old ones. They would find what Tocqueville described as the “fatal circle” of materialism—the cycle of acquisition and gratification that drives people back to ever more frenetic acquisition and that ultimately undermines prosperous democracies.

And they would understand why. After flourishing for three centuries in America, the Protestant ethic began to disintegrate, with key elements slowly disappearing from modern American society, vanishing from schools, from business, from popular culture, and leaving us with an economic system unmoored from the restraints of civic virtue. Not even Adam Smith—who was a moral philosopher, after all—imagined capitalism operating in such an ethical vacuum. Bailout plans, new regulatory schemes, and monetary policy moves won’t be enough to spur a robust, long-term revival of American economic opportunity without some renewal of what was once understood as the work ethic—not just hard work but also a set of accompanying virtues, whose crucial role in the development and sustaining of free markets too few now recall.

Click link to continue

Thursday, August 27, 2009

A simple story explains government run health care

By George Mason University's Russell Roberts.

If you go to dinner with a large group of strangers and you know that the bill will be split evenly, aren't you more likely to order pricier dishes and drinks than you would order if you, and you alone, were responsible for picking up your full tab?

The answer is surely "yes." Let's say that you'd be content to order the pork chop priced at $15, but would get even greater enjoyment from ordering the rack of lamb priced at $25. If you alone were responsible for your tab, you'd order the lamb only if it is worth to you at least the extra $10 that it costs. So suppose that you value the lamb by only $8 more than you value the pork chop. In that case, you'd order the pork chop. You wouldn't spend an extra $10 to get extra satisfaction worth only $8.

But if the bill is evenly shared among, say, 10 diners (yourself and nine others), then if you order the lamb, your share of the higher bill will be only $1. That's $10 split evenly 10 ways. You'll order the lamb.

You might think that this sharing arrangement is good. After all, in this example, the cost to you of getting something you valued more (the lamb rather than the pork chop) was reduced. It became sensible for you to order the lamb.

Look more deeply, though. What happened is that society (here, the 10 diners) was led to supply something that wasn't worth its cost. The lamb was worth to you only an additional $8, but to make it available to you, society spent $10. Ten dollars were used to raise the welfare of society by only $8. (You're a member of society, so any improvement in your welfare counts as an improvement in the welfare of society.) That's a waste of $2.

You are better off, but the group is worse off.

Now look even more deeply. Everyone at the table faces the same incentives that you face. You're not the only person who will order excessively costly dishes and drinks. Everyone will. The entire table over-consumes. The total bill is higher -- even your share is higher -- than it would have been had the bill not been split evenly. Resources are wasted.

Such sharing of our medical-care bill takes place now on a massive scale. It is impossible to see how expanding this sharing will reduce the bill.

Why Keynesian policies fail

America's Record Recession

by Peter Ferrara

Keynesian economics was born in the 1930s, the brainchild of British economist John Maynard Keynes. It argued that the way to stimulate a flagging economy back into growth was to increase government spending and deficits. The extra demand for goods and services from that increased spending would induce increased production to meet the demand, restoring full employment and growth.

The concept was quickly embraced by politicians and lefty academics because it justified exactly what they wanted. For the liberal/left politicians dominant in Washington at the time, it gave them cover for the record government spending they wanted to buy votes, without having to raise taxes fully to pay for it. For the lefty academics, it gave them cover for their wish list of runaway government spending policies.

There was just one problem. It never worked to revive economic growth and end the Depression. Rather, as demonstrated by Amity Shlaes in her landmark book The Forgotten Man, it was one component of a slew of Big Government policies that put the "Great" into the "Great Depression," keeping unemployment absurdly high and preventing any natural, cyclical recovery for more than a decade.

The fallacies of Keynesian economics were exposed decades ago by Friedrich Hayek and Milton Friedman. Keynesian thinking was then fully discredited in the 1970s, when the Keynesians could offer no explanation and no cure for the double digit inflation, interest rates, and unemployment, and the persistent stagnation, that resulted from their policies. President Reagan formally dumped Keynesianism in favor of free-market and supply-side policies that produced a 25-year global economic boom.

Yet, President Obama showed up in early 2009 with the dismissive certitude that none of this history ever happened, and national economic policy was decidedly back in the 1930s.

The New Failure of Keynesian Economics
According to the National Bureau of Economic Research, the current recession started in December 2007. From the beginning, we approached this recession with old-fashioned Keynesian economics, rather than the more modern, incentives-oriented, supply-side economics that has swept the world. In February, 2008, then President Bush cut a deal with Congressional Democrat majorities to pass a $152 billion stimulus bill entirely based on the Keynesian rationale of countering the recession with increased spending and deficits. The centerpiece was a tax rebate of up to $600 per person, which had no significant effect on economic incentives, as reductions in tax rates do.

This Keynesian stimulus produced no significant blip in the raging economic downturn, richly earning its well deserved fate of having been completely forgotten. Bush Treasury Secretary Henry Paulsen, the economic guru of the Administration at the time, himself was intellectually stuck in the deep historical recesses of Keynesianism, failing to promote Reagan's free market and supply side policies to counter the downturn. Indeed, Reagan's 25-year global boom ended as the Bush Administration abandoned every component of Reaganomics one by one, culminating in Paulson's throwback Keynesian stimulus in early 2008.

Yet, contrary to his campaign theme of change, President Obama simply quintupled down on Bush's 2008 Keynesianism. Obama learned nothing from the Bush/Paulsen/Pelosi/Reid early 2008 Keynesian failure, which Senator Obama vigorously supported at the time. President Obama came back in February, 2009 to support a new, $787 billion, purely Keynesian stimulus bill.

Even the tax cut portion of that bill, which President Obama is still wildly touting to the public, was purely Keynesian. The centerpiece was a $400 per worker tax credit, which, again, has no significant effect on economic incentives. While President Obama is proclaiming that this delivered on his campaign promise to cut taxes for 95% of Americans, in the Democrat budget that passed Congress this year even this tax credit disappears after next year.

Since World War II, recessions have averaged 10 months, and the longest has been 16 months. Exactly when the current recession can be scored as over is unclear at this point (positive GDP growth may have finally restarted). But it now has been 20 months since the recession began in December 2007, and it will clearly end as the longest by far since World War II. Indeed, from 1887 to 1929, recessions averaged 10 months as well, with the longest during that time also 16 months. For over 120 years at least, recessions have lasted the longest only when countered by intellectually and practically discredited Keynesian economics. . .

. . . real economic recovery is now overdue by at least 4 months. Rather than promoting recovery, the Keynesian economic policies adopted by both Obama and Bush since the beginning of this recession have more likely delayed it, by borrowing hundreds of billions and ultimately trillions in investment capital out of the private economy, and destroying the jobs that would have resulted from that money in the private economy.

Cycles Naturally Go Up As Well As Down
Remember the term business cycle? The sweeping, pro-growth policies adopted by President Reagan were so successful in preventing any major downturn for 25 years that we don't seem to remember what that term means anymore. But it implies that along with periodic downturns the economic cycle will naturally turn up as well. Every morning the American people wake up and throw themselves into restoring the economic viability of their businesses, or finding themselves jobs. This is the primary factor in causing the economy eventually to turn back up.

The Keynesian economic policies adopted by Obama and Bush do nothing to help these businessmen and working people cure the economy. Borrowing close to a trillion dollars from the private economy to increase government spending by close to a trillion dollars does nothing to expand the economy on net. Indeed, it may well result in a net loss of jobs due to government carrying costs and the economic friction resulting from moving all of that money around. Moreover, again this policy does nothing to increase incentives for investment, starting new businesses, expanding businesses, creating new jobs, or entrepreneurship. For these reasons, the best estimate of the number of jobs saved or created by the Obama stimulus is exactly zero.

The result of the willfully blind, throwback, untutored Keynesian economic policies continued and wildly expanded by President Obama is the longest recession since World War II dragging on for around 20 months now, and maybe still more. Almost 7 million jobs have been destroyed during this overextended downturn. Besides the 250,000 additional jobs lost last month, another 422,000 former workers dropped out of the workforce altogether. Almost 800,000 workers are counted as officially discouraged because they can't find work, and so are not even counted as in the work force or in the official unemployment rate. Another 8.8 million who have been reduced to part-time status due to the recession are also not counted in the unemployment rate, and many others have suffered reduced hours as well. Over one third (5 million) of the 14.5 million unemployed have now been without work for at least 27 weeks, or about half a year, with almost 600,000 joining their ranks last month alone.

Personal income is down $427 billion from its peak in May 2008. Because the economy has been performing worse than expected, even the Obama Administration is now admitting that the deficit over the next 9 years will be $9 trillion, $2 trillion more than it projected at the time of its stimulus package in February. That is an increase in cumulative deficits of almost 30% from the mistaken Obama Administration projections of just 6 months ago. These deficit and debt numbers will only get worse as the recovery turns out to be not as strong as the Obama Administration has projected.

Rejecting Obama's rigid, doctrinaire Keynesianism, France and Germany saw economic growth return in the second quarter, with India, Brazil, and even communist China enjoying reviving growth as well. Clearly, what we have suffered in America is the failure of Keynesian economics yet again.

The Free Market Restores Economic Growth
The slowdown in economic decline we have recently experienced, and the actual recovery we will see soon, is due to the natural, curative process of the free market, not big government spending, deficits and debt, for the reasons discussed above.

. . . countries with higher government spending relative to GDP suffered deeper recessions over the past year and a half, while countries with lower government spending experienced shallower recessions or none at all. So, again, Keynesian spending stimulus does not seem to promote economic recovery.

Reigniting the Economic Boom
Economic recovery permanently reducing unemployment will only come from private job creating investment, which still has not sufficiently revived. Nothing in President Obama's Keynesian economic policies, or in Bush's Keynesian policies from 2008, helps with that.

Producing long-term, booming, economic growth will require a fundamental change in economic policy. Start with corporate tax rates that are now just about the highest in the world. Restoring American competitiveness will require reducing the federal corporate tax rate from 35% to at least 20%. Yet, Obama plans to raise the corporate tax burden further.

Sharply raising individual income tax rates and capital gains tax rates, as Obama plans to do, is exactly the opposite of what is needed to counter still catastrophic unemployment. Scrap all that economic foolishness and instead cut the middle class 25% income tax rate to 15%, leaving 90% of taxpayers with a 15% flat tax. Scrap as well the proposed new 8% payroll tax on businesses that do not provide employee health insurance, which would perpetuate unemployment and further reduce wage incomes.

Another component of a foundation for long-term, booming growth is a reliable supply of low cost energy. But here again Obama is pursuing just the opposite, with a program of massive taxpayer subsidies to switch to unreliable, high cost alternatives, and a new cap and trade tax imposing trillions in new cost burdens with no policy justification.

Finally, with only 10% of stimulus funding spent so far (another reason the Obama economic program deserves no credit for the slowing decline), University of Chicago economics professor Casey Mulligan is right. We should cancel the rest of the stimulus spending, which would cancel the borrowing of hundreds of billions more out of the private sector.

Unfortunately, President Obama is still wedded to his political talking points, and his ideological blinders seem now to be attached to the skin. So don't expect any policy changes, no matter what happens. Expect an eventual return to 1970s style economic results instead.

Monday, August 24, 2009

Government spending in real time

This compilation of all the spending "clocks" will shock you.

Click here: US Debt Clocks

Wednesday, August 19, 2009

The U.S. is not a capitalist republic, it is a union of subordinate socialist republics (USSR)

Marx's 10 Pillars from the Communist Manifesto of 1848 with comments showing alignment with the current government in ( ).

Nevertheless, in most advanced countries, the following will be pretty generally applicable.

1. Abolition of property in land and application of all rents of land to public purposes. (Kelo Supreme Court decision)

2. A heavy progressive or graduated income tax.(raising taxes, allowing the tax cuts to expire, income redistribution policies)

3. Abolition of all rights of inheritance.(the death tax)

4. Confiscation of the property of all emigrants and rebels.(giving property to immigrants, legal and otherwise, yet increasing regulation of citizens and businesses moving out of an over-regulated business and tax climate.)

5. Centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.(T.A.R.P and other bank takeovers)

6. Centralization of the means of communication and transport in the hands of the state.(Increased FCC regulations and legislation proposed to crush dissenting opinion)

7. Extension of factories and instruments of production owned by the state; the bringing into cultivation of waste lands, and the improvement of the soil generally in accordance with a common plan.(GM, Chrysler, other)

8. Equal obligation of all to work. Establishment of industrial armies, especially for agriculture.(Not here yet but Ameri-corps, and other forced/mandatory voluntarism ideology based programs)

9. Combination of agriculture with manufacturing industries; gradual abolition of all the distinction between town and country by a more equable distribution of the populace over the country.(National government supreme to state and local government, centralized control taking place, Anti-American world government ideology, International courts, etc...)

10. Free education for all children in public schools. Abolition of children's factory labor in its present form. Combination of education with industrial production, etc.(we have the education/indoctrination camps already called public schools)

When, in the course of development, class distinctions have disappeared, and all production has been concentrated in the hands of a vast association of the whole nation, the public power will lose its political character. (this is code for socialism) Political power, properly so called, is merely the organized power of one class for oppressing another. (So we will replace it with oppression of all by the few with no checks and balances, they ignore the rule of law, factions counteracting factions and republican governance which prevents tyrrany) If the proletariat during its contest with the bourgeoisie is compelled, by the force of circumstances, to organize itself as a class; if, by means of a revolution, it makes itself the ruling class, and, as such, sweeps away by force the old conditions of production, then it will, along with these conditions, have swept away the conditions for the existence of class antagonisms and of classes generally, and will thereby have abolished its own supremacy as a class." (class warfare to gain power, in America we do not have static classes because of our republic and capitalistic economic system, the ideologues want to change this and in the process will create a society of massive suffering.)

Thanks to Chris Izenour for his help.

Monday, August 17, 2009

Socialism- a simple lesson

From Practical Economics


Socialism is the name used to describe most command economic systems. Other names include communism, progressivism, collectivism and central planning. In socialism, the society, or more accurately stated, those in power, own or regulate the means of production and distribution in a country.

Socialist economies have several common themes that are in line with the aforementioned components of any command economy. Understanding the key tenants of socialism will help to further delineate the operational aspects of using a command economy approach as a means of answering the fundamental economic issues faced by any society. Variations of a socialist approach have been utilized throughout history with the same negative outcomes. The reason that socialistic approaches continue to emerge, however, is because their apparent nature seems to be at face value a positive way to run an economy. The underlying premise that every member of the society will share equally in the fruit of its labor is a cornerstone of socialist thought. What does socialism offer that is so compelling to the general public?

· An equal share to all
· No profit motive or greed
· Equality of pay
· Full employment
· No fear of losses
· Universal social programs
· The seemingly free benefits of a welfare state

Looking at what is promised under socialism, it is no wonder people are dazzled by what it offers. It is understandable that all humans would want these things. People might even believe they are possible. After all, if they can be envisioned, why can’t they come to fruition? Sadly, however, utopian ideals are toppled by a world where humanity and scarcity come face to face. To ignore “what is” for the dream of “what could be” is a fatal miscalculation that has lead to disastrous results. In times of crises, citizens are susceptible to socialist economies as well as socialist governments. Economic downturns, depressions, wartime, real or imagined inequities are all reasons for an elite, or group of elites, to offer socialism as a cure all.

History has shown that humans are highly susceptible to the lure of the utopia that socialism offers. This is dangerous because it can and has been used to secure power by tyrants.The rhetoric of socialism and the euphemisms that are used must not be taken at face value as factual or even possible. One reason socialism gains approval is because it is an economic system that ignores many realities of the inherent make-up and behavioral patterns of humans. In fact, socialists truly believe that the nature of man is altruistic. However, just because someone believes something is true does not give it the legitimacy to override reality, history, fact and experience. Quite possibly the biggest flaw in socialist ideology is the assumption that man is good because man has done good deeds. What is forgotten is the possibility that man does or is good because of his self-interest.

Two appropriate ideas help to explain the lure of the command or socialist economies. Winston Churchill stated, “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.” While former President Richard Nixon opined that, “Capitalism works better than it sounds, while socialism sounds better than it works.”

The reality of socialism is that under a command approach there is less efficiency, less reliability and more directing people what to do. This all adds up to less freedom. As a result, long term suffering, increased death and a lower standard of living take place. The cost of socialism is inefficiency in moving scarce resources to their best use. Central planning The argument often heard is that we need the central planning found in socialist systems to maximize our complex and diverse society. Surely, humans would have to be better off if things were not left to chance and if intelligent humans were just given the power to best determine the economic needs of a society. After all, if we can put a man on the moon we should be able to plan the economy to provide for all. This worldview, although seemingly accurate, has no historical examples of effectiveness in guiding the scarcity question efficiently.

In his classic work, The Road to Serfdom, Nobel Prize winning economist, Frederick Hayek, discussed central planning and explained how the socialists have effective economic theory backwards.
One argument frequently heard is that the complexity of modern civilization creates new problems with which we cannot hope to deal effectively except by central authority . This argument is based on a complete misapprehension of the workings of competition. The very complexity of modern conditions makes competition the only method by which coordination of affairs can be adequately achieved.

There would be no difficultly about efficient control or planning were conditions so simple that a single person or board could effectively survey all the facts. But as the factors which have to be taken into account become numerous and complex, no one center can keep track of them. The constantly changing conditions of demand and supply of different commodities can never be fully known, or quickly enough disseminated by any one center.

While people will submit to suffering which may hit anyone, they will not so easily submit to suffering which is the result of the decision of authority. It may be bad to be a cog in an impersonal machine; but it is infinitely worse if we can no longer leave it, if we are tied to our place and to the superiors who have chosen for us. Once government has embarked upon planning for the sake of justice, it cannot refuse responsibility for anybody’s fate or position.

In a planned society we shall all know that we are better off than others, not because of circumstances which nobody controls, and which it is impossible to foresee with certainty, but because some authority wills it. And all our efforts directed toward improving our position will have to aim, not at foreseeing and preparing as well as we can for the circumstances over which we have no control, but influencing in our favor the authority which has all the power.

Although painted with the best of intentions, the inefficient actions of central planning does not make the reality any less harmful. In the end, central planning leads to a total breakdown of civility and sharing, the abuse of position, and the collective suffering of the masses due to elites commanding inefficiency and tyranny.

Intentional causation

Another flaw in the command approach to the scarcity question is that it views economic outcomes as a result of specific and intentional causes. In other words, a simple collective push here and a progressive pull there will create X or solve Y. The command frame of mind believes that specific and intentional policies will have pre-determined results. Because of this assumption, socialist leaders forge ahead with directives believing they control the results and can in fact micro-manage all economic activities like a switchboard operator. Unfortunately, a society made up of millions of humans making more millions of independent decisions based on personal desires undermines the theory of intentional causation. Thinking a group of experts can direct an economy ignores the systemic and dynamic nature of human interaction that Hayek so eloquently discussed.

Anyone who has ever undertaken a home improvement project can attest to the fact that what seemed so easy and straight forward was fraught with unexpected bumps and roadblocks followed by the frustration of unforeseen complications. Anyone who believes intentions will effortlessly create what one desires never tried to fix a leaky faucet. Applying intentional causation to the complexity of an economy is like attempting to shore up a breach in the Hoover Dam with a bucket and mop.

Intentions vs. consequences

Any look at the flaws of the command approach would not be complete without a discussion of the sincerity of the socialist worldview. If intentions were all that is necessary to determine if an economic policy is beneficial, the evaluation of the socialist mind would be golden. Goals, hopes and dreams, reasonable and idealistic as they seem to be, do not stand alone, however. Costs and consequences must always be factored into any choice being made in a world of scarce resources. This factor is ignored by socialists who are blinded by rose colored glasses and dreams of what might be. The fundamental flaw of a command approach is ignoring the reality of scarcity and human nature. With that said, however noble and sincere the socialists intention, ignorance to economic reality does not make the suffering of others less painful.

Thursday, August 13, 2009

Knowledge and healthcare

From Practical Economics

History and wisdom History is full of examples when knowledge was forced downward, upon the masses, by a command market approach. The associated calamities caused by such an economy are well documented by reading the history of the U.S.S.R, China, Cuba, Vietnam, Poland, and Mongolia just to name a few.

On the other hand, history has also defined the successful results of market economies where knowledge has flowed upward from the people. Unfortunately, even though history is full of guidance as to the success or failure of economic systems, many of the same economic mistakes continue to take place. Fortunately, it does not take a rocket scientist to evaluate and apply historical facts to current realities, but sadly, analyzing economies is something most people avoid. The bottom line as far as history goes is that knowledge by central planning is inefficient.

Unfortunately, many are still under the false impression that a command economy will work. Sure, the programs are given compassionate sounding names like Progressivism, New Deal, War on Poverty, Great Society, but calling socialism by another name by offering a tweak here or there will not make reality or the disastrous end results any different. To continue to reconstruct historically invalid economic models is Pollyannaish and has nothing to do with the material well-being of society. It does, however, have everything to do with the acquisition of power among men who care little for the people and much about their own personal gain.

The irony is that those who wish to command the economy will promote their agendas as the most compassionate and humanistic while at the same time be hard at work building temples of inefficiency, the cost is the suffering of the masses to a degree that is cruel, yet unfortunately, not unusual by historical standards.

Wednesday, August 12, 2009

Public healthcare insurance, some economic realities

From Practical Economics

Insurance as a form of investment serves an important part in maintaining efficiencies in the market. Unfortunately, insurance is not limited to the private sector where competition and fear of losses force insurers to act in effective, productive and efficient ways or go out of business. Public or government run insurance programs have a record of inefficiencies that is remarkable. This is due to the fact that the mechanisms of the market, most notably competition and the profit/loss motive, do not apply to public insurance programs. Without fear of losses and competition from rival companies, public insurance programs are doomed to be wasteful, ineffective and inefficient.

Public insurance is risk blind, meaning it takes on risks that otherwise would not be insured by private companies unless extremely high premiums are paid. This allows for inefficient decisions to be made. Public insurance also charges premiums that are far below what the market equilibrium would demand. This creates incentives for individuals to take risks (and assume more services) they otherwise would avoid with the government (taxpayers) picking up the tab. Public insurance allows people, that otherwise could not afford to take on the risk or pay market premiums, to build on the beach or in high fire risk areas. This is a recipe for inefficiency and a waste of scarce resources.

Another pitfall of government insurance, or the presumed safety net of government policy, is the concept of moral hazard, or when a person or group is sheltered from risk. Moral hazards create incentives where individuals act in ways contrary to the risks that would be taken if the costs were fully carried by the individual. As a result, moral hazards create market inefficiencies/failures. The private insurance sector can create moral hazards, but is less of a problem as premiums and incentives adjust in relation to the amount of reckless behavior taken by policy holders. In the public sector, however, no such constraints exist.

A good example would be the moral hazard created by semi-private Fannie Mae and Freddie Mac insuring sub prime mortgages. This created a situation where lenders offered mortgages to people who did not have the credit to take on high risk debt. They did so because they were sheltered from carrying the risk burden by the government. This moral hazard eventually created severe market failure in the credit and banking industries.

In short, the free market protects against moral hazard, while government sponsored enterprise fosters its creation. Protecting losses that are far too risky to insure in the first place is an inefficient use of capital. Examples of public insurance programs run by the federal government include: flood, mortgage, bank deposit, terrorist acts, war risk, children‘s health, unemployment, life, pension, dental, vision, and crop insurance. In addition, Medicaid, Medicare, and Social Security are also federal insurance programs. The shear number of public insurance agencies found under the government banner is inconsistent with the spirit of capitalism and the free market.

Thursday, August 6, 2009

Healthcare reform made easy

Let’s simplify the debate on healthcare reform with some practical economics.

Doctors, hospitals, and insurance companies provide a service, just like automobile salesman and car dealerships. Consumers freely decide what car they want to buy based on what they need and can afford.

Consumers freely choose the type of car, salesman, and dealer they choose to do business with based on personal needs. Competition, supply, and demand have created the highest quality, lowest cost autos for all consumers.

This has allowed even the “poor” to have the ability to afford and own a car. This has occurred because in America, a company that can't compete in the marketplace is allowed to go out of business.

This frees up resources so they can be more efficiently used by more productive businesses.

In short, the free market capitalism works when consumers have the freedom to choose which car and dealer they want to have serve them.

For years, the government has been in the business of healthcare, i.e. Medicare, Medicaid; and insurance, i.e. Social Security.

The result has been less competition, less supply, increased demand, higher costs, and staggering deficits.

In short, government run or regulated businesses have been inefficient, ineffective, and have severely harmed the economy at a significant cost of personal freedom.

And what has been the result?

Government never goes out of business no matter how inefficient they are, i.e. Fannie Mae, D.M.V., Postal Service, etc.

In fact, they have the audacity to say they need more power and control to fix the inefficiencies they caused in the healthcare and insurance industries in the first place!

The government, now in the automobile business, wants to take over the entire healthcare industry.

The result will be less freedom, less competition, increased demand, lower quality, higher costs, and massive debts that may bankrupt the nation.

In short, the government “solution” may cost you your life and will certainly cost you your freedom.

The solution is simple.

Government must get out of the healthcare and insurance business and allow consumers to freely choose and businesses to freely compete to provide services like healthcare, insurance, and automobiles.

Free market entrepreneurial capitalism works in providing for the most with the least.

It’s just that simple.

Wednesday, August 5, 2009

Market vs. command price systems and government run health care

From Practical Economics

The merits of a price system functioning within the free market are overwhelming in moving scarce resources to their most efficient use in a fair and equitable manner.

Market economic systems embrace the components of a price system to effortlessly move resources. Command economic systems ignore the components of a price system causing resource inefficiency. This is not to say that a command economy does not have prices, but that price is determined by decree and not supply and demand.

Because of this, a command economy has the problem of allocating the time, money, labor and capital necessary to meet the millions of diverse wants and needs of a population. In trying to do so, the command approach is faced with the staggering proposition of trying to digest literally millions if not billions of pieces of information that changes every second to determine prices.

History has shown the disastrous results of fallible men trying to indeed figure out the dynamic needs of the people through a command approach to prices. The miracle of the market framework is that the same complex situation is quickly and easily solved by a free exchange price system without fanfare or warfare.