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Friday, July 31, 2009

The Dow/Gold ratio

Tuesday, July 28, 2009

It's time to start criticizing Obama

Criticize AND oppose!
It is time to start criticizing President Obama the way most of us criticized George W. Bush. There is hardly any difference between the two on foreign and security policy except that the thoughtful and articulate Obama’s high-minded but empty rhetoric appears to be more reasonable and moderate than the bellicosity of his tongue-tied predecessor. It probably was a mistake to think that he would behave any differently than George Bush after obtaining office as the difference between liberal interventionism and the conservative variety is really just a matter of approach. Do not expect the antiwar democrats to surface any time soon. They have been seduced by the trappings of power. Don’t wait around for any marches for peace. It might well be the task of the libertarian and paleo-right to take the lead once again and revive the discussion about the critical issues relating to war, peace, and national security.
-- from "Obama’s Free Lunch Is Over" by Philip Giraldi

Monday, July 27, 2009

Bad loans, government, and moral hazard

No economy can be made productive and efficient by people (through their government) buying up the bad loans that banks made during a boom. That encourages these and other banks to make more bad loans in the future and rewards them for having made bad loans in the past.
-- from "23.7 Trillion Reasons To Buy Gold" by Michael S. Rozeff

Saturday, July 25, 2009

A new economic bust is coming!

Most experts are of the view that the worst of the US recession may be over by year's end. Common opinion holds that the key reason for the expected turnaround is the positive effect that the policies of the government and Fed have on various economic indicators. The pace of monetary pumping by the US central bank jumped from 4% in September 2007 to 152% by December 2008. With respect to fiscal stimulus, aggressive government spending has resulted in a record deficit of over one trillion dollars in the first nine months of fiscal year 2009. Careful examination shows that, rather than protecting the economy, it is loose monetary policies that are the key source of boom-bust economic cycles. Loose Fed and government fiscal policies have only weakened the wealth generators' ability to grow the economy. Aggressive policies have inflicted severe damage to the sources of funding that support real economic growth. Hence, we are doubtful that the US economy is on the verge of a solid economic recovery. On account of massive monetary pumping, the growth in momentum of various key economic data is likely to strengthen in the months ahead. We maintain this may prompt Fed policy makers to consider curtailing the pace of monetary pumping, and we suggest that this will set in motion a new economic bust.
-- from "Is the US Economy Close to Hitting Bottom?" by Frank Shostak

Why recessions are recurrent

The reason for this is that the central bank's ongoing policies are aimed at fixing the unintended consequences arising from its earlier attempts to stabilize the economy — or rather, what it believes to be the measure of the economy: the GDP. On account of the time lag between changes in money supply to changes in GDP, the central bank is forced to respond to the effects of its own previous monetary policies. These responses to the effects of past policies give rise to fluctuations in the rate of growth of the money supply and, in turn, lead to recurrent boom-bust cycles.
-- from "Is the US Economy Close to Hitting Bottom?" by Frank Shostak

Every intervention is designed to cure the ill effects of previous interventions and creates undesirable side effects of its own, leading to additional interventions, which are designed to cure . . . .

There are earnings and then there are earnings

“The broad stock market,” writes Dan Amoss, “doesn’t see a difference between earnings achieved by cost cutting and earnings achieved by sales growth -- especially in the consumer discretionary sector. Earnings achieved by cost cutting tend to be one-time in nature. These do not deserve higher multiples. The latter -- earnings driven by sales growth -- certainly merits higher multiples. We have seen very little of this, outside of unique companies like Apple.

“This is very important to keep in mind, because the rally in the market since the March lows is entirely driven by expansion in price-to-earnings multiples, not growth in earnings.
-- from "Recession Forecasts, 8 Signs for When The Worst is Over, The Booming Loonie and More!" by Addison Wiggin and Ian Mathias

Eight signs for when the worst is behind us

“We are looking for eight signs before we get bullish again,” added Eric Roseman in his presentation:

1) Unemployment must stabilize
2) Home prices must stabilize
3) Domestic consumption must rise
4) Bank lending must grow
5) Toxic assets and bank balance sheets must be fixed
6) Auto sales must stabilize
7) Credit spreads must narrow
8) The dollar has to decline

“Only the last two have occurred. That gives us a very bearish outlook going forward.”
-- from "Recession Forecasts, 8 Signs for When The Worst is Over, The Booming Loonie and More!" by Addison Wiggin and Ian Mathias

This contraction is far from over

[D]espite the warm feelings and “green shoots” of summer, this contraction is far from over.

“I think this is really serious, and it’s just beginning,” Doug Casey said during his presentation yesterday. “Forget about the green shoots. They are weeds. This is the biggest thing since the Industrial Revolution. Stocks will be a good value when dividend yields are around 10%.

“Real estate? Way too early. Bonds? The bond market is much bigger than the stock market. Interest rates are being artificially depressed. They have to go back up to higher levels to encourage people to save and get out of debt. When interest rates assert themselves, the bond market will collapse, which isn’t good for the stock market, or real estate, either.”

So what’s Doug doing? Going long precious metals, shorting U.S. Treasuries and buying real estate in Thailand and Argentina.
-- from "Recession Forecasts, 8 Signs for When The Worst is Over, The Booming Loonie and More!" by Addison Wiggin and Ian Mathias

Friday, July 24, 2009

Coming soon to a western nation near you: demographic decline

". . . Britain, Spain, France, Germany, Italy, the US, and Japan are in varying states of fiscal ruin, and those tipping into demographic decline (unlike young Ireland) have an underlying cancer that is even more deadly. The West cannot support its gold-plated state structures from an aging workforce and depleted tax base.”
-- from The Telegraph in London as quoted by Bill Bonner

The solution to too much stimulus? More stimulus!

After a half a century of stimulus – with credit, inflation and the money supply growing faster and faster – the Fed put the pedal to the metal following the nano-recession of 2001. It dropped interest rates to just 1% – well below the rate of consumer price inflation – and kept them there until an expansion had been going on for three years.

Stimulus stimulates. By 2007, the world economy was taking curves far too fast. As we guessed, the stimulus didn’t stimulate nearly as well as the meddlers had hoped. Instead of increasing real output in the US, it lured Americans to spend and speculate…and drove Chinese entrepreneurs to put up new factories in order to give them something to buy. In America, debt grew 5 times faster than GDP; for each dollar of extra income, Americans added $5.50 to their debt. In China, manufacturing capacity grew faster than ever.

Whole industrial cities, the size of New York or Chicago, were added to the map – in a matter of just a few months.

Now the world has too many factories…and too many consumers with no money to consume with.

You’ve heard us tell this tale many times. You’d probably like us to get on with it…and tell you how it turns out. Instead, we keep looking back.

“Bubbles had been localized in the past,” Marc explained. “A bubble in one area drew investment from another area. In one market, prices soared. In another they slumped. Overall, things didn’t change much.”

But a worldwide bubble in everything is something new. And it caused something else that is new – a worldwide crash. We have been ducking explosions and stepping over the debris for the last two years.

One of the biggest and most obvious consequences of this worldwide bubble is unemployment. Even Ben Bernanke says that joblessness could be a problem for years. What to do about it? More stimulus!

“The (Fed) believes that a highly accommodative stance of monetary policy will be appropriate for an extended period,” he said on Tuesday.

Will this new stimulus succeed? Will the depression end soon?

‘No’ is the right answer. Instead, it must run its course. It must eliminate plus capacity and reduce excess debt. Until that is done, the job picture will get worse, not better.
-- from "A Worldwide Bubble in Everything" by Bill Bonner

This is not a recession, it's a depression!

07/23/09 Vancouver, British Columbia

The depression deepens.

“These are not layoffs…they’re permanent job losses,” said Barry Ritholtz yesterday morning in his presentation at the Agora Financial Investment Symposium in Vancouver. “These people are not going back to work anytime soon.”

That is the difference between a recession and a depression. In a recession people get laid off…and then they are called back to work when things go back to normal. But in a depression, they are let go permanently. They exhaust their unemployment benefits and become desperate. They must find new employment in new industries. Because things cannot go back to normal; normal is played out.

“In the period, 2001 -2007,” our old friend Mark Faber reminded us in his speech on Tuesday, “the Fed managed to do something that had never before been done – create a worldwide bubble in just about everything. Stocks, bonds, art, oil, housing – you name it; it went up. The only thing that didn’t go up was the dollar.”

How did the Fed pull off such a remarkable achievement?

-- from "A Worldwide Bubble in Everything" by Bill Bonner

Earnings go over a cliff!

Thursday, July 23, 2009

Jim Rogers: pursue your passion!

[P]eople who love what they do are normally successful people. It doesn’t matter what you love. If you want to be a gardener, and your parents say no you’ve got to be a lawyer, or a doctor or an accountant, you should really go be a gardener because that is what you are going to love.

People may laugh at you but you love it so much, you’ll never go to work. You wake up every day and you can hardly wait to have fun. You are going to be much more successful at it. Some day you are going to be the gardener at Buckingham Palace, some day you are going to be the gardener for Hyde Park, some day you are going to have a chain of gardening shops all over the world, and be listed on the Mumbai Stock Exchange or the New York Stock Exchange. And you will be extremely rich and really successful, and even if you are not terribly rich and successful you are going to be a lot better off than all those guys who are lawyers who hate being lawyers and are doing it because they have to make money because their parents said become a lawyer, or their wives said we need the money. No, pursue your own passion. And that is where you will be successful.
-- from "Jim Rogers' success mantra: Invest where demand is low"

Jim Rogers on the next bubble

[R]ight now everybody seems to be convinced that government bonds are going to go through the roof and that government bonds are a safe investment. Everybody seems to be convinced that there is deflation in the world. Long-term government bonds are yielding nothing.

Q: The perceived safety?

A: They perceive safety and they perceive – you don’t have to worry about inflation, deflation is here. So, you can buy long-term government bonds. In my view that is one of the next great bubbles, which is developing. I am not short bonds at the moment. I have them but I cover. That is a huge bubble. Apparently if you look at the market, most people don’t think inflation is coming – if government bond yields are any indication – nobody thinks that inflation would ever come back. So, I am afraid, I think that that is probably the next bubble developing.
--from "Jim Rogers' success mantra: Invest where demand is low"

Wednesday, July 22, 2009

"Universal" healthcare

Do the proponents of universal healthcare plan on covering the citizens of the USA's colonies? For example, if the USA moves to universal healthcare, will the citizens of Iraq, one of the USA's many colonies, be covered by this universal healthcare plan?

Given that the USA has invaded and occupied Iraq, unprovoked actions that have resulted in the destruction of Iraqi lives, limbs, and lucre, who is more deserving of being covered by a USA universal healthcare plan than the Iraqis?

Healthcare fundamentalism

Progressives and liberals often regard libertarians as "market fundamentalists" because libertarians support free markets (aka markets free from coercion or coercion-free markets) and are opposed to most if not all government intervention in markets, including the market for healthcare.

Libertarians could just as well regard progressives and liberals as "government fundamentalists" because progressives and liberals support government intervention in markets, including the market for healthcare.

It often seems that the liberal and progressive solution to every problem is more government intervention, just as it often seems that the libertarian solution to every problem is the free market.

We need to move beyond this name-calling and examine the case for free markets and the case for government intervention on their merits.

The present U. S. healthcare system/market is a failure. It comprises some free-market elements, but many, many government interventions as well. We need to ask, is the failure of the present system/market due to its free-market elements or to the government interventions? It's important to get the answer to this question right. If the failure is due to the government interventions, how could additional government intervention (e.g., single-payer or universal healthcare) be the solution? On the other hand, if the failure is due to the free-market elements, how could the removal of most if not all of the government interventions and the return to the free market be the solution?

I think readers of this blog know where I stand.

The only solution to the healthcare crisis

There is but one solution to the health care crisis — the free market, which would entail a complete separation of health care and the state, in the same way that our ancestors separated church and state. That would mean the repeal, not a reform, of Medicare, Medicaid, regulation, and occupational licensure and an end to the income taxation needed to pay for all this.
-- from "A Free Market in Health Care Is the Only Solution" by Jacob G. Hornberger

The last thing we need is a healthcare "system"

After my recent posting, "Should healthcare be a 'system'?, I went back into my old emails and dug out this one, which I sent to my state legislators in January, 2006:
What Vermont needs is a healthcare market. The last thing it needs is a government-run and/or government-financed plan or system. No group of bureaucrats has access to enough information to successfully plan a healthcare system.

Vermonters do not need a healthcare system that is imposed on them by government. What Vermonters need is a healthcare market that emerges from individual consumers being free to choose to do business with the providers they prefer and to withhold their patronage from the providers they do not prefer.

Many if not most of the problems related to healthcare today can be traced to previous government interventions, including the tax treatment of employer-provided health insurance. The solution to today's healthcare problems does not lie in increasing government intervention in healthcare. The solution lies in undoing all previous government interventions, most if not all of which have failed.

Vermonters who feel strongly that a government-controlled, government-financed healthcare system is the solution to today's healthcare problems should ask themselves why is it that our government-controlled, government-financed educational system is such a failure. If bureaucrats can't plan and run a high-quality, cost-effective education system, why should Vermonters believe they can plan and run a high-quality, cost-effective healthcare system?


Mark Tele

PS For a description of the differences between a planned system and an emergent ("spontaneous") order, see "A Marvel of Cooperation: How Order Emerges without a Conscious Planner" and "The Reality of Markets", both by Russ Roberts, professor of economics at George Mason University.

The distinction between a planned order and an emergent or spontaneous order can also be seen in this excerpt from the biography of economist Friedrich Hayek from the online "Library of Economics and Liberty":
The major problem for any economy, [Friedrich Hayek] argued, is how people's actions are coordinated. He noticed, as Adam Smith had, that the price system—free markets—did a remarkable job of coordinating people's actions, even though that coordination was not part of anyone's intent. The market, said Hayek, was a spontaneous order. By spontaneous, Hayek meant unplanned—the market was not designed by anyone but evolved slowly as the result of human actions . . . .

In the late thirties and early forties Hayek turned to the debate about whether socialist planning could work. He argued that it could not. The reason socialist economists thought central planning could work, argued Hayek, was that they thought planners could take the given economic data and allocate resources accordingly. But Hayek pointed out that the data are not "given." The data do not exist, and cannot exist, in any one mind or small number of minds. Rather, each individual has knowledge about particular resources and potential opportunities for using these resources that a central planner can never have. The virtue of the free market, argued Hayek, is that it gives the maximum latitude for people to use information that only they have. In short, the market process generates the data. Without markets, data are almost nonexistent.
One of my state legislators responded, as follows:
Thanks, Mark. I'm sure that you must have looked at the State of Texas--they have one of the largest numbers of insurers in the country and among the highest (I think the highest) number of uninsured in the country. the free market works until there's no profit. the real advantage of a single payer (it could be blue cross or any other non profit) is decrease in administrative costs, incentives for wellness, and information technology improvement. that won't happen with many separate companies competing against each other for the profitable pieces of the market. I'm still listening. [Name withheld]
To which I replied, as follows:
I'm not familiar with the particulars of healthcare in Texas. However, since the government has intervened in the healthcare marketplace time after time, we know for certain that a free market in healthcare does not exist in Texas (nor does a free market in healthcare exist in any other state, including Vermont). If a free market in healthcare doesn't exist, how can we blame the number of uninsured on free markets?

As economists Gene Callahan and Robert Murphy write, "It is true that under current arrangements, the health-care situation of those who are not insured at work but who do not qualify for Medicare or Medicaid is quite difficult. Those with less wealth have more difficulty acquiring any good or service than those with more. But their particularly dire circumstances with regard to health care are almost entirely due to previous government interventions. The government-backed AMA severely restricts the supply of physicians and thus drives up the cost of doctors’ services. The special tax status granted to employers’ expenses for insurance further increases prices, as do Medicare and Medicaid subsidies".

Previous government interventions have caused most--if not all--of the problems we have with healthcare. We now have a choice between (a) piling new government interventions on top of the old, causing even more problems, or (b) undoing the old interventions and returning healthcare to the market. For instance, if we eliminated the tax treatment of employer-provided health insurance, there would be no incentive for employers to include health insurance in compensation packages. Employers could and would pay more of the compensation package in the form of cash with which employees would buy their own health insurance. A desirable side effect of this would be that individuals who find themselves between jobs would not be without health insurance and the ranks of the uninsured would shrink dramatically.

The preferential tax treatment of employer-provided health insurance dates back to WW II--over 60 years ago! It is a government intervention that itself was designed to compensate for an even earlier government intervention: wartime wage controls. It is unfortunate that the government didn't just eliminate the wage controls instead of piling on yet another intervention. How many families in the last 60-plus years have suffered financial ruin because a family member became ill or injured when the family breadwinner was between jobs and thus without insurance?

It's possible that a single-payer system would lead to a reduction in administrative costs (although I have my doubts!), but I don't think that's the correct (or most important) metric by which to measure a healthcare system or a healthcare market.

In a free market, insurers would be free to charge according to risk, which would provide strong incentives for individuals to focus on wellness. For example, in a free market, insurers could (and most likely would) charge higher rates for overweight individuals, who would then have a strong financial incentive to lose weight.

Information Technology ("IT") ought to be attractive to both insurers and providers because IT ought to help both of them reduce costs. In the industry in which I work, there is a very large number of companies competing with each other and they all have made, and continue to make, very large investments in IT to improve profits by reducing other costs. (I say "other costs" because profit is itself a cost--it is the cost of capital.) I don't understand why the situation is, or would be, different in the healthcare industry. The existence of companies like IDX suggests that at least some providers and/or insurers recognize the value of IT and are willing to pay for it.

Single payer will require rationing. Otherwise, when healthcare is "free", demand will increase markedly and quickly outstrip supply. Government is going to have to determine who is going to get what healthcare products and services and under what circumstances--and who is not going to get them. In short, Government is going to have to come up with a plan for matching demand with supply. Suppose that in order to reduce the level of demand to meet supply, that plan involves ignoring your need (demand) or mine for a certain medical product or service?

Government planning of the economy has never worked in the past. What reason is there for us to believe that government planning of a healthcare system will be any different?

I think the clamor for a single-payer system is being done with the best of intentions. But intentions don't count; results do. Single payer is not the magic bullet its supporters believe it to be. If it is adopted in Vermont, Vermont and Vermonters will suffer dearly. And we won't be able to laugh the next time P.J. O'Rourke crosses the Connecticut to quip, "If you think health care is expensive now, wait until you see what it costs when it's free."

Well, my coffee cup is empty so my break must be over!

Best regards,


Healthcare and education

It's curious to me that the two markets that government has interfered with the most--healthcare and education--are the two markets that most people complain about the most!

Government has enough trouble trying to run the schools. Why does anyone think that government can run a healthcare system?

The problem with the healthcare market in the US is not that there is too little government involvement. The problem is that there is too much government involvement.

We should admit the obvious--that government intervention in healthcare has been an abysmal failure--and return healthcare to the market, where it belongs. The solution to a long string of mistakes is not an even bigger mistake.

We've seen the problems that have come from government attempts to establish One Big School System. Why do we expect anything different when government attempts to establish One Big Healthcare System?

Should healthcare be a "system"?

We hear lots of chatter about reforming the health care system, but I think using the word system plays into the hands of statists and planners (men of the system in the words of the great one) by giving the impression that the provision of health care services is something that can be directed via central planning. We don't speak of the grocery system or the clothing system, so why refer to health care as a system?
-- from "Terminology, Part 2" by E. Frank Stephenson. HT: Don Boudreaux.

Here's my comment, which I posted at Cafe Hayek:
And always beware of politicians talking about their healthcare "plans", because their plans are guaranteed to be at odds with the plans you have for your life!

Bottom line: whenever you hear politicians mention "system" or "plan", hold on to your wallet and run for your life!

Tuesday, July 21, 2009

Peak gold!

“The first thing to understand,” writes Mr. Byron King, “as an old geology professor at Harvard once told me, is that ‘gold is where you find it.’ And the second thing to understand is that no matter where you look, gold is hard to find -- and getting harder.

“In the past decade, gold-related exploration efforts and expenditures have increased dramatically. I’ve seen numbers adding up to tens of billions of dollars poured by mining companies into gold exploration.

“But despite the best efforts of the global mining industry, world gold production has DECREASED since early in this decade. Take a look at the chart below, depicting world gold production 1850-2008.

“I love this chart. I could spend all day discussing it. For example, look at the very steep rise in gold output during the 1930s. That was during the depths of the worldwide Great Depression. In both the U.S./Canada (blue area), and the rest of the world (gray area), people were digging more and more gold. The Soviets (purple area) increased their gold output too, courtesy of Joseph Stalin and his Gulag. Desperate times call for desperate measures, I suppose. Will that sort of history repeat this time around?”
-- from "China’s Bubble Warning, New Home Paradox, Gold Production Sea Change, Vancouver Updates and More!" by Addison Wiggin and Ian Mathias

Forty years of housing starts

Buy mining companies that operate where political risk is low

“Around the world, miners are finding out that a mine is only worth something if you can keep it,” warns Chris Mayer. “And mining companies are finding it tougher to keep them as governments seize them or rewrite deals.

“Rio Tinto, for example, was knee-deep in a $6 billion iron ore project in Guinea. The government just stripped it of 50% of the mine. Guinea said Rio Tinto was moving too slowly.

“The problem is that as commodity prices have crashed, companies have cut back and slowed down new projects. But governments in these developing countries, which granted the rights to mine in their countries, were banking on getting all kinds of royalties and taxes. Plus, governments don’t want to see job losses, which in a lot of these countries could be seeds for unrest.

“China, for instance, is threatening to revoke a coal license from ArcelorMittal after the company warned it would cut jobs. In South Africa, the largest trade union wants the government to nationalize all the mines. In Zimbabwe, in Zambia and other countries, miners face all kinds of political threats.

“In short, political risks are on the rise. It’s fallout from the economic bust. Times are tight everywhere, but only governments don’t cut back. They just figure out new ways to grab money. So for now, focus on valuable resource companies in safer jurisdictions.”
-- from "Banks on the Mend? Biotech Safe Haven, CA’s Budget Crisis, DIY Funerals and More!" by Addison Wiggin and Ian Mathias

Buy natural gas low now, sell it higher later

Nobody wanted stocks when the Dow was struggling at 6500 but those same people are now testing the waters 2000 points higher.

So what am I looking at now?

Well, as a commodity guy and the editor of Resource Trader Alert I’m always looking for the best moves in hard assets.

A neglected sector that has gotten my attention is natural gas. The last few months have shown resurgence in crude with the global economy stabilizing and demand picking up. Overall crude itself has more than doubled from the lows with nat. gas lagging far behind.

For me the risk on nat gas is on the upside…in other words, I don’t want to risk missing a big upturn. Prices have already fallen from $12 down to under $4 – which is a $40,000 move per futures contract. For my taste the upside potential far outweighs the chance of the downtrend continuing much lower. Gas cannot go to zero, it will always have some value, and many fundamentals can change the present landscape of low, low prices.

Thankfully very few “Sheeple” are grazing on the green green grass from natural gas demand. Significant supplies are used to produce the fertilizer necessary to feed the world. The Potash to increase crop yields has been a big mover the past few years with low grain carryover forcing farmers to get every kernel or pod out of the ground possible. Nat gas also provides much of the electricity to cool our cities in the hot dog days of summer.

The hurricane season is always a wild card that can add risk premium to prices. Any weather disruption can spark an explosion in prices. Katrina and Rita sent prices to all time highs just a few short years ago. You don’t go shopping for an umbrella after the rain starts.

Think of your reaction to possible oil plays back in February when no bottom was in sight. Being ahead of the energy curve is the place I want to be. When things don’t develop as planned the losses at lower levels are manageable and probability is on our side that eventually prices will move up.
-- from "How to Become a Better Investor" by Alan Knuckman

Bill Bonner peers into the future

Two years…or even one year…ago, we could look ahead and see what was coming with a fair measure of confidence. There was clearly a bubble in housing and the financial sector. Surely it would pop.

Now, we look through the glass darkly…

The bubble has popped. The government as responded as we thought it would. The markets have bounced, as we thought they would.

But now what? We’re waiting for the next leg down. If we’re right…stocks will fall hard as investors realize that there will be no quick recovery.

And then… our visibility is poor… but the feds are bound to come back with Stimulus II. It will probably involve quicker-acting tax cuts. And it will probably cause more jitters in the bond market…and eventually, rising inflation levels.

When? How much? Hard to say…
-- from "An Intelligence Test for Bankers" by Bill Bonner

Chris Leithner on John Maynard Keynes

Keynes was influential not because he made any sense, but because he told politicians precisely what they wanted to hear: namely, that they were a sine qua non of stability and prosperity. The fact that they are nothing of the sort – that in fact they invariably foment volatility and costly mishaps – seems to trouble very few people. Keynes anointed politicians as benefactors of consumption and as guardians of employment; he clothed their armed robbery in the garb of civic virtue; and above all he commanded them to do what the typical politician always strives to do – spend, spend and spend, which means expropriate, confiscate and steal.
--from "Poindexter: Philosophical Mediocrity, Economic Illiterate and Evil Political Genius" by Chris Leithner

Monday, July 20, 2009

Sheldon Richman: the fatal conceit of health-care reformers

It’s easy to get distracted by the details and crushing cost estimates of “health-care reform” while losing sight of the key question: Can a handful of congressmen, most of whom probably have never even run a small business, design an entire market for medical services and insurance?

A few moments’ thought should be enough to see is the answer. Markets are unbelievably complex, and the details are beyond the grasp any individual. They consist of hundreds of millions of people making countless judgment calls, tradeoffs, and transactions with respect to a huge array of services and products. Each person makes these choices within his personal situation, which no one can know as well as that particular person can. Providers of medical services, insurance, and products undertake those activities after calculating that such work is their best opportunity for income and other forms of satisfaction.

Given this complexity, only someone lusting for power or incredibly conceited would presume to design a market. An appalling ignorance of economics is also a prerequisite for such a conceit.

As a way to coordinate supply and demand, economize resources, and create wealth, markets are simply unmatched. They do so well precisely because they use the critical knowledge scattered among all the participants. This is one reason central planning never works. No planning board could possibly know what everyone put together knows. Individuals contribute their partial knowledge to the market process through their decisions about what to buy, how much to buy, and what not to buy. Those decisions, based on subjective often unarticulated information, send signals through the price system, guiding entrepreneurs who buy resources and turn them into usable products and services according to consumer demand.

The process constantly rewards those who serve consumers well and penalizes those who don’t. That is the economic function of profit and loss.

When politicians arrogantly attempt to design a market — specifying services, setting terms, controlling prices — they undermine precisely those features that make markets perform effectively. Planning a market is a contradiction in terms. When it’s the medical market that’s being designed, the politicians are playing with people’s lives. The philosopher and economist F.A. Hayek called the belief that institutions such as markets can be consciously planned “the fatal conceit.” In the case of the medical market, the term is highly appropriate because those who vote to overhaul the medical industry rather than let the market work spontaneously will be responsible for the death and suffering of a great many people.
--from "The Fatal Conceit of Health-Care Reformers" by Sheldon Richman

Also see "Healthcare Arrogance" by Sheldon Richman

Peter Singer: Why We Must Ration Health Care

Readers who are interested in the healthcare debate might find Peter Singer's "Why We Must Ration Health Care " provocative and/or interesting.

Atlas shrugged, then he commented on Russ Roberts' healthcare post

In a previous post, I re-posted a column by GMU economist Russ Roberts, along with my comments.

There are a lot of other comments to Russ Roberts' post. Here's one by Michael Smith that could have been written by John Galt (protagonist of Ayn Rand's "Atlas Shrugged"):
I submit that there is, fundamentally, only one proper way to analyze any proposed government action -- and that is by asking: What does this government action do to the individual rights to life, liberty, property and the pursuit of happiness of all those the proposed action affects? Does it protect them -- or violate them?

In the case of this "health care reform", it is clear that what is being proposed is simply the mass-stealing of vast additional wealth from those who’ve produced it and earned it -- and to whom it thus rightfully belongs -- for purposes of bribing a sufficient number of Americans into acquiescing in the government takeover of a huge portion of our economy. The whole plan is nothing more than a vast power grab to be financed by looting a group that has no defenders in today‘s culture: the “wealthy“. As such, the entire program is a massive, egregious violation of individual rights and is thus both immoral and impractical.

The right to life does not mean the right to remain alive at someone else’s expense. It means the right to remain alive at your own expense, by means of your own honest effort, by either producing what you need or trading your labor for a wage from someone else who is engaged in production. The right to life means that no one can take your life from you by physical force -- either by killing your or by interfering with your own productive effort to sustain your life.

There is no such thing as a right to healthcare -- or to any other good or service produced by human labor -- because there is no such thing as a right to any portion of another man’s life, be it his time, his labor or the fruits of his labor, i.e. his property. In short, no one can claim a right to have others forced to labor involuntarily to provide for his healthcare, his food, the clothes on his back or any other material good or service he needs. No amount of “need” on the part of one man gives him the right to demand any amount of slavery on the part of others to satisfy those “needs”.

And no amount of alleged “good” to be achieved can justify the violation of any individual’s rights. The end does not justify the means. When a man takes your property by force, he violates your rights and commits an utterly immoral act. It does not matter what he proposes to do with the proceeds of his robbery -- it is still a robbery and it is still a violation of your rights.

Man is not “his brother’s keeper” as Obama keeps insisting -- because nothing on earth justifies the notion some must sacrifice while others collect the sacrifice -- that some must surrender what they’ve earned so that others may be given the unearned -- that some get to eat, while others get eaten. No one has ever justified this notion -- and no one can.

The animating idea behind he creation of the United States was this:

That all men are created equal -- that there are no “brothers” that can claim any sort of superior status entitling them to be “kept” -- and that all men are an end in themselves, with each possessing the same inalienable right to the pursuit of their own happiness, by means of their own honest effort -- with none having the right to force others to sacrifice for their benefit and none being forced to sacrifice for the sake of others -- and with the purpose of government limited to “securing these rights“.

But now here comes Obama and his fellow power-lusting looters in Congress, determined to complete the destruction of America by reversing her animating idea and transforming us into a collection of rightless creatures whose lives and property belong, not to us by right, but to the government, who may seize whatever they wish to address whatever “needs” they deem to exist anywhere in society.

Somehow we must convince Americans that if they value their lives and their freedom, they must learn to assert their right to exist for their own sake -- they must refuse to accept the notion that they are merely sacrificial animals to be looted at government's whim -- they must take a moral stand and tell Obama and his ilk, “NO Obama, my life and the fruits of my labor belong to ME, not to YOU, not to the government, and not to any stray, mooching, incompetent, shiftless ‘brother’ who seeks to exist at my expense”.

Posted by: Michael Smith | Jul 16, 2009 2:18:30 PM

Russ Roberts on healthcare reform

Here's a post by GMU economist Russ Roberts:
According to the Drudge Report, here is the Republicans' chart that describes the new proposed US health care system will work:

It's pretty horrific. Of course neither party wants you to see what the current system looks like. Also horrific. I do think the proposed reform is worse. But let's not pretend that the current system isn't a Kafka-esque bureacracy akin to the picture.
Here's the comment I posted:
It's pretty complicated, isn't it? But not so complicated that it can't be diagrammed. In contrast, coercion-free healthcare--i.e., a healthcare market that would evolve from the choices and actions of 300-plus million Americans under the price system--can't be diagrammed. Not only would it be infinitely more complicated than government healthcare, it would evolve dynamically as supply, demand, and prices changed. Even if one could draw a diagram of coercion-free healthcare at any given moment in time, as soon as the diagram was finished it would be out of date: the coercion-free market would have moved on!

Adjusting the government's plan would require an Act of Congress! :-) :-) In contrast, adjustments in the unhampered, coercion-free market would take place automatically and continuously, as citizens voluntarily modified their behavior in response to changing price signals.

New Poll Shows Reality Dawning

ABC news provides a helpful round up of the latest national poll on national politics . . . that shows a continued fall in approval ratings for the Obama administration, in nearly every area of domestic policy. These polls could make it more difficult for Obama and Congress to impose health-care socialism, so that's something to celebrate; it is also striking that opposition to another stimulus package has grown to two thirds. After three failed stimulus attempts, could it be that people are figuring out the scam here?
-- from "New Poll Shows Reality Dawning" by Jeffrey Tucker

The President's job is to keep us free, not safe

President Bush argued frequently and forcefully that his first job was to keep us safe. He was wrong. The Constitution tells us that his sole job was to enforce the Constitution; and that means keeping us free. Free from tyrants who sought and claimed power from thin air; free from prince-like federal agents who could behave without constitutional or legal restraint; free to live with a government that obeyed its own laws. Any president who keeps us safe but unfree is rejecting his oath to the American people.
-- from "Liberty and Safety" by Andrew P. Napolitano

Friday, July 17, 2009

Why Obamacare can't work

The logical tendency of Obama's insurance reforms, despite his explicit denial, will be an inexorable movement towards a single-payer system as his reforms will not control costs or utilization, and the only alternative left will be to enhance the control of the plan via explicit rationing, by a bureaucrat, of the care delivered. The central authority must then decide which health services are provided and which denied, who should receive them and who should not, when they should be given, all in addition to its current function of attempting to determine prices. Such a centralized system must logically retrograde into chaos because pricing signals to patients, doctors, and hospitals will be so distorted that they cannot guide resource allocation.

Obama concludes his speech by stating,
we're a nation that cares for its citizens. We look out for one another. That's what makes us the United States of America. We need to get this done.
Besides the obvious demagoguery to justify accelerating further control of healthcare by the federal government, we should ask ourselves how we have devolved from a collection of independent states founded by a war of secession from a central government power into one nation with a powerful central state. The justification for independence from the rule of King George III that these states gave was based on the doctrine of natural human rights,
that all men are created equally free & independent, & have certain inherent natural Rights, of which they cannot, by any Compact, deprive or divest their posterity; among which are the Enjoyment of Life & Liberty, with the Means of acquiring & possessing property, & pursuing & obtaining Happiness & Safety.
These words are from the original draft written by George Mason for the Virginia Declaration of Rights. Nowhere in this document or in successive drafts by Mason and Thomas Jefferson do we read words that could lead the reader to conclude that the federal government ought to care for its citizens or that we ought to look out for one another or that a central government ought to violate our individual natural rights to freedom, independence, and property to achieve the absurdity of mandatory equal access, equal price, equal quantity, and equal quality of health care for all.
-- from "Why Obamacare Can't Work: The Calculation Argument" by Gabriel E. Vidal

The wild ride of the Chinese stock market

The scientific consensus on global warming takes a big hit

[A] remarkable drama has been unfolding in Australia, where the new Labor government has belatedly joined the "consensus" bandwagon by introducing a bill for an emissions-curbing "cap and trade" scheme, which would devastate Australia's economy, it being 80 per cent dependent on coal. The bill still has to pass the Senate, which is so precisely divided that the decisive vote next month may be cast by an independent Senator, Stephen Fielding. So crucial is his vote that the climate change minister, Penny Wong, agreed to see him with his four advisers, all leading Australian scientists.

Fielding put to the minister three questions. How, since temperatures have been dropping, can CO2 be blamed for them rising? What, if CO2 was the cause of recent warming, was the cause of temperatures rising higher in the past? Why, since the official computer models have been proved wrong, should we rely on them for future projections?

The written answers produced by the minister's own scientific advisers proved so woolly and full of elementary errors that Fielding's team have now published a 50-page, fully-referenced "Due Diligence'' paper tearing them apart. In light of the inadequacy of the Government's reply, the Senator has announced that he will be voting against the bill.

The wider significance of this episode is that it is the first time a Western government has allowed itself to be drawn into debating the science behind the global warming scare with expert scientists representing the "counter consensus" – and the "consensus" lost hands down.
-- from "Climate change: The sun and the oceans do not lie" by Christopher Booker

Pat Buchanan looks at the decline of America

Taxes drove the American Revolution, for we were a taxaphobic, liberty-loving people. That government is best that governs least is an Americanism. When "Silent Cal" Coolidge went home in 1929, the U.S. government was spending 3 percent of gross domestic product.

And today? Obama's first budget will consume 28 percent of the entire GDP; state and local governments another 15 percent. While there is some overlap, in 2009, government will consume 40 percent of GDP, approaching the peak of World War II.

The deficit for 2009 is $1.8 trillion, 13 percent of the whole economy. Obama is pushing a cap-and-trade bill to cut carbon emissions that will impose huge costs on energy production, spike consumer prices and drive production offshore to China, which is opting out of Kyoto II. The Chinese are not fools.

Obama plans to repeal the Bush tax cuts and take the income tax rate to near 40 percent. Combined state and local income tax rates can run to 10 percent. For the self-employed, payroll taxes add up to 15.2 percent on the first $106,800 for all wages of all workers. Medicare takes 2.9 percent of all wages above that. Then there are the state sales taxes that can run to 8 percent, property taxes, gas taxes, excise taxes, and "sin taxes" on booze, cigarettes and, soon, hot dogs and soft drinks.

Comes now national health insurance from Nancy Pelosi's House. A surtax that runs to 5.4 percent of all earnings of the top 1 percent of Americans, who already pay 40 percent of all federal income taxes, has been sent to the Senate. Included also is an 8 percent tax on the entire payroll of small businesses that fail to provide health insurance for employees. . . .

While the hardest working and most productive are bled, a third of all wage-earners pay no U.S. income tax, and Obama plans to free almost half of all wage-earners of all income taxes. Yet, tens of millions get Medicaid, rent supplements, free education, food stamps, welfare and an annual check from Uncle Sam called an Earned Income Tax Credit, though they never paid a nickel in income taxes.

Oh, yes. Obama also promises everybody a college education. . . .

China saves, invests and grows at 8 percent. America, awash in debt, has a shrinking economy, a huge trade deficit, a gutted industrial base, an unemployment rate surging toward 10 percent and a money supply that's swollen to double its size in a year. The 20th century may have been the American Century. The 21st shows another pattern.

"The United States is declining as a nation and a world power with mostly sighs and shrugs to mark this seismic event," writes Les Gelb, president emeritus of the Council on Foreign Relations, in CFR's Foreign Affairs magazine. "Astonishingly, some people do not appear to realize that the situation is all that serious."

Even the establishment is starting to get the message.
-- from "Socialist America Sinking" by Pat Buchanan

It was stimulus that caused the crisis

So it will be stimulus that will solve the problem?
In the USA, the deadheads are at it. They didn’t see the crisis coming. Then, they didn’t understand it when it hit. But that doesn’t stop them from trying to fix it - by giving the world more of what caused the crisis in the first place: stimulus!

What caused U.S. consumers to go so deeply into debt? Stimulus. What caused the Chinese to build so many factories? Stimulus. How come Americans have so many malls, so many houses, and so many bills they can’t pay? Stimulus! They were stimulated to borrow by low interest rates and rising house prices - both produced in whole or in part by federal policy.

In the old days, a country would have to settle up its trade deficit in gold. As gold was called away by surplus countries, deficit countries would have to raise rates to attract more gold and reduce consumption. They system always rebalanced itself. Then, when the United States went off the quasi-gold standard, the imbalances became huge. Americans were able to go deeper and deeper into debt…while the foreigners built up more and more capacity (and more and more dollars).

But who cut the dollar lose from gold? The feds. Who made it possible for US consumers to spend far more than they earned for far longer than they could afford? The feds. Who held down the prime rate below the inflation rate for nearly four years - long after the supposed “emergency” that called for such drastic action? Oh dear reader, we don’t have to tell you, do we? The feds.

That was how the feds caused the bubble in the property and the financial sector. But after the bubble blew up, they blamed Wall Street, called for more regulation, gave Wall Street trillions that taxpayers hadn’t even earned yet…and provided more stimulus! And now they’re talking about a “son of stimulus,” yet more stimulus to an economy that is already fritzed out on stimulus.

Dead companies are kept alive. Smelly, dead-fish assets are kept on the books. And brain dead economists find employment in the Obama administration… explaining why more stimulus will set everything right again. Has the average taxpayer seen any of that ’stimulus’? Not likely.
-- from "This Too Shall Pop" by Bill Bonner

In 2005 the government knew the housing bust was coming!

[I]n America, the citizens are increasingly turning to their government to fix the mess that the country is in. But the irony here is that the our friends on the Hill knew exactly where this speeding train was heading…and let it just keep right on going, turning a blind eye to wreck that would inevitably occur.

As our own Addison Wiggin recently told an interviewer, “The House of Representatives did an investigation in 2005, following a paper that was published on their own website, showing that the derivatives risk that both Fannie Mae and Freddie Mac had exposed themselves to was potentially a disaster for the mortgage market.

“And they buried that paper, and fired the guy who wrote it. So, they were well aware of what was going on in 2005, but the market for mortgage-backed securities continued for two more years.

“They [the government] could have put the breaks on there.”
-- from "This Too Shall Pop" by Bill Bonner

Thursday, July 16, 2009

What we need is the separation of health care and state!

In a previous post, I wrote, "This is from a great article on health care, which I highly recommend. I might be posting additional excerpts from it in the future." Well, the future is here:
There is an alternative called a free-market system or, as some might put it, a separation of health care and the state. Because medical care is a scarce good, and because markets alleviate scarcity better than any other mechanism, it makes sense to trust health care to free markets. Indeed, to restore both freedom and health, there is no other way.
-- from "Socialism and Medicine" by William Anderson.

"Free markets" means free from coercion

There is one thing to remember that is very, very important when speaking of free markets: they are entities that are free of coercion. We often fail to remember that free markets are called such precisely because they involve voluntary and consensual behavior on behalf of the individuals involved in those exchanges. This does not mean that people are acting solely on a whim or without urgency, but is rather a reminder that free-market exchanges exist in an atmosphere of freedom – freedom from coercion.

Much of modern medicine and health care does not operate without coercion, and if the advocates of universal health care have their way, there will be even more coercion.
-- from "Socialism and Medicine" by William Anderson.

This is from a great article on health care, which I highly recommend. I might be posting additional excerpts from it in the future.

I wonder if people would respond differently to the phrase, "coercion-free market" than to the phrase, "free market"? The latter phrase has acquired some unsavory connotations, but who could object to a market that is free from coercion?

Bernie Sanders and government-funded healthcare vs. the unhampered market (II)

"Snoop", a reader of my previous post, "Bernie Sanders and government-funded healthcare vs. the unhampered market", writes,
Could you elaborate on what you call "the unhampered market"? Please explain how that would improve the delivery of medical care while enabling patients to manage the potentially catastrophic expenses.
Unhampered market: no government intervention in the market except to prevent force (or the threat thereof) or fraud.

An example: one of the factors that results in the large number of uninsured in the USA is that in the USA health insurance is tied to employment. Lose your job and you lose your health insurance. But this employment tie is a result of the government imposing wage controls during WWII, which led employers to use employer-provided health insurance as a way of attracting employees. So one government intervention in the market (wage controls during WWII) led employers to offer health insurance in lieu of cash compensation, which led to the tying of health insurance to employment, which led to a higher number of uninsured than would be the case otherwise (an undesirable, unintended consequence). We now have Bernie and others proposing to correct this undesirable, unintended consequence of the earlier government intervention (wage controls during WWII) with additional government interventions (government option, making insurance mandatory, single-payer, etc.). If you haven't already read the article by Gene Callahan to which I linked, I urge you to do so.

Most families would continue to require insurance to cover catastrophic events, but in a market unhampered by government intervention such insurance would be much less expensive than it is under the present "system". (People who expect government-funded healthcare to be "affordable" must have been asleep when government set out to make housing "affordable".) Some families would undoubtedly rely on the voluntary charity of their fellow citizens to help pay for their healthcare and/or their health insurance, but many, many fewer than under the present "system" or under the forced charity (an oxymoron, by the way) that would be the basis of a government-funded system.

Exactly how would an unhampered market in healthcare work? I don't know, but neither does anyone else! How could anyone draw a diagram of 300-plus million Americans continually modifying their behavior as the result of price signals? You can draw a diagram of the government's plan, but that's only because--despite the fact that it's pretty darned complex--it's orders of magnitude simpler than what would happen under the unhampered market. Besides, the government's plan doesn't allow for dynamic adjustments as supply, demand, and prices fluctuate. In fact, adjusting the government's plan would require an Act of Congress! :-) :-) In contrast, adjustments in the unhampered market would take place automatically and continuously, as citizens voluntarily modified their behavior in response to price signals.

It's odd that most people who oppose the unhampered market and who are advocates for government-funded healthcare probably do not believe in Intelligent Design; instead, most likely most of them believe in the evolution of life under natural law, similar to the evolution of the unhampered market under economic law and the price system. If an Intelligent Designer is not needed to explain the variety of life forms, why is government needed to design a healthcare system? (I just could not bring myself to put "government" and "Intelligent Designer" in the same sentence!)

If you think that the unhampered market can't do a better job than either our present "system" or some form of government-funded healthcare, you are saying that 300-plus American brains, coordinated by the laws of economics and the price system, are somehow less capable than the brains of the "geniuses" who have "designed" our present "system" or those of a few politicians and government bureaucrats who would design a government-funded system.

Advocates of government-funded healthcare--be it single-payer or some other variety--have been basing much if not most of their case on the fact that the present "system" is so flawed. I agree that the present "system" is flawed, but that doesn't mean that government-funded healthcare is the only or best alternative. Citizens and voters alike need to educate themselves regarding the unhampered market as an alternative to the present "system" and as an alternative to government-funded healthcare. Go to websites like cafehayek.com, fee.org, fff.org, lewrockwell.com, and mises.org and search for "healthcare". Learn about the unhampered market alternative to both our present "system" and government-funded healthcare. And be sure to look for articles that analyze the many problems with government-funded healthcare systems in other countries (Canada, the UK, etc.).

It's an imperfect world, so the unhampered market will not be perfect, but government-funded healthcare is no panacea, no silver bullet.

"Fool II", another reader, writes,
I assume if we take your proposal( which is probably one of a thousand) and implement it, then we will have to wait some 50 years to see the results. That seems unnecessary to me.
Canada, England, Germany, France, Japan and many more industrialised nations have already a system in place that has worked well. Why don't we build on their experience?
My reply:

You write, "Canada, England, Germany, France, Japan and many more industrialised nations have already a system in place that has worked well."

The correctness of this depends on what you mean by "worked" and "well".

I'd urge you to go to websites like cafehayek.com, fee.org, fff.org, lewrockwell.com, and mises.org and search for, e.g., "problems with Canadian healthcare". A good place to start is "Private Enterprise Grants Us Life" by William Anderson and "Socialism and Medicine" also by William L. Anderson.

"Fool II" replied,
I really do not have to listen to the opinions that I am not sure where they are coming from.
I have talked to many Canadians who are absolutely happy about their health coverage. And more, they will not exchange it with our system for any price. Doesn't that tell us something?
Sure, there is nothing perfect, but compared to our broken system, the majority of us would be more than glad to have the Canadian system with all its problems.
Here's my response:

You write, "I really do not have to listen to the opinions that I am not sure where they are coming from."

OK, so here's where I'm coming from: I'm a small-L libertarian and a student of the Austrian school of economics. If you take a look at websites like cafehayek.com, fee.org, fff.org, lewrockwell.com, and mises.org you'll know where I'm coming from, especially if you take the time to read the articles by Gene Callahan and Bill Anderson (here and here) that I linked to previously.

It's easy to point out the problems with our current "system". It's also easy to point out the problems with Canada's current, single-payer system. It's interesting to me that the American advocates of single payer spend most if not all of their time pointing out the problems with the current American "system" and little if any time considering the problems with Canada's current, single-payer system. And I've never heard any America advocate of single payer discuss how and why single payer would be better than simply undoing all of the numerous government interventions in the healthcare market that have caused most if not all of the problems with the current American "system".

You write, "I have talked to many Canadians who are absolutely happy about their health coverage. And more, they will not exchange it with our system for any price. Doesn't that tell us something?"

Yes, it tells us something, but it doesn't tell us enough. There are many other Canadians who get tired of the long waiting lines in Canada for many procedures and come to the US to get the procedures they need in a more timely (and thus more compassionate) manner.

You seem to be assuming that single payer (a la Canada) and our present broken "system" (which very few Americans want to preserve) are the only two options, but they are not the only two options. You think that moving from our current "system", which is a healthcare market riddled with government interventions and their consequent undesirable side effects, to a system that is even more riddled with government interventions will be an improvement over the current system. Why is that better than moving to a system that has few if any government interventions and few if any of the undesirable side effects of the current "system"?

Meanwhile, I'm still waiting for the advocates of "Medicare for all" to explain their plan for closing Medicare's $86 trillion fiscal gap. That's "trillion" with a "T".

quickstepper, yet another reader, writes,
Ah! Libertarians. They have such a simple, sweet view of reality. Just eliminate the government and everything would be perfect.

You lambast Sanders for supposedly not knowing how to close some imaginary gap suggested by a member of the Fed (is that a governing institution that you support?) and yet you admit the following: "Exactly how would an unhampered market in healthcare work? I don't know, but neither does anyone else!"

The problem with your position is that it's based on the supposition that a market "unhampered" by the government would be a free market. History shows us that, without government controls, the market becomes completely distorted by monopolistic corporate practices.
My reply:

Thanks for your comment!

I don't think you could find a single libertarian who would say, "Just eliminate the government and everything would be perfect." In fact, I wrote, "It's an imperfect world, so the unhampered market will not be perfect . . ."

I didn't lambast Bernie for anything. As a libertarian, I disagree with Bernie on almost all economic matters, but at the same time I agree with him on many foreign policy matters. As well, I salute him for the legislation he has introduced in the Senate to audit the Fed (IMHO we should audit the Fed, then abolish it). So sometimes I agree with Bernie, sometimes I disagree with him. But I wasn't lambasting him, I was simply asking him and other advocates of single payer, who cite Medicare as an example of a successful single-payer system, what his plan is for closing Medicare's fiscal gap.

Most if not all libertarians would agree that if you limit government to preventing force and fraud, you'd have the best of all possible worlds, but still an imperfect one. On the other hand, as I wrote, "government-funded healthcare is no panacea, no silver bullet." Government-funded healthcare is likely to make matters worse, not better, since we can see all around us the undesirable consequences of previous government intervention in the healthcare market, some of which I mentioned in earlier comments.

No, I don't support the Fed; it definitely should be abolished. But when Richard Fisher says that Medicare's fiscal gap is $86 trillion I think he's probably in the right ballpark, even though he works for an institution I think should be abolished. The Peter G. Peterson foundation puts the "real national debt", of which the Medicare gap is the biggest part, at $56 trillion. Others give different numbers, but they all have this in common: they are all in the same ballpark and they are all huge. Bernie and other advocates of single-payer simply can't continue saying that Medicare is an example of a successful single-payer system when the single payer involved (the U. S. government) has no plans for paying--i.e., no plans for closing Medicare's fiscal gap, which is very real and not, as you claim, "imaginary".

Yes, I do admit that I do not know all the details of exactly how the healthcare market would evolve once all the government interventions in the healthcare market were undone. But I think it's better to acknowledge one's lack of knowledge than to pretend--as advocates of government-funded healthcare do--to know exactly how the healthcare market would evolve once more government interventions (e.g., single payer) are introduced.

Finally, you write, "The problem with your position is that it's based on the supposition that a market 'unhampered' by the government would be a free market. History shows us that, without government controls, the market becomes completely distorted by monopolistic corporate practices." First, a market "unhampered" by government would in fact be a free market--simply by definition. Second, corporations have no power except through government action. But once government intervenes in the market to favor one or more corporations, by definition, that market is no longer a free market, i.e., no longer a market free from coercion.

Bernie Sanders and government-funded healthcare vs. the unhampered market

Bernie cites Medicare as shining example of government-funded healthcare, but Medicare suffers from a fiscal gap that Richard Fischer of the Dallas Fed estimates to be $86 trillion. Does Bernie have a plan for closing this gap?

This is not an argument for the healthcare status quo. I believe we can do better than our current "system", but I also wonder, can't we do better than how government-funded healthcare actually works in practice (in Canada, the UK, etc.)?

Our current "system" is a healthcare market that has been highly distorted and hampered by government intervention. The question is, are the problems in our current "system" due to the market elements or are they due to the government interventions? Bernie and other champions of government-funded healthcare never really address this question. They have jumped to the conclusion (or simply assumed the conclusion) that the problems in our current "system" are due to the market elements.

I invite you to read "I Tip My Hat to the New Revolution" by Gene Callahan. It is a little bit dated now (e.g., it was written before the Medicare drug benefit was enacted into law), but it gives a clear exposition of how government intervention in the market leads to undesirable, unintended consequences ("side effects"), which lead government to introduce further interventions, which lead to further undesirable, unintended consequences, ad infinitum. Several cycles of this process have given us our present healthcare "system", with all of its problems--i.e., the undesirable, unintended consequences that are the result of government intervention in the healthcare market.

This is one of the reasons I have been putting the word "system" in quotation marks. What we have is not really a healthcare system, it is, rather, a highly distorted and hampered healthcare market in which many of the problems arise from the fact that much of the money changing hands in the "system" is coming from third parties. Changing the identity of the third parties from insurance companies to governments doesn't solve the problems that are the result of third-party payments.

There is an alternative to both the current "system" and government-funded healthcare. This alternative involves the undoing of all of government's interventions in healthcare until we return to an undistorted, unhampered healthcare market. Neither Bernie nor any of the other advocates for government-funded healthcare compare government-funded healthcare with the unhampered market. Instead, they continue to tear apart the straw man of our present "system", a system that almost no one advocates.

Prognosis: more Great Recession ahead!

And get ready for the coming flood of option ARM resets!
Beginning on March 9th, we also got a big bounce in the world’s stock markets – just as we should. US stocks are up about 40% since then. Some foreign markets are up even more. Russian stocks, for example, have more than doubled. Chinese stocks are up more than 60%.

As the bounce continued, people began to get the wrong idea. They thought they saw ‘green shoots’ and the ‘light at the end of the tunnel.’ But if the economy is really improving, we haven’t seen much evidence of it here at The Daily Reckoning headquarters. As near as we can tell, housing prices are still going down and unemployment is still going up…and most important…people are still acting as though we were on the downward slope of the credit cycle. The latest numbers we’ve seen show that they saved more money in the first half of the year than the total in extra ‘stimulus’ that they received. Savings – last reported at 5% in this space – are now close to 7%. This is a just what you’d expect. But it is a huge turnaround, too.

As to housing prices, there are a million option ARMs still to be reset over the next four years. They won’t peak out until 2011…with average increases of about 80%. That will cause hundreds of thousands more houses to be dumped onto the market…and probably push the bottom of the housing decline to 2012.

As long as housing prices are falling, jobs are declining, and consumers are inclined to save rather than spend, there will be no real recovery.
-- from "An Economy on Life Support" by Bill Bonner

Is inflation back?

Two charts tell the story:

-- from "Inflation’s Back Already, Sell This Sector, The Next Bubble, A Worthy “Green Shoot” and More!" by Addison Wiggin and Ian Mathias
“The market clearly is not worried about inflation right now,” says Chris Mayer. “That is the only way to explain 10-year Treasury yields of 3.5%. The deflationist view is the one that prevails. This view, which makes some compelling and elegant arguments, maintains that the credit losses far surpass the monetary and fiscal stimulus. All those trillions in destroyed debt, plus the yanking of credit from consumers and businesses, overwhelm new money creation.

“So, this reasoning goes, the greater risk is that asset prices continue to fall. This is the classic debt-deflation point of view. The theory seems to fit the facts of what we are seeing in the marketplace right now.

“I don’t dismiss these arguments easily -- and there is more to it than what I’ve given you here. I’ve spent some time going over the arguments of some of deflation’s most persuasive and sophisticated advocates: money manager Van Hoisington, economist David Rosenberg and others.

“Still, I think the endgame is for inflation -- which is when paper currencies buy less. Given the choice of holding U.S. dollars or real assets (such as gold or iron ore or land), I’ll take real assets.”
-- from "Inflation’s Back Already, Sell This Sector, The Next Bubble, A Worthy “Green Shoot” and More!" by Addison Wiggin and Ian Mathias

Bill Bonner loses his faith in government?

Is he losing his faith in government's ability to inflate?
We figured the economy would continue to worsen (after all, you can’t correct a half-century credit expansion in a few months)…and that the feds would continue to fight it. As more and more people lose their jobs, the feds would become more and more desperate. Gradually, they’d come to see that they needed to use stronger, more experimental techniques. This would lead them to be a bit bolder with their ‘quantitative easing,’ otherwise known as “a little technology called the printing press,” to quote Ben Bernanke.

We figured that sooner or later, the feds would get the hang of causing inflation. So, we could just buy gold and wait.

But now we see; we are trapped…just like the feds themselves. Do we hedge against further economic deterioration…deflation…and falling asset prices? Or do we hedge against inflation…a falling dollar…and a collapsing bond market? What if we hold our big position in gold…and feds NEVER are able to cause inflation? What if the pain of the depression is never severe enough to make them go whole hog on quantitative easing? What if the Chinese put it to them straight: if M2 goes up more than 10% a year…we stop financing your deficits? Gold could sink…or go nowhere…for the next 10 years.
-- from "An Economy on Life Support" by Bill Bonner

The effect of a healthcare mandate is to increase the price of labor

And employers will employ fewer workers at a higher price than at a lower price.
requiring employers to provide health benefits to employees and potential employees will make the job situation today worse not better. It will intensify the current problem that people want to work more but are having a hard time getting employers to hire them.

The answer is the same in every recessionary environment. The price of labor must fall in order for the surplus of workers to be absorbed into the market. Raising the cost of hiring only further entrenches the problem and creates new forms of unemployment.

There is no real reason to prove these assertions empirically since they flow from the logic of economics. Nonetheless, Richard Vedder and Lowell Gallaway spent years accumulating evidence of the link between full employment and lower labor costs, on the one hand, and higher labor costs and unemployment on the other. What they found in their book Out of Work was that the entire problem (or nearly the entire problem) of unemployment can be explained through the issue of the costs of hiring and employing. In other words, there is no mystery here. Unemployment can be created or solved by the application of policies and laws.

In a free market, however, there is no unemployment that persists that isn't chosen by the workers themselves. That's because the price of labor is continually fluctuating based on supply and demand. Everyone who wants to work can work, simply because we live in a world in which there is always work to do. Only artificial interventions can generate the unemployment problem we have today.

Even so, and for reasons that are unknown and can only mystify the learned person, the Congress and the Obama administration keep trying to pretend as if reality doesn't exist. Here they are imagining that they can just order businesses to give everyone health care and then suddenly health care for all comes into being.

As with all programs, we have to ask: what is the cost? I don't mean what the cost adds up to in terms of government spending. I mean: what is the social cost of overpricing labor relative to what the market would bear? In this case, there is no way to know in advance, but we can know that fewer people will be hired than otherwise.

And then what happens? Business goes to government hoping for a subsidy or for fully socialized medicine as a way of sloughing off the costs on the whole of society instead of bearing them directly.

Sadly, there is no way that free health care can be granted to all living things with the stroke of a pen. Broadening availability will require that the entire sector be turned over to the private sector, so that it can be controlled through the price system like everything else.

As it is, the imposition of new penalties on business will make them less, not more, likely to hire people, which will thereby intensify the labor problem. It is like trying to cure a drug overdose with the injection of poison. New mandates on business are exactly what we do not need.

In other words, the whole idea is just plain dumb, not to mention incredibly ill-timed. The worst possible time to be imposing new mandates on business of any sort is during a downturn. Make the mandates labor specific and you have a recipe for causing the unemployment rate to land in the double digits and go up from there, higher and higher until the entire economy shuts down.

Presumably, not even Congress and the President would benefit from this result.
--from "Government Creates Human Suffering" by Llewellyn H. Rockwell, Jr.

William Anderson criticizes Krugman

Austrian economists do not respond negatively to what Krugman says because we “hate” government for “ideological” reasons (even though most of us look askance at government and its coercive ways), but rather because we understand the differences between private and government spending. They are not mirror images of each other, no matter what Krugman says.

In the Keynesian viewpoint, all assets and all capital are homogeneous. It does not matter if one spends money on a “bridge to nowhere” or invests in a new line of production; what is important is that money is spent.

Furthermore, in Keynesian thinking, as long as there are “idle resources,” then government spending — if it is enough and enough money is printed — ultimately can result in “full employment” of those resources. Why those resources might be idle in the first place is not up for discussion; the important thing is that government “stimulates” enough spending to put those resources back to work.

This is short-sighted and crude analysis. In the real world, capital matters, for it is in the development of capital that we make workers more productive, thus increasing individual wealth and the overall standard of living in a society. Capital spending is not just money dropped from a helicopter; it is undertaken for a specific productive purpose.

Austrians hold that typical Fed-created credit booms are not sustainable and that when once-productive assets become idle in the downturn, it is because the capital was malinvested. Granted, to understand the entire concept of malinvestment, one must be able to differentiate between the kinds of capital investment that can be sustained and what will have to be abandoned. Keynesians, unfortunately, have decided to ignore that kind of thinking or unilaterally to declare it “discredited.”
--from "The Lowdown on Crude Keynesianism / Keynesian "economists" push a second stimulus" by William Anderson

Worse than Madoff!

Madoff caused people to lose billions of dollars. The U.S. government has caused people to lose trillions of dollars, and it’s not finished yet. The public’s losses mount during every minute of every day. By its effects in discouraging work, saving, and investment, and thereby reducing capital accumulation, the U.S. Social Security system has caused the nation’s gross domestic product to fall significantly below the levels it would otherwise have reached. According to Professor Edgar K. Browning, a leading researcher in this field, “the available evidence suggests that Social Security has reduced [current] GDP by 5 to 10 percent.” Ten percent of GDP is now approximately $1.4 trillion – or about 28 times the maximum amount Madoff is believed to have cost his clients. Moreover, Madoff’s harm is a one-shot loss, whereas the U.S. government’s Social Security harm is an ongoing loss that grows annually. In the future, the annual loss will be even greater than the currently estimated $1.4 trillion or so. . . .

Madoff, in contrast to the government, carried out his fraud in a civilized way: he merely misrepresented what he was doing, purporting to invest his clients’ money and to obtain a high rate of return on these investments. People dealt with him voluntarily. Those who suspected something was fishy did not do business with him, and some people went so far as to give substantial information to the SEC to show that Madoff’s business had to be fraudulent (which information the SEC ignored for years on end, of course).

The U.S. government, however, does not bother to claim any prowess in investing the money it forces people to surrender to its scheme. It admits that the “client’s” return is now close to zero (varying a bit according to the client’s age and other factors). Nor does it carry out its admitted Ponzi scheme in a civilized way. Not only is participation in the scheme involuntary, but the government threatens violence against anyone who fails to participate as it commands him. Thus, the government operates its Ponzi scheme in a markedly more thuggish manner than Bernie would ever have dreamed of. He might have been a crook, but he was not a thug.

Everyone (including Bernie himself) agrees that Bernie Madoff was a crook. What is the correct term for the U.S. government, or does the word government tell us everything we need to know about the honesty, humanity, and justice of its actions?
--from "Bernie Madoff Was Only a Petty Crook Compared with Uncle Sam" by Robert Higgs

Wednesday, July 15, 2009

Inflation is on its way!

I think the FED can and will inflate. It can and will force commercial banks to lend, if only to the U.S. Treasury. Anyone who says there are no solvent borrowers for banks to lend to is out of touch with reality: a $11.5 trillion Federal debt, which is growing by a trillion dollars a year. The Treasury must roll over $250 billion each month. No borrower?
-- from "Why Gold's Price Rose in the Great Depression" by Gary North

Andy Mukherjee (ET Now) interviews Jim Rogers

The commodities rally seems to have paused. The Rogers International Commodity Index has come off 13% since June 12. This pullback, essentially as I can see, is because of tin, energy and silver even as some of those agri commodities like orange juice, sugar and cotton have done well. What are your expectations going forward for commodities?

That's the way I know you know about commodities. You read The Economic Times and your ET TV. So, you know that the markets always have corrections whether they are going up or down. Nothing goes straight up or down forever. So, it's having a normal correction. In my view, the best place to be is in real assets commodities, because if the world is going to recover, they (commodities) will recover first because of the shortages and if the world economy is not going to recover, they are still the best place to be, because governments around the world are printing huge amounts of money. So, if you got to own something, I don't much to own besides commodities. . . .

The last time we met here in Mumbai you had a sachet of sugar in your pocket and you pulled it out to underscore your point of impending shortage about agri commodities. You have been right about sugar as far as we can see from the price charts. What are you hiding today in your pockets? A silver coin, a hip flask full of crude oil, may be?

I do actually have a silver coin in my pocket. I don't know how you knew. I also have a gold coin, but the silver one is probably my better play. If I were a bright young man, I would be buying sugar now and silver, given the state of the world. That's not a recommendation, but I am just saying I do own some silver. Silver is cheaper than many things on a historic basis and I do own some silver. The dollar has fallen almost 10% since the beginning of the stocks rally in March. Commodities have risen 94% of the time that the dollar has fallen. A very strong correlation. Do we expect the dollar decline and the commodity run-up, therefore, to continue? It's not always a strong correlation. You are right; there has been (a correlation) in recent months, recent years even. But no, there are many times when the dollar and commodities go entirely separate ways. So, don't get it into your head, and I know many times that the press do have it in their head that commodities and dollars go opposite ways. I am not terribly bullish on the dollar in long term. US dollars are a terribly flawed currency and down the road I hope I don't own any US dollars. I still own some of them at the moment, but it's not getting better for the US. The dollar any way is getting worse. The fundamental for commodities continue to improve. The fundamentals for the US dollar do not continue to improve. They are deteriorating. . . .

I have not bought any stocks anywhere in the world in the last couple of years except China. I did buy some Chinese shares back in October-November. I have not been buying anything other than that for some time. I have been worried about the world economy, about the world stock markets. If you got to be somewhere and if there is going to be a recovery, it will show up in commodities best of all, and if there is not going to be any recovery, commodities are still a better place to be. . . .

If you want to put in your money somewhere, put it in commodities. That's the only thing I bought recently. I have bought some yen and swiss francs. If you know enough about currencies to figure out who is going to benefit, if I am right about the currency turmoil coming, then you can buy some of the currencies
and if you think that the rupee is the place to be, then you can buy some rupees. . . .

I cannot conceive of lending money to the US government for 30 years in US dollars for 3, 4, 5 or 6% interest. It's just inconceivable to me that I would let them have my money for 30 years and they would pay me back someday in US dollars at such a low rate of interest. I expect problems in the bond market. I don't know when. I am not sure about the bond market. I was short in the bond market, but I got out. I expect to see serious problems in the bond market down the road.
-- from "Commodities are sizzling, says Jim Rogers" by Andy Mukherjee

Tuesday, July 14, 2009

Is it "eat the rich" or is it TANSTAAFL?

TANSTAAFL = There ain't no such thing as a free lunch!
Back in the U.S., another slimy bill is slithering its way through the halls of Congress. The latest proposed health care legislation would both eat the rich and introduce another mandatory government program. Oy…

Under the proposed bill, a 1% tax hike on couples earning over $350,000 would raise an estimated $500 billion over the next decade -- barely half the total cost of the program. Those taxes would help finance subsidized health care for the lower class, for which enrollment would be mandatory (or risk being fined).

“If you earn less than $350,000,” writes Bill Bonner, “you feel that you are getting something for nothing. But that money -- had it not been confiscated -- wouldn't have disappeared. It would have been put to work in one way or another -- added to the nation's capital formation, lent to the government, used to buy a new car or take a vacation. Instead, it is to be sucked out of the benefits of the willing economy and used to give people something they couldn't afford or didn't want to pay for themselves.”

“Don't bet against us,” the president assured us. “We are going to make this thing happen.”
-- from "$1.1 Trillion Deficit, Why the Euro is Still Down, Eating the Rich, Tech Convergence and More!" by Addison Wiggin and Ian Mathias

As P. J. O'Rourke (author of the great book, "Eat The Rich") has said, "If you think health care is expensive now, wait until you see what it costs when it's free."