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Archive for the ‘Socialism’ Category

We’ve all heard of, “I cut, you choose.” It’s a game theoretic principle, well known to children, that basically says if someone is dividing the pie, the other person should get to pick which slice he gets.  That way the cutter has an incentive to divide it as evenly as possible.  Well, with Obama, it’s all about redividing the pie.  That great big pie that represents our collective economic wealth.  For him, it’s a pie fit for redivision, where 90% of the wealth is supposedly in 10% of the hands.  If that’s the case–and this Marxist folk wisdom defined Obama’s entire adult life–then the problem of governance is relatively easy:  you simply need to organize the aggreived majority, demonize the wealthy minority, and, in Obama’s words, take from the “money people” in order to “spread the wealth.”

He spent most of his life thinking about how to redistribute wealth from the wealthy to the less wealthy through various schemes like redistributionist taxation, nationalized health care, community organizing, affirmative action, increased government sector, unionization, minority set-asides and the like.  But now he’s in the awkward position of having to come up with policies designed to replace and create wealth.  Massive wealth has been lost in this recession, both in housing, bank balance sheets, government revenues, and all the rest.  It threatens to remain this way for a long time.

Obama did not want to be president at this moment, any more than George H.W. Bush wanted to be a post-cold-war president.  Obama doesn’t know what to do, as evidenced by the large proportion of stimulus dollars going to “jobs” like government sector jobs at the state and local level, such as clerks, teachers, etc.  The minor exception to this is the “flying cars” concept; you know, so-called green jobs.  Truthfully, no one really thinks this will work, and, if it does, it won’t create all that many jobs, since the unemployed in construction, service sector, sales, office workers and others with industry-specific skill sets can’t easily move into manufacturing nifty flying cars and solar plants all that easily.

Further, the pretension that Obama can pick the next big growth sector is kind of quaint.  This kind of industrial policy–as opposed to broad-based monetary and trade policy–has been a major failure where it’s been tried, as evidenced by the overinvestment of the Japanese Ministry of Trade in HDTV 25 years agoand other mercantalist schemes, such as Brazil’s inefficient investments in airplane and auto manufacturing. He probably knows nothing about the sorry history of public-private investment partnerships.

He does not accept, does not benefit from, and does not realize that the best thing he can do for the economy is to restore confidence in government finances, shrink the deficit, avoid radical moves, and restore sound financial regulation to prevent market blowups, while channeling investment generically into productive sectors (as opposed to the prevailing trend of leveraged gambling on currency trades and what not). In other words, most of what he needs to do is less of everything involving government intervention, and it’s against his nature to do so.

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I am more than a little chagrined about the passage of Obamacare. 

It will cost a lot, it will reduce quality of care, and eventually it will create a debt crisis when combined with the impact of other entitlements. This debt crisis will end in American default on its debt (and insanely high interest rates and mass confusion) or  slow motion inflation (and insanely high interest rates), and, in either case, a general destruction of wealth for many years not so different from the recession we’re now enduring. 

This is all very bad, of course, but the worst impact of Obamacare will be spiritual:  Obama has made us all welfare cases.  And every election from now until the end of time will be one where the majority of voters (i.e., net recipients) clamor for more from the government, which will squeeze every harder on the shrinking  plurality of the prouctive class (i.e., net taxpayers).

In addition, I am greatly afraid this victory will embolden Obama, who is verye sensible of the backlash that will hit vulnerable Democrats this fall, and thus he will be filled with a great sense of urgency and ability to continue to change America and the relationship of Americans to their government as long as his party has the majority.  

Perhaps, Cap and Trade or Immigration Amnesty is next. 

The man is, if nothing else, driven by an agenda.  He is an ideologue.  His goal is to put wins on the scoreboard of history, and he sincerely believes in much of what he’s doing.  This makes him all the more dangerous, as evidenced by his maniacal energy and focus on healthcare even as the economy continued to stay in the tank  and even as his numbers fell.  He will push on the gas harder, even if it weakens his party and his own chance of reelection.  He knows, as we all should have known, once this passed it will be hard to repeal, and he knows, as we all should have known, that this type of entitlement will change the dynamics of American politics for generations if it becomes part of the landscape.

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Medicare and Medicaid are hemorrhaging money. The biggest reason health care costs are constantly rising is that most of the price pressure is not felt by the consumers in the case of both the judgment-proof poor people who use emergency rooms without paying or the well-insured employed who pay small co-pays.

This situation has persisted for decades ever since benefits of all kinds were used during WWII to get around wage controls and have not been taxed as income ever since. Any restoration of cost controls in health care must bring the costs to the consumer, who are quite capable of economizing in every other area of life whether shoes, food, clothes, or housing when they must bear the lion’s share of the cost. In those areas of health care that are market driven–such as LASIK–costs come down over time and access is expanded. The same progress whereby luxuries become necessities works just fine in health care, so long as markets are allowed to work.

Even in a perfect world, it’s not so obvious why an advanced economy such as ours would not have expanded percentage of the economy spent on health care. As an economy develops, various luxuries like appliances, air conditioning, cars, etc. become more widely diffused as they become more affordable. Once those perceived minimum material requirements are met, why wouldn’t we expect people to spend a lot simply to prolong the time and energy with which they can enjoy those already-bought material goods?

Obama sometime suggests digitizing medical records will reduce medical costs and reduce medical errors. This is probably true, but it has nothing to do with the socializing ideas he wants to impose, such as subsidized insurance. What makes no sense with Obama’s plan is the notion that expanding the entitlement to insurance is somehow supposed to reduce costs. Insured people consume more health care. They particularly use more late in life when they bear no cost at all under Medicare, and the marginal utility of these public monies at their death is, for them, zero.

Reducing costs while expanding insurance will be impossible without severe rationing. Such rationing might make sense, but unlike a market regime, consumers may have little opportunity to spend their own dollars directly on health care outside the system, as is the case in such locales as Belgium or Canada. This is un-American and will occasion much grumbling, as too will the prospect of government bureaucrats prolonging wait times, cutting off access to “luxury” and lifestyle medicines and procedures, and other measures imposed to control costs.

Politically, however, this likely is a net advantage for Democrats and that’s why they’ve pushed it for so long. Wealthier people are healthier people, but they’ll spend much more than the actuarial tables dictate in order to finance the loose-living and more physically dangerous lifestyles of the poor (something they and all other insured do now) without the corresponding benefit of higher quality care. At the same time, with a significant government role in health care, every election will be a debate about generosity for the middle class. Republicans can’t win that game, and, as with Medicare and Medicaid, this will be one more nail in the coffin of fiscal responsibility, the spirit of independence among the middle class, and the prospect of constitutionally limited government.

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Obama laughed at the suggestion that he was a socialist during the campaign. But the scale of his spending, his intrusion in the private economy, and his disregard for traditional freemarket principles is breathtaking. The latest is a “compensation czar” who will oversee the pay of the many companies the government has subsidized. Pretty soon, I think we’ll all end up on a GS schedule.

This, of course, is the biggest threat of government handouts: in addition to the government picking winners and losers in a way totally inappropriate to a free market system under the rule of law, the principle of independence of private companies and their business decisions is completely undermined. It’s the kind of “help” that smothers the recipient and creates systemwide degradation of the “animal spirits” and cold-hearted market logic on which the whole economy depends.

The latest news reads like something out of Atlas Shrugged:

Administration: Rein in pay across private sector
Obama administration: Executive pay needs curbs, better management, across private sector

In addition, Obama’s likely instincts–cutting salaries–is the wrong one, and he’d know this if he paid attention at the many law and economics lectures that were available while he was at the University of Chicago Law School. I wrote about it here. Salaries are the long-term incentive for corporate managemnet, while options and bonuses of one kind or another are the shorter term regime. The market is already engaging in this correction, though, and, unlike Obama, it has its own money in the game.

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There is little more lawless than changing the rules of contracts in the middle of the game. Chrysler’s creditors entered into deals with one set of expectations (including their known benefits and risk in bankruptcy) only to have them changed by Obama in order to benefit a politically connected group. Obama has strong-armed secured creditors (even threatening to ruin one firm’s reputation) into signing off on a deal in order to “save Chrysler” and benefit unions, the latter of which gave up little in this process and whose pension benefits are largely unsecured obligations. This is true Bannana Republic territory, where the risk of nationalization and confiscation has long created major premiums on the cost of capital and dampened economic growth. Mexico had its own Obamas one hundred years ago with names like Diaz and Obregon. It has long lagged behind us as a result.

The Founders wrote a great deal about “minorities” in their commentaries on the Constitution, but the minority they had in mind was the minority everywhere and at every time in history most vulnerable to demagoguery and shifting winds: the relatively small numbers of wealthy investors in a given society, whose wealth is a relatively insecure monument to generations-long investments, innovations, and prudence.

Mickey Kaus notes that this whole thing will only delay the pain and prove a costly political failure for Obama. Chrysler produces a medicore product that few want to buy. Unless gas skyrockets (which itself will require swift economic growth), Americans will not be snatching up the death-traps known as Fiats. It’s unclear when Obama will ever allow a big business or connected group to suffer so long as he is at the helm. Instead, the rest of us, who are not so organized or visible, must suffer higher taxes, reduced growth, and an uncertain future so Obama can claim a victory and appear sympathetic and charitable by spending our money. This charade can’t go on forever though. The very thing Obama needs more of to ensure economic growth–predictability and respect for capital–has become increasingly absent from his administration, in spite of his moderate talk during the campaign. You can’t force people to invest, and no one will when government changes the rules in the middle of the game repeatedly.

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