Obama Care and Cost Control

The oft-stated conservative fear of Obamacare is that it will lead to painful rationing through various government mandated standards of care, “death panels,” rationing, and the like–our state-of-the-art healthcare system would decline in quality.  But this does not seem the pattern of American entitlements.  Section 8 hasn’t led to lower quality housing for the poor, nor have Social Security, Medicare, or Medicaid shrunk over the course of their existence.  Indeed, by disbursing costs and concentrating benefits in certain groups–in the case of healthcare, that group being the elderly, the sick, and the medical providers themselves–it seems far more likely that costs and spending will expand precipitously, accelerating  the insolvency of the American government.

Robert Samuelson today makes an apt comparison with Massachusetts, which enacted a similar plan statewide, and can’t seem to control costs:

Aside from squeezing take-home pay (employers provide almost 70 percent of insurance), higher costs have automatically shifted government priorities toward health care and away from everything else — schools, police, roads, prisons, lower taxes. In 1990, health spending represented about 16 percent of the state budget, says the Massachusetts Taxpayers Foundation. By 2000, health’s share was 22 percent. In 2010, it’s 35 percent. About 90 percent of the health spending is Medicaid.

State leaders have proven powerless to control these costs.

Republicans need to grow up on the “death panel” talk.  The problem with healthcare, at least in part, is overspending due to perverse incentives brought about by third party insurance.  People do need to ration care, but the correct position is that it should be through the pain of price and the freedom of markets, just as we ration spending everywhere else, including necessities like car repairs or clothing or food.  For anyone who is destitute, such rationing needs to be through the logic of non-profits and the supervision of the “poor house.”

Nothing is free, and this is certainly true with health care.  Conservatives and Republicans should not be defending the recently minted notion that the elderly can bankrupt the young and the country as a whole on the basis of some perverse and false pro-life principle that says all cost-benefit analysis is immoral.  It’s not.  But it’s better accomplished by the decentralized decisionmaking of multiple actors in the market than it is by a government bureaucracy. Indeed, the long dormant notion of central planning is making a comeback, and on this issue free market principles are thoroughly and verifiably superior.  On healthcare, it seems most likely, we will feast for a while, and then have a famine.

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Obama: Helping the Yeoman Billionaires

If we’re going to be spending tons of money on helping banks and dying, mismanaged companies, would it be too much to ask that the redistribution does not go from the productive 25% or so of this country to the risk-preferring .0001% on Wall Street, but that these huge sums actually goes to homeowners in some plan that injected capital into their pockets or forgave their debt in the process? Perhaps such a plan would allow those with reasonable prospects of repayment to pay down 25% of principal or lock in 5% notes over 40 years or something else that actually will not quickly blow up in the government’s face. Wouldn’t this be preferable to the current scheme whereby the housing-induced insolvency for banks is resolved by moving huge sums of taxpayer dollars around from AIG to Goldman or Credit Suisse and then back into the pockets of a few sovereign wealth funds, hedge funds, bank bond holders, and the like?

I mean, I’m not for any of this, but between helping Bear Stearns, GMAC, and AIG with capital infusions and helping average guys who are upside down on their houses, I guess I’d rather just have good, old-fashioned wealth redistribution. After all, the latter arguably would help more people, cut out the middle man in the form of the banks getting direct cash infusions and FDIC leverage, and would at least spread out the benefit of the inevitable inflation that we will face as result of the Treasury’s abject terror at the prospect of a few big banks’ failing. Welfare at least is more transparent and likely to create some Republican (and renter) backlash in comparison to the dishonest claims of “investment,” “emergency,” and Rooseveltian prescience surrounding the bank bailouts.

Of course, the banks have in reality failed, and they are insolvent. The loss is simply being spread to the taxpayers and the few well run banks through FDIC premiums. None of these measures will replace the huge sums of lost wealth nor lead to more lending–for housing or anything else.  Why?  Because the whole economy is uncertain, malinvested, and buried under huge sums of debt undertaken in times where we collectively foresaw a rosier future, and Obama’s reactive responses to these phenomena increase uncertainty, which is a major impediment to wealth creation and risk-taking economic behavior.

What exactly is propelling this Democratic Tribune of the People to spend so much money and political capital to bail out mismanaged bank shareholders and bond holders, who in effect endorsed the banks’ acquisition of huge positions in MBS and ABS products? I don’t think, like Clinton, he is a kind of globalist pro-capital guy, who wants to help international capital so long as DC gets a slightly larger cut. Judging by his rhetorical clumsiness on this issue, it seems more likely that Obama is acting out of a combination of ignorance, fear, and insecurity. After all, it would take real philosophical vision of free markets or a philosophical commitment to Krugman-style redistribution to stare down Bernanke and Geithner in a game of chicken. Obama has effectively outsourced the most important policies of his administration to these Wall Street lackeys, preferring instead to strong arm Detroit into making flying cars and spending time to gin up exquisitely nuanced youtube videos for the Iranian censors to jam.

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AIG: Political Three Card Monte

The rudderless Democratic leadership in Washington is grandstanding on the AIG affair in typical and predictable fashion.  But the whole thing is a charade, a distraction.  Obama and the House Democrats are playing a big game of three card monte.  We’re all supposed to be angry about $160mm in bonuses–and I am indeed angry about this, as I am annoyed about the whole principle of bailouts-while forgetting that AIG was given $160B by the government that in turn was given by AIG to Goldman Sachs and various foreign banks under various CDS contracts.  The whole sum is money from taxpayers to formerly rich people turned welfare cases.  And we’re supposed to get mad about this smallish amount of money–.1% of the bailout funds AIG received–that AIG was obliged to pay out in contracts to employees. The bonuses are the equivalent of a rounding error compared to the scale of the bailouts and stimulus packages as a whole.

Even worse, this show trial of AIG’s CEO is happening on the very day the Federal Reserve announced that it will depart from its prior practice and will now be buying long term treasuries outright to the tune of $1T!!! This is printing money folks, a confiscation from all of us.  The Federal Reserve’s actions takes from wealth-holders and our children in particular in order to keep this ponzi scheme of big government spending and fiat currency going as long as possible while avoiding the reckoning that Greenspan’s loose money policy has wrought.

The government is spending with abandon, but they want us all to think that a few measly bonus checks from a basket-case pass-through entity are the problem.  It’s exactly what I’d expect from the likes of the corruption-ridden Barney Frank and the Chicago shakedown artist  Barack Obama.

Bailouts are bad for many reasons.  But the two worst are that they cost a ton of money, and, second, they get government in bed with business.  As a result, we’re becoming increasingly numb as a people to the idea that a $1T here and a $1T there is no big deal, just as we’re getting used to the idea of the government has any business directing how private companies should spend their money.  The bailout is an anti-capitalist virus that attacks our public finances and our commitment to corporate independence.  We must let these companies fail or we’ll destroy free market capitalism.  That is the real systemic risk.

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Bush’s Legacy of Crony Capitalism

Bush was never a real believer in Free Markets. He instead believed in preserving the power and privilege of people like him. He sold it as a new kind of middle way, so-called “compassionate conservatism.”

Bush did not work hard to get where he was, instead inheriting his name, his network, and most of his money from his family. My experience with these “fortunate sons” is that they have a certain blindness about their own and others’ economic fortunes. Not having attained their success through their own efforts, they either feel guilty about it and indulge in various guilt-driven flirtations with leftism, or, alternately, don’t care about the structures that allowed their enterprising ancestors to attain wealth, aiming instead to preserve what they have at the expense of the economy as a whole.  Consider Bush’s perception that a woman who needed three jobs to support herself and her family was “uniquely American” rather than a tragic consequence of a low wage, screwed up economy.

Bush has been willing to sell out American workers and manufacturers out for many years to China and Mexico in the name of a cockeyed notion of fairness.  Now, worried about his legacy, he’s willing to kick the auto manufacturing can down the road by giving away TARP money to the Big 3 automakers.  There is no rhyme or reason to it, and his selective involvement in the economy is an invitation to chaos and politically chosen winners and losers.  Instead of setting the rules of the road, under Bush, the government has chosen very distinct winners and losers in the economy.

Consider Bush’s numerous deviations from free market principles and basic fair play:

• The giveaway to MBNA and other credit card companies in the ex post facto bankruptcy reforms of 2005;
• The giveaway to the pharmaceutical industry in the form of the prescription drug Medicare benefit of 2006;
• The rescue of Bear Sterns earlier this year coupled with the rejection of a Lehman Brothers bailout;
• The $190B farm subsidy bill of 2002;
• The cheap-money, high deficit imposition of various costs on future generations in order to create the present day illusion of prosperity.

Bush has repeatedly put a particular social class–corporate America, its multinational managerial elite, and the wealthy in general–above the good of the country as a whole.  Unlike Reagan and the long traditions of the Republican party, Bush has shown indifference to American workers and businesses most threatened by globalization. Obviously the Big 3 have problems largely of their own making, caused not least by the short-sighted greediness of their unions.  But they did not create the last decade’s unbalanced trade with China, our overly leveraged and under-regulated financial sector,  the slow money-suck of constant inflation, nor the immigration-driven wage gap with the rest of the “blue collar” economy.  They should not be bailed out now, not least because they have a tool in bankruptcy to reform themselves.  But the trade and monetary conditions of the last 10-20 years should never have come to pass.  Now terrible decisions are being made under crisis conditions by an ideologically unmoored failure.

Unfortunately, Obama and the Democrats promise more of the same whether in the form of spending on make-work infrastructure programs, appointing an “auto czar,” or “investing” in new technologies.  Their policies, an exagerrated version of Bush’s with even less regard for the national interest, will perpetuate the legacy of cronyism and failure with slightly different winners and losers, i.e., giveaways to minorities, the unproductive, and politically correct Third World supplicants.  Whenever the government gets involved in these matters and insulates participants in the market from the usual requirements of profit, loss, and competition, then political considerations come into play, just as they do in a smaller way in the realm of government contracts, such as the practice of affirmative action set asides and other forms of patronage.

Bush did not embrace free markets tempered by some consideration of the necessity of a strong, vibrant, and diversified national economy.  Unfortunately, his term went down in the recent history books as “extreme conservatism” rather than the nonideological jumble that it was, the reflection of a man with a peculiar past and a worldview formed by lifelong associations with preservation-minded elites in the world’s most corrupt nations.

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