economics

A million march to US Capitol to protest again...
Image by wstera2 via Flickr

I’m very disappointed in the disingenuous way our president continues to wage war on the nation’s banks. Yesterday, he unveiled a new tax on these institutions meant to recapture the money spent on TARP. As reported by NPR, the President lays out a compelling story:

“[These banks]…owe their continued existence to the American people, folks who have not been made whole and who continue to face real hardship in this recession. We want our money back and we’re going to get it.”

In other words, if the US government hadn’t made TARP money available to these banks, they would have gone bankrupt.

As you know by now, this is a complete and utter lie. Almost all of the TARP recipients were forced to take the money so the few banks that actually did need the funds wouldn’t be stigmatized and experience a run.

And, as I mentioned before, these same banks that were forced to take the money were also forced to pay interest on it.

But, you know what; it wouldn’t be so bad if he were merely lying. Frankly, that’s par for the Obama administration.

What gets me is the hypocrisy. Check out this quote:

“My determination to achieve this goal is only heightened when I see reports of massive profits and obscene bonuses at some of [these] firms”

Which firms are those, Mr. Obama? Do they include Fannie Mae and Freddie Mac?

http://online.wsj.com/article/SB126161634214403629.html?mg=com-wsj (subscription required)

Fannie, Freddie Disclose Big Jump in CEOs’ Pay

“The companies on Thursday disclosed new pay packages under which Fannie CEO Michael Williams and Freddie CEO Charles (Ed) Haldeman Jr. will earn as much as $6 million a year, including bonuses, well above their current terms. The packages came with the blessing of the Treasury, which has pumped a combined total of about $112 billion of capital into the companies over the past year to keep them in operation, and the Federal Housing Finance Agency, or FHFA, which regulates the companies.”

That’s right. We pumped $112 billion of capital into these companies and their CEOs are getting big jumps in pay. By the way, when were those approved? Oh, that’s right, Christmas Eve. Nice transparency.

Well, hey, do Freddie and Fannie have to repay the $112 billion they got?

Answer: no. Despite being the overwhelming majority underwriter of the horrible loans that started this mess. Classy move, Obama.

Oh, but Obama has some suggestions for the banks who do have to repay taxpayer money:

“What I’d say to these executives is this: Instead of sending a phalanx of lobbyists to fight this proposal or employing an army of lawyers and accountants to help evade the fee, I suggest you might want to consider simply meeting your responsibilities. And I’d urge you to cover the costs of the rescue not by sticking it to your shareholders or your customers or fellow citizens with the bill but by rolling back bonuses for top earners and executives.”

I literally swore (sorry, Love!) last night as I listened to a supposedly educated man, and leader of the free world, make this statement.

Meeting their responsibilities? What responsibilities are those? The responsibility, under your party’s Community Reinvestment Act to make loans to people who can’t afford them? The responsibility to amp up those loans when a Democrat-led Senate threatened to sue the banks for not loaning enough in the 1990’s?

And where are they going to get the money to pay these fines? From their customers and shareholders and fellow citizens. THEY HAVE NO OTHER SOURCE OF MONEY!!

Oh, except the Treasury, when it’s forced on them.

Mr. Obama, please stop your populist temper tantrum, quit speaking out of both sides of your mouth and get down to the fundamental job government should be doing: ensuring a free market and free information for all participants.

FRANKFURT, GERMANY - NOVEMBER 14:  Jean-Claude...
Image by Getty Images via Daylife

http://www.washingtonpost.com/wp-dyn/content/article/2010/01/11/AR2010011103892.html

“The Federal Reserve made record profits in 2009, as its unconventional efforts to prop up the economy created a windfall for the government.

The Fed will return about $45 billion to the U.S. Treasury for 2009…That reflects the highest earnings in the 96-year history of the central bank. The Fed, unlike most government agencies, funds itself from its own operations and returns its profits to the Treasury.”

It would be one thing if the banks had approached the Fed, hat in hand, for a bailout. But the majority didn’t. The Fed forced most of the TARP recipients to take the money so the ones that actually needed it wouldn’t be stigmatized. I appreciate that approach and how it avoids a run on already troubled banks.

But to force a bunch of banks to take loans, charge them interest and then hand the interest over to the Treasury instead of giving it back to the banks, who never asked for the loan in the first place, seems like, well, chutzpah.

John Maynard Keynes {{ru|???? ??????? ?????}} ...

Image via Wikipedia

Since President Obama was elected, there has been a good deal of interest in Keynesian economics. John Maynard Keynes was a Depression-era economist who’s (arguably) most famous contribution to Economics was the idea that when an economy is in trouble, the government must step in and stimulate job growth by increasing spending. He did not believe that markets were efficient and took things like recessions and depressions as evidence of that.

Recently in the LA Times, Michael Hiltzik writes an editorial entitled “The world still can learn from Keynesian economics“. His basic contention is that free markets led the economic meltdown and that Keynes, having predicted this sort of thing, should be our source of guidance for how to get out.

Needless to say, I don’t agree with Mr. Hiltzik (or Mr. Keynes, for that matter). I’ll take you through his argument and talk about where and why I disagree with him.

Continue Reading

PORTSMOUTH, NH - AUGUST 11:  Diane Campbell, 5...
Image by Getty Images via Daylife

A month ago, I wrote about the “tragedy of the commons” and how it applies to health care in the US. Basically,

“The same holds true for health care. Collectively, we all have an incentive to avoid over-utilizing health care and unnecessarily burdening our system. Individually, however, when we have no skin in the game, when somebody else pays the bill, we have no incentive to monitor our use of this pooled resource.”

My proposed solution to the health care crisis was,

“I’d like to see a proposal that gives tax advantage to high-deductible plans, so people have skin in the game, and that forces doctors and hospitals to publish their prices before treatment is given. With both the use and cost of health care better controlled, health insurance will become much cheaper.”

Predictably, Harry Reid and the Democrats are not only refusing to make high-deductible health plans tax-advantaged, they’re trying to eliminate them altogether.

“The Reid bill also assaults health savings accounts, or HSAs, which allow individuals to accumulate tax-free funds for future medical expenses when coupled with low-premium, high-deductible insurance. The Reid bill changes tax provisions to make HSAs less attractive, but the real threat comes via increased regulation.

These insurance products will likely be barred from the insurance ‘exchanges’ that will demolish and supplant today’s individual market. Employers will also find them more difficult if not illegal to offer once the government has new powers to ‘define the essential health benefits’ that all plans must eventually offer. Plans that focus mainly on catastrophic health expenses, instead of routine procedures, aren’t generous enough for Democrats.

In other words, instead of bridging the gap between payer and consumer, the very heart of the problem, we’re increasing the gap.

Mark my words, this can have no other effect than to increase health care costs.  This won’t just leave the costs as they are now, but make them worse.  People who are already being responsible about health care costs will no longer be incented to do so.

Even worse, remember the other effect of the “tragedy of the commons” I discussed.  The crab fisherman I talked about did everything they could to get all the crabs before somebody else did.  The same applies here.

Health care is a scarce resource (meaning there isn’t an unlimited amount of it).  This is because there are a limited number of doctors and other health care professionals, facilities, machines, etc.  One reason prices are so high (besides the lack of price competition, see post linked above) is that our health care system is overburdened.

Cash Money

Image by jtyerse via Flickr

Another scarce resource is money.  Despite the government’s willingness to deficit finance over the past 10 years or so, there is a scarce amount of money in the world.  Of course, the US could start printing money (they’re not, despite what Glen Beck says) but if they do that on a large scale, get ready to occupy your underground bunker ’cause things will get rough.

Given that the services and the ability to pay for them are scarce, we can expect Congress to work to manage those costs through lower coverage and higher premiums for the “public” option (or legislation that makes other plans look worse, compared to the public option).

Knowing this, consumers who enroll in the public option (already expected to be the highest users of the health care system) will explode their utilization in an effort to get all the services they can before the costs go up.

The bottom line is this:  the current Senate plan not only doesn’t do anything to cut health care costs, it will raise them.  Guaranteed.  At a price of $1.2 trillion ($2.5 trillion by some measures that account for Congress’ accounting gimmicks), this is unacceptable.

Please, please, please contact your Senator and Harry Reid’s office and make sure they know how you feel about this bill.  Your ability to provide health care for your family is at stake.

{{BArch-description|1=Arbeitsloser auf Arbeits...
Image via Wikipedia

US GDP increased at a 3.5% rate (last paragraph) in the third quarter of 2009.  While this is great news, a lot of people are asking, “where are the jobs?”  Unemployment rate is 10.2% nationally, which is about 6% higher than full employment.  What’s the deal, economy?

Of course there are many potential explanations why unemployment would continue to rise while GDP increases.  Those reasons are specific to each recession, in my opinion.  I believe there’s a simple, plausible explanation, right now.

Continue Reading