Commentarius

Thoughts and Impressions

Month: September 2009 (page 2 of 2)

Greg Mankiw Reads My Blog

No, not really.  But note the similarity between this post from Commentarius, and this post from Mankiw’s blog!

9-12 DC Rally

I was at the anti-progressive rally in Washington today.  The crowd was large and friendly, and the signs were mostly very clever.  I did see one or two that were less than impressive – notably one that had, among other pictures, a depiction of Obama in some sort of Amazonian tribal garb (I was not close enough to figure out what statement exactly the sign was trying to make).  For the record, the vast majority of Obama=Hitler posters were manned by LaRouchePac (a group of culty quasi-communists and NOT part of the conservative or libertarian movements).

Gadsden and American flags were present in rough parity, an important thing, I think.  The former glosses the latter.  We were not celebrating America because we love its habitual massive deficits and over-weaning federal bureaucracy, its massive welfare state transfers and labor-corporate patronage system, its decaying global military hegemony, or its puritanical pursuit of recreational drug users.  We were celebrating our nation to the extent that it was founded on revolt against intrusive interference by arbitrary powers.

Socialists of all parties, don’t tread on us!

Capitalism and Socialism are Opposites, Not “Two Complementary, Good Ideas”

The following was originally written for Americans for Tax Reform, where I am an intern:

Perhaps the most frustratingly incoherent part of Obama speech Wednesday was his repeated portrayal of the market and government planning as just two possible, non-exhaustive, mutually-reinforcing “solutions” to the current health care “crisis”.

There are those on the left who believe that the only way to fix the system is through a single-payer system like Canada’s — (applause) — where we would severely restrict the private insurance market and have the government provide coverage for everybody.  On the right, there are those who argue that we should end employer-based systems and leave individuals to buy health insurance on their own…. I have to say that there are arguments to be made for both these approaches.

Obama likes to present his plan as a sort of third way between government-run health care and the market, incorporating, as he said, “the best ideas of both parties together”. This is essentially nonsense. Our health care system cannot be made “more free market” and “more government-regulated” simultaneously.

The free market and government planning are exhaustive opposites. Every health care choice is either made freely by consumers selecting their most favored option, or it is chosen for them by government mandates. Under a market system, for example, consumers can either choose to buy health insurance through their employer or on the individual market. In a planned economy, by contrast, the government may order them to buy through their employer.

President Obama leaves little doubt as to which direction he will take our health care system:

Now, even if we provide these affordable options, there may be those — especially the young and the healthy — who still want to take the risk and go without coverage.  There may still be companies that refuse to do right by their workers by giving them coverage.

And that’s why under my plan, individuals will be required to carry basic health insurance — just as most states require you to carry auto insurance.  (Applause.)  Likewise — likewise, businesses will be required to either offer their workers health care, or chip in to help cover the cost of their workers.

But we can’t have large businesses and individuals who can afford coverage game the system by avoiding responsibility to themselves or their employees.  Improving our health care system only works if everybody does their part.

Obama’s plan, at its heart, requires that consumers be deprived of their free choice, so that the government can micromanage insurance premiums based on arbitrary notions of “just cost distributions”. This is, at its heart, socialism.

Obama Punts on Cost Reductions

The following post was originally written for Americans for Tax Reform, where I am an Associate (intern):

“I understand that the politically safe move would be to kick the can further down the road — to defer reform one more year, or one more election, or one more term. “

– President Obama, September 9, 2009, in his address to Congress

In his speech last night, Obama tried to imitate a man concerned by the costs of his health care proposal. Obama promised that his bill would be deficit neutral:

I will not sign it if it adds one dime to the deficit, now or in the future, period.  And to prove that I’m serious, there will be a provision in this plan that requires us to come forward with more spending cuts if the savings we promised don’t materialize.

Obama’s “serious” promises lack substance. As previously argued, pledging “not to sign” a bill is meaningless: the President must veto a bill to block its passage. But the “promised savings” suggestion is even more insidious. Such a provision merely promises to delay any budgetary solution until a crisis has actually arrived. As Obama would say, it kicks the can further down the road to defer reform one more year, one more election, or one more term.

What faith should people have that actual budget cuts will be made at this future point, when they cannot be made now? Congress would have to actively draft specific cuts – cuts that hurt special interests eager to preserve their spot at the public trough. Congress would retain all power to break this non-binding promise. So how likely is it that Congressmen would take up arms against their campaign contributors, instead of raising taxes or taking on more debt?

If Obama were really interested in proposing a fiscally responsible bill, he would be proposing conditional spending, not conditional spending cuts. He would propose subsidies that took effect after his “savings” were realized, not unspecified spending cuts after the savings proved illusory. “Trust me” is not a cost-cutting reform worth $900 billion – or any amount.

Obama’s unserious proposals force us to choose between two conclusions. Either he doesn’t know what he’s doing, or he is insincere.  Given his eloquence, education, and the vast resources of his office, the former seems precluded.

The Fundamental Incoherence of Obama’s Health Care Crisis Claims

This piece was originally written for Americans for Tax Reform’s blog, where I am an Associate (intern):

In his speech to Congress last night, President Obama grounded his health reform plans two contradictory claims. First, President Obama insisted that health insurers were increasingly denying health care to their clients. Then, he argued that America was suffering from a crisis of rising health care expenditures.

More and more Americans pay their premiums, only to discover that their insurance company has dropped their coverage when they get sick, or won’t pay the full cost of care.  It happens every day.

Then there’s the problem of rising cost.  We spend one and a half times more per person on health care than any other country, but we aren’t any healthier for it.  This is one of the reasons that insurance premiums have gone up three times faster than wages.

Obama’s argument betrays either ignorance or a willful disregard for economic reasoning. If insurers engaged in wholesale jettisoning of their most expensive customers, their costs would fall. An insurance company with lower costs would be able to capture more market share from its rivals by lowering its prices. Those rivals would be forced to compete either by matching the new lower premiums or competing in quality – i.e. by indulging in less rescission!

Health care premiums are rising, so we can safely assume that more, not less, health care is being delivered by insurers. To argue that both costs and rescissions are increasing simultaneously is to deny the basic reality of free market competition. Radical overhauls of the health care system should not be grounded in this populist fantasy.

Obama Health Care Speech Drinking Game

I’ll be watching / tweeting Obama’s health care speech tonight.  I’ll also be drinking.  I intend to take a sip of beer whenever the President says any of the following words or phrases (or something reasonably close to them).  Feel free to drink along with me – at your own risk!

  1. 46 million uninsured
  2. A lot of misinformation
  3. Arbitrary caps
  4. Bend the curve
  5. Co-op
  6. Cost of doing nothing
  7. Death panel
  8. Deny coverage
  9. Doing nothing is not an option
  10. Economy that works for everyone
  11. Exorbitant out-of-pocket
  12. Fearmongers
  13. Great Depression
  14. Health care reform opponents need to show us their plan
  15. Honest Debate
  16. If you like your doctor, you can keep your doctor
  17. Insurance companies that deny them coverage
  18. Keep insurance companies honest
  19. Medicaid
  20. Medicare
  21. Misinformation
  22. Naysayers
  23. New foundation
  24. Ordinary Americans
  25. Pre-existing coverage
  26. Public option
  27. SCHIP
  28. Special interests
  29. Status quo
  30. Ted Kennedy
  31. There won’t be government bureaucrats meddling in your health care
  32. Trigger

A Free Economics Lesson for Media Matters

This piece was originally written for Americans for Tax Reform’s blog, where I am an Associate (intern):

Every day after ATR posts new state figures on how cap and trade will destroy jobs and increase energy costs, Media Matters Action’s blog responds, like clockwork, that Waxman-Markey would instead create “green jobs”. For example, after Tuesday’s post on Kansas, Media Matters responded that 17,000 green jobs would be created. Because we know that Media Matters is reading our blog, we figured that we should give them a free economics lesson to explain why cap and trade may “create green jobs” but will still hurt the economy. Read on, Media Matters!

Cap and trade works by setting a cap on CO2 emissions – effectively creating a carbon energy quota. Firms bid for permits from the government to contribute toward this quota. The bidding process imposes a de facto excise tax on the carbon-based energy market. This tax causes the supply of carbon-based energy to decrease. The tax increases – and supply decreases – by the amount necessary to create a new supply-demand equilibrium at the level set by the carbon quota. This can be represented graphically.

The above is a standard supply-demand model of the carbon-based energy market. The horizontal axis represents the quantity of energy produced and consumed. The vertical axis is the unit price of energy. The red line D is downward-sloping demand. The blue lines shows supply, which decreases (shifts left) after the imposition of the cap and trade quota. The quota is shown by the green vertical line “capping” carbon-energy at Q2. The vertical distance between the two supply lines shows the size of the excise tax created by cap and trade.

Economists use the concept of “total surplus” to measure the benefits of a market. Roughly explained, total surplus represents the sum of differences between the benefit for each consumed unit (shown by the demand curve) and the cost for each produced unit (shown by the supply curve). On the graph, the total surplus can be seen as the triangular area between the supply (S) and demand (D).

What happens to the total surplus when the government imposes cap and trade? When the de facto tax goes into effect, the cost of each additional unit of production increases by the amount of the tax. Thus, each unit of energy produced and consumed yields less surplus; the unit surplus by the excise tax. Part of this surplus is taken from consumers in the form of a price increase (P2 is higher than P1). The rest of this reduction is felt by lower unit revenues for producers (P2-Tax is lower than P1).

This tax revenue is retained by society in the form of government revenue. This area is shown on the graph as the two green areas. We can think of this tax revenue as the source of “green job” funding. As the graph demonstrates, “green jobs” are created by eating into and displacing pre-existing economic prosperity. Where the government creates “green jobs”, it destroys other jobs or eats into the taxpayer’s wallet.

But worse than arbitrarily distributed government revenue is dead-weight loss. Dead-weight loss represents goods whose benefit exceeds their cost, but are not produced. The energy quota and tax ensures that a certain amount of production will be lost– represented by the two purple areas on the graph. The real production costs of these goods are lower than their benefit to consumers, but taxes put them out of reach. Dead-weight loss is felt as a decrease in consumer wealth and supplier jobs, and these losses do not yield any ameliorating increase in government spending – the wealth simply disappears.

The government cannot “create” jobs. It can only arbitrarily displace one industry with taxes and then replace it with spending. When it does this, it creates dead-weight losses that harm the economy as a whole. When Media Matters writes that the government will “create” green jobs, they really mean that the government is going to rearrange the energy sector for the detriment of all – what we have argued all along!

Newer posts

© 2018 Commentarius

Theme by Anders NorenUp ↑