There is no "Health Care Crisis"

Lost in the debate on what government should do about health care in America is the question no one seems to want to ask. That is, "Why fix a crisis when there is no crisis?"

According to the Obama Administration somewhere in the neighborhood of 50 million people do not have health insurance in America. So what? That is only about 15% of the entire population.

Why do we need to have the federal government - the same government that invades countries that do not invade us first; fail to deliver mail better than our phones or FedEx; provides lousy housing for the poor; lousy education for children; lousy roads, bridges, food inspection services and more - in charge of the biggest industry in America? Who are these functional morons who actually believe that government can do a better job at health care then they can at anything else? The American-Indians on reservations have been getting government care for decades. You would not want to go to one of the clinics these Americans are compelled to use.

I wonder how many of the 50 million people who do not have insurance could afford it but choose to spend their money on other things?

How many of the 50 million could afford some insurance if they altered their lifestyles and allocated their funds in a more rational manner?

How many of the 50 million could have some insurance if they would improve their stock of human capital by learning a trade or getting an education that would make them valuable enough to an employer to gain a job and employer-provided health care?

In a nation with rampant obesity, sexually-transmitted diseases, dangerous drivers, high crime and a "you owe me something" mentality, providing health care through the nose of the taxpayer is going to be very, very expensive. Nations like Canada, Sweden, Norway and other quasi-Socialistic places that have low populations and people who do not look as bad, or act as bad as we do, already have tax burdens that are hard for the average worker to manage.

In a nation of 307 million people with all of our problems, reforming health care to save 15% of us is simply idiotic.

In a week or so, the posting on this site will provide some economically sensible solutions to problems in our health care market.

Stay tuned...

Cash for Clunkers = Horrible Economic Policy

In my 20 - plus years as an economist I have witnessed many taxpayer-financed programs that have have little or no merit - economically, morally or Constitutionally.

However, I think I may now be witnessing a program that confirms my deep belief that Americans are almost completely economically ignorant.

Recently the Obama Administration announced plans to steal $1 billion (plus interest) from future taxpayers to help current Americans buy a new car. The "Cash for Clunkers" program, as of today, has used up all $1 billion and now the socialists running our country are preparing to add upwards of $2 billion to this "successful" stimulus to our moribund automobile sector.

This program is steeped in economic stupidity for a variety of reasons. Here's why:

1. If you are a car buyer who thinks of this program as $4,500 of your money at work you are wrong. This is not a tax credit where the government tells you to deduct $4,500 from your 2009 tax bill (assuming your tax bill is at least $4,500). This is government telling you that it will take almost $4,500 from your fellow taxpayers and give it to you. If you take it, over 99% of this figure will constitute theft on your part. Legalized theft, but theft nonetheless.

To calculate how much of the $4,500 is "your money" all you have to do is look at what you typically pay in federal income taxes each year. The federal government collects about $2.5 trillion in taxes annually. You need to figure what percentage of $2.5 trillion you paid. Then, take that percentage out of $1 billion (the cost of the program so far). THAT is how much of the $4,500 that is your money, rather than your neighbors money. When you do the math you will probably see that out of $4,500, your "tax credit" is probably 7 or 8 cents and the rest is government plundering on your behalf.

2. If you think the program will stimulate the automobile sector, think again. Yes, over 220,000 new cars have been purchased so far. But that means 220,000 cars that were still running have also been taken off the market. In this program you have to trade in a car that is operable then the dealer destroys the engine and it leaves the supply part of the market for cars. 220,000 new cars driven away, 220,000 used cars, with value to someone (the poor, teenagers, parents looking for a car for a kid, etc.) leave. That is called a zero-sum event. With used cars now becoming more scarce - especially if the program continues - we will see a tighter supply for these cars and higher prices for poorer Americans who could have used an $800 car to get around in for a couple of years.

The 22,000 new ones also are a false stimulus. Many of these would have been bought anyway but the lucky people who were already in the market simply get to save money at our expense.

Of those who would not have bought a new one, now the government has encouraged them to buy. This looks like a good thing for our auto industry but what happens when this false stimulus ends? Do you think the car industry is going to add more workers for a temporary program? What happens to the people who went into debt - during a recession caused by too much debt - to buy a new car? The law of opportunity cost means they took money away from some other purpose to buy this car. That means less money for other sectors of the economy and debt incurred at a time when less debt would be a better idea.

3. The planet will not cool off as a result of this program, but more people will die from it. The Obama Administration launched this program in part to get pollution-belching cars off the road and help lower the temperature of Earth. Give me a break. Let's say I trade in my truck - that gets a polar bear harming 13 miles per gallon - for a new truck that gets 19 miles per gallon. Better yet, I trade it in for a car that gets 29 miles per gallon. So, I get an improvement of 16 miles per gallon by driving my new tin can. Will I drive more now that I get better mileage? Will I be less safe on the roads? Yes and yes.

It is a rational reaction to enjoy the better mileage by going to the beach, taking more frequent trips to the grocer and other trips - long and short - that I would not take in my current gas-guzzling truck.

One brief stop on Google will also help you uncover the hard data on the number of people who get killed by driving smaller cars.

These accidents have to be paid for by insurance, health care professionals and by consumers who have to spend more to fix small cars than bigger, safer ones. This is a real cost that few in government are talking about.

Finally, and perhaps most sadly, is the cost of raising our kids to think of government as Santa or the tooth fairy. For every adult who buys a new car under this program they are unwittingly sending a message to their kids that there is "free money" out there for the taking and that we should just go get it.

That, my friends, simply adds to the ranks of future voters who line up to steal other people's money on election day.

Enjoy your new car.

Mandating Unemployment - July 13 Wall St. Journal

Here's some economic logic to ponder. The unemployment rate in June for American teenagers was 24%, for black teens it was 38%, and even White House economists are predicting more job losses. So how about raising the cost of that teenage labor?
Sorry to say, but that's precisely what will happen on July 24, when the minimum wage will increase to $7.25 an hour from $6.55. The national wage floor will have increased 41% since the three-step hike was approved by the Democratic Congress in May 2007. Then the economy was humming, with an overall jobless rate of 4.5% and many entry-level jobs paying more than the minimum. That's a hard case to make now, with a 9.5% national jobless rate and thousands of employers facing razor-thin profit margins.
There's been a long and spirited debate among economists about who gets hurt and who benefits when the minimum wage rises. But in a 2006 National Bureau of Economic Research paper, economists David Neumark of the University of California, Irvine, and William Wascher of the Federal Reserve Bank reviewed the voluminous literature over the past 30 years and came to two almost universally acknowledged conclusions.
First, "a sizable majority of the studies give a relatively consistent (though not always statistically significant) indication of negative employment effects." Second, "studies that focus on the least-skilled groups [i.e., teens, and welfare moms] provide relatively overwhelming evidence of stronger disemployment effects."
Proponents argue that millions of workers will benefit from the bigger paychecks. But about two of every three full-time minimum-wage workers get a pay raise anyway within a year on the job. Meanwhile, those who lose their jobs or who never get a job in the first place get a minimum wage of $0.
Mr. Neumark calculates that the 70-cent per-hour minimum wage hike this month would kill "about 300,000 jobs for those between the ages of 16-24." Single working mothers would also be among those most hurt.
Keep in mind the Earned Income Tax Credit already exists to help low-wage workers and has been greatly expanded in recent years. The EITC also spreads the cost of the wage supplement to all Americans, not merely to employers, so it doesn't raise the cost of hiring low-wage workers.
For example, consider a single mom with two kids who earns the current $6.55 minimum at a full-time, year-round job. In 2009 she receives a $5,028 EITC cash payment from Uncle Sam -- or about an extra $2.50 per hour worked. Other federal income supplements, such as the refundable child tax credit, add another $1,900 or so. Thus at a wage of $6.55 an hour, her actual pay becomes $10.02 an hour -- more than a 50% increase from the current minimum. (See nearby table.)
But that single mom can't collect those checks if she doesn't have a job, and the tragedy of a higher minimum wage is that it will prevent thousands of working moms striving to pull their families out of poverty from being hired in the first place.
If Congress were wise and compassionate, it would at least suspend the wage hike for one or two years until the job market recovers. We know this Congress won't do that, but someone has to speak up for the poorest, least skilled Americans.

July 4th is no day to celebrate

From the July 4, 2009 Orlando Sentinel

In 1794, Congress appropriated $15,000 for relief of French refugees who fled from insurrection in San Domingo to Baltimore and Philadelphia. James Madison, the principal author of the U.S. Constitution, stood on the floor of the House to object."I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents," he said.A few decades later, while serving in the same capacity as a member of the House of Representatives, David Crockett, upon listening to pleas from his fellow congressmen to give tax dollars to the widow of a deceased naval officer, said, "We have the right, as individuals, to give away as much of our own money as we please in charity; but as members of Congress, we have no right so as to appropriate a dollar of the public money."Madison and Crockett would not recognize the United States of America as we approach our nation's 233rd birthday. In fact, these gentlemen, along with the others who created our great nation, might suggest that the July Fourth festivities be canceled and replaced with a national day of mourning for what we have lost the past several years.When our republic was founded, the framers of our Constitution formed a rule book that established our government as the protector of our life, liberty and private property. Article 1, Section 8 of the Constitution states that along with national defense, Congress can allocate our earnings to provide for the general welfare of the citizenry.Thomas Jefferson, James Madison and others argued that "general welfare" was confined to only those functions that secure our rights. These three natural rights were to be the only rights we would enjoy. Everything else — a car, access to education, decent health care, concert tickets — would be part of our interests, things we would have to obtain by serving our fellow man effectively enough so as to earn the income necessary to enjoy them. Where our earning capabilities were stunted by disabilities, illness or bad luck, charity from secular and religious sources was to fill the gaps.During the Constitutional Convention in 1787, Alexander Hamilton argued that the general welfare clause should not be confined to the specific spending clauses in our Constitution. Hamilton argued that the government should be able to spend money on anything so long as the argument could be made that it was for the general welfare of the nation. Not one of the Founding Fathers agreed with Hamilton during the convention.The Supreme Court agreed with Hamilton in 1935. Fearing that the Roosevelt administration would pack the Supreme Court with justices sensitive to his big-government agenda, the court specifically mentioned Hamilton as the Founding Father who best understood what the role of government should be in our lives. Consequently, since the 1930s, the cost of government has risen from about $20 per person annually to more than $10,000.Today, our quasi-socialistic nation has moved so far from the intent of the Founding Fathers that it is laughable to hear politicians swear an oath that even mentions the Constitution.Consider the past few years alone. Trillions of tax dollars have been allocated to pre-emptive wars, domestic spying on innocent citizens and bank, automotive and insurance bailouts. We have seen huge increases in social-welfare spending for the elderly, people facing foreclosure and farmers who were supposed to know that sometimes it rains and sometimes it does not.We are witnessing the nationalization of General Motors, the banking sector and the health-care industry, all while higher taxes are imposed on America's most productive citizens to pay for the well-being of the less productive. Moreover, we now have the highest corporate income-tax burden in the developed world, while India, much of Eastern Europe and China moves in the opposite direction.If you believe in liberty and small government, July Fourth is no day to celebrate. We cannot, in good conscience, celebrate our independence when we have become so dependent on the government.It is a day to think about how much longer a nation can survive when the citizenry forms a longer and longer line at the trough of public tax dollars.

The Wall Street Journal
MAY 29, 2009
The 'Unseen' Deserve Empathy, Too


By JOHN HASNAS
While announcing Sonia Sotomayor as his nominee to the Supreme Court, President Barack Obama praised her as a judge who combined a mastery of the law with "a common touch, a sense of compassion, and an understanding of how the world works and how ordinary people live." This is in keeping with his earlier statement that he wanted to appoint a justice who possessed the "quality of empathy, of understanding and identifying with people's hopes and struggles."

Without casting aspersions on Judge Sotomayor, we may ask whether these are really the characteristics we want in a judge.

Clearly, a good judge must have "an understanding of how the world works and how ordinary people live." Judicial decision-making involves the application of abstract rules to concrete facts; it is impossible to render a proper judicial decision without understanding its practical effect on both the litigants and the wider community.

But what about compassion and empathy? Compassion is defined as a feeling of deep sympathy for those stricken by misfortune, accompanied by a strong desire to alleviate the suffering; empathy is the ability to share in another's emotions, thoughts and feelings. Hence, a compassionate judge would tend to base his or her decisions on sympathy for the unfortunate; an empathetic judge on how the people directly affected by the decision would think and feel. What could be wrong with that?

Frederic Bastiat answered that question in his famous 1850 essay, "What is Seen and What is Not Seen." There the economist and member of the French parliament pointed out that law "produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them." Bastiat further noted that "[t]here is only one difference between a bad economist and a good one: The bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen."

This observation is just as true for judges as it is for economists. As important as compassion and empathy are, one can have these feelings only for people that exist and that one knows about -- that is, for those who are "seen."

One can have compassion for workers who lose their jobs when a plant closes. They can be seen. One cannot have compassion for unknown persons in other industries who do not receive job offers when a compassionate government subsidizes an unprofitable plant. The potential employees not hired are unseen.

One can empathize with innocent children born with birth defects. Such children and the adversity they face can be seen. One cannot empathize with as-yet-unborn children in rural communities who may not have access to pediatricians if a judicial decision based on compassion raises the cost of medical malpractice insurance. These children are unseen.

One can feel for unfortunate homeowners about to lose their homes through foreclosure. One cannot feel for unknown individuals who may not be able to afford a home in the future if the compassionate and empathetic protection of current homeowners increases the cost of a mortgage.

In general, one can feel compassion for and empathize with individual plaintiffs in a lawsuit who are facing hardship. They are visible. One cannot feel compassion for or empathize with impersonal corporate defendants, who, should they incur liability, will pass the costs on to consumers, reduce their output, or cut employment. Those who must pay more for products, or are unable to obtain needed goods or services, or cannot find a job are invisible.

The law consists of abstract rules because we know that, as human beings, judges are unable to foresee all of the long-term consequences of their decisions and may be unduly influenced by the immediate, visible effects of these decisions. The rules of law are designed in part to strike the proper balance between the interests of those who are seen and those who are not seen. The purpose of the rules is to enable judges to resist the emotionally engaging temptation to relieve the plight of those they can see and empathize with, even when doing so would be unfair to those they cannot see.

Calling on judges to be compassionate or empathetic is in effect to ask them to undo this balance and favor the seen over the unseen. Paraphrasing Bastiat, if the difference between the bad judge and the good judge is that the bad judge focuses on the visible effects of his or her decisions while the good judge takes into account both the effects that can be seen and those that are unseen, then the compassionate, empathetic judge is very likely to be a bad judge. For this reason, let us hope that Judge Sotomayor proves to be a disappointment to her sponsor.

Mr. Hasnas is a visiting professor at Duke University School of Law.

Some thoughts on homeschooling..

5/27: Letters to the Editor
May 27, 2009
Home-schooled children are smart, considerateIn Monday's Sentinel ("Home-schoolers, don't quit system"), Amy Platon argued that parents who home-school their children are creating citizens who will have less compassion for their community, avoid improving the lives of our fellow man and only look out for their own interests.As a professor in Orlando for the past 18 years and father of two home-schooled boys, I think I can respond to her concerns.The home-schooled students who come to my economics classes are, along with their counterparts from India, Russia and China, my best students. They earn the highest grades, have wonderful communication skills and are willing to help their fellow students. In fact, many of our nation's best universities seek out home-schooled students because of their unique life experiences and high SAT scores.In areas where my wife and I are not experts, the free market of ideas has provided experts. We use private-school clubs and programs, free-market educational resources and cooperatives with parents who are specialists in everything from electricity to pottery to provide our sons with an enriched learning experience. Moreover, through music and sports programs, we help our boys function in a society of non-home-schooled children.
Platon should be concerned that America's public schools rank at or near the bottom of international comparisons. If concerned parents want their kids to emerge from this epic recession as viable competitors with Chinese and Indian children, then looking into the home-school option would be a good place to start.Jack Chambless Oakland

Government as car maker...

The moment we have all been waiting for has finally arrived. The United States government is officially in the car business. The same government that has given us the wildly successful post office; public education; American-Indian reservations; the War on Poverty, drugs and terrorism; public housing; forest management and many other highlights in the history of things that don't work, is now poised to give us our future automobiles.

Let's take a moment to review how we got here.

First, the 'Big Three' American companies failed miserably to compete with Japaneses car companies from the early 70's on. With the help of the economically illiterate United Autoworkers union, American companies saw declining market shares, rising costs and inferior quality come home to roost.

Facing bankruptcy, two of the three run to Washington, D.C. to beg for the plundered tax dollars of people who drive Toyotas, Hondas, Hyundais and other cars that are not made by GM or Chrysler. Our government proceeds to hand them billions of dollars and a threat to come up with a better model in a couple of months (to replace what took decades to doom them) or face the pressure of federal intrusions into how to get us from point A to B on the highway.

Of course the beggars from Detroit failed to deliver on this impossible task and the Obama Administration, a.k.a, the "Superior Ones" ostensibly nationalized GM by taking a 50% ownership stake and condemned Chrysler be the certain death of being largely run by that world-class company, Fiat.

Now that the federal government has huge ownership stakes in both companies, the feds get to tell the companies what to do. Naturally, this means the companies will be forced to do things that have not even one remote connection to anything that the laws of supply and demand would insist they do.

In a free market, absent bailouts and takeovers by government, GM and Chrysler would be wise to file for bankruptcy, close every plant in unproductive, union states and move to places like Texas, Florida and other places where you can hire workers for far less than the absurd amounts the UAW workers get. Then, as smaller, leaner companies, GM and Chrysler could go about competing with Toyota and Honda on a playing field that Adam Smith would love.

Instead, on May 18th, GM CEO, Barack Obama announced that he will be determining what course of action the car companies will now face. HE has decided that all cars should get 30% better fuel economy than they do now by the year 2016. HE has demanded that this take place so that we can all fight global warming in smaller, lighter, less roomy death traps on wheels.

Take a look at the data for yourself. When government forces our cars to get better mileage, highway deaths increase.

These cars will cost more (Obama predicts $600 more) and will not have the same power or capacity that our vehicles do at this time.

Our marketplace used to tell car companies very clearly that size and power is what we want most. Now tree huggers and "Save the Polar Bears" activists will tell us what to drive.

With any luck we will get to drive cars like the East German Trabant (see photo) This is the car that gave Communism a bad name. Powered by a two-stroke pollution generator that maxed out at an ear-splitting 18 hp, the Trabant was a hollow lie of a car constructed of recycled worthlessness (actually, the body was made of a fiberglass-like Duroplast, reinforced with recycled fibers like cotton and wood). A virtual antique when it was designed in the 1950s, the Trabant was East Germany's answer to the VW Beetle — a "people's car," as if the people didn't have enough to worry about. Trabants smoked like an Iraqi oil fire, when they ran at all, and often lacked even the most basic of amenities, like brake lights or turn signals.

Road trip anyone???