Thursday, May 17, 2012

Too Big to Manage

Yesterday I asked: If JPMorgan Chase’s loss of $2 billion shows the need for more bank regulation, what should the federal government’s $1.3 trillion deficit tell us? And Michael Cannon pointed out that in the private sector, people who make big mistakes tend to lose their jobs, unlike the public sector.

Today another theme is being heard, at the Wall Street Journal, on NPR, and many more places including even here at Cato@Liberty: banks like JPMorgan, which has annual revenue of $100 billion, are just “too big to manage.”

And again I have to wonder: if large banks are too big to manage, what should we think about the federal government? The federal government is the largest landowner, the largest insurer, the largest employer, the largest banker in the country. It operates everything from a judiciary to the most complex armed force in history to numerous health insurance programs to a retirement system to a highway system to a peanut subsidy program.

If JPMorgan is too big to manage, can we possibly expect competent management of such a massive operation that doesn’t even face the feedback of profit and loss?



Review of The Death of Liberalism, by R. Emmett Tyrrell Jr.


The redoubtable R. Emmett Tyrrell Jr. has done it again; he has written yet another penetrating analysis of the liberal establishment in his latest book, The Death of Liberalism, (Thomas Nelson, 2012)

Although this is a polemic with the biting attributes of Tyrrell's acid-like analysis, the points are critical, or as he puts it, fatal. For example, as he notes, the increase in the national debt is crushing and no amount of expropriation in the form of new and higher taxes can retire it.

At bottom Tyrrell, relying on a transparent admission by Herbert Croly in the Promise of American Life, maintains that liberalism is an expression of the belief "that the average American individual is morally and intellectually inadequate to a serious and consistent conception of his responsibilities as a democrat." Hence, the need for government social engineers who arrogantly do the necessary bidding for reform.

The new progressives invariably invoke the goals of justice and fairness, but their policy applications are anti-democratic and illiberal. They claim, as an example, that universal health care will engender low cost and high quality care, but overlook the fact that it entails stripping many Americans of cherished liberties.

Clearly statism of the kind promoted by the new progressives argues for aggressive legislation to right the wrongs of the past, from the unequal distribution of wealth to urban woe. In the process, liberty is compromised and the promised goals of this intellectual exercise prove elusive. As Tyrrell contends, liberalism is exhausted, a victim of failed policies going back to the New Deal.

He notes accurately, I believe, that the white working class believes in the nation, its history, Constitution, and customs. It is suspicious of elites and believes that the progressives have deserted them, despite rhetorical gestures made in their direction. The liberal schemes for the future are a composite of socialism, fascism, and American bred big government melded together in a brew that is designed to engender citizen dependency and infantilism.

When the Obama led government took over AIG, Chrysler, General Motors, and the banks that were deemed "too big to fail," the sign of progressive overreach was readily visible. This spectacular expansion of federal authority placed one-sixth of the economy under government control. What Tyrrell describes as socialism with "a friendly face."

As I see it, Tyrrell has effectively captured the liberal impulse for government's insinuation into every aspect of economic life. Where I hesitantly challenge Mr. Tyrrell is whether the evidence he has compiled leads inexorably to the death of liberalism. After all, communism died, but leviathan prevails. It might well be asked if the number of Americans seduced by government activity is not larger than those who do not feed from the public trough.

Consider for the sake of argument the fact that 45 million Americans are on food stamps (1.8 million in New York with a total population of 8 million); 50.5 million receive Medicaid; 46.5 million are on Medicare; 52 million receive Social Security benefits; 26 million are receiving earned income credit. These payments account for well over 70 percent of the federal budget and limits are not on the horizon.

Consider as well benefits to home owners, crony capitalism activity and the role interest groups play in deriving special treatment from government. It is one thing to say, as erstwhile President Clinton did, that the age of big government is over, and quite another matter to see it put into effect. Big government is not deleveraging because too many people have a stake in its retention.

Perhaps claims of The Death of Liberalism are exaggerated. But on the essential issue Tyrrell is correct-liberalism is draining energy from the body politic, forcing the United States into a crisis of unparalleled proportions. Of course, this may be a crisis that isn't wasted and restores the traditions that gave this nation vitality. As I see it, hope is the harbinger of appropriate change and Tyrrell may be on to something.



Obama’s Jobless Rate Reality

For the third straight spring, the American economy is experiencing a “failure to launch.” Our nation’s unemployment rate continues to inch lower — from 8.2 percent in March to 8.1 percent last month – but it’s dropping for all the wrong reasons (i.e. people leaving the labor force). And despite the Federal Reserve’s optimistic projections of sustained job growth over the coming months, the fundamentals of the U.S. labor market remain weak.

Record numbers of workers are exiting the job market — 340,000 of them last month alone — and the ranks of the long-term unemployed continue to hover at elevated levels.

Since Barack Obama took office, America’s civilian non-institutionalized population has expanded by more than 8 million people — however there are 319,000 fewer Americans working today than in January 2009. As a result of this failure to create jobs, America’s labor participation rate is at a 30-year low of 63.6 percent — and still falling.

This largely unreported statistic translates into less productivity and a bigger burden for taxpayers, but it also means America has a much higher unemployment rate than the one Obama’s administration has been touting. In fact had America’s labor participation rate remained constant over the duration of Obama’s term, the current unemployment rate would be 11.1 percent.



Europe's high-taxing Right is headed for a fall

Nobody should be surprised if voters also give Angela Merkel and David Cameron the boot at the next ballot

Readers presumably understand that Europe's economic crisis is also the crisis of social democracy—of the idea that markets must be made to co-exist with high levels of taxation, regulation, unionization, welfare spending and subsidized health care and education. Eutopia may be nice in theory; it may even work for a while. But eventually social-democratic policies will lead to economic stagnation, policy paralysis and national bankruptcy on the continental scale we are witnessing today.

So, naturally, Germany's Social Democrats romped to a 13-point victory in Sunday's elections in North Rhine-Westphalia, the country's largest state.

"All politics is local," goes the cliché, and it would be tempting to read the German result that way, too. The state had long been a Social Democratic stronghold before tipping into the hands of Angela Merkel's Christian Democrats in 2005. Mrs. Merkel remains broadly liked as chancellor and doesn't face an election until next year. And the German economy is the envy of Europe.

And yet Mrs. Merkel's party keeps losing state elections: In its old stronghold of Baden-Würrttemberg last year; in her home state of Mecklenburg-Western Pomerania. Are Germans doing so well that they've decided to become politically flippant about their prosperity? Would Christian Democrats be doing a bit better politically if the economy were doing a bit worse?

The resurgence of the Social Democrats in Germany is of a piece with the strong showing of Labour last month in Britain's local council elections. It's of a piece with the pathetic showing this month of Greece's center-right New Democracy, and of the resurgence there of the hard left. It's especially of a piece with Francois Hollande's improbable rise to the French presidency, on the strength of economic ideas whose intellectual sell-by date was sometime in the mid-1970s.

Have the gods gone crazy? No. But maybe there's a message here for Europe's joy-fearing conservatives, who seem to have convinced themselves that managing an economy should be like running a 19th-century nunnery—an exercise in the stern suppression of animal spirits.

Take euro-conservative tax policy. In France, Nicolas Sarkozy responded to the euro-zone crisis by increasing some VAT rates to 21.2% from 19.6%, introducing a 3% surcharge on high incomes, and raising the effective capital-gains tax to 32.5% from 31.3%. In Britain, David Cameron raised VAT to 20% from 17.5% and kept the top marginal rate at 50% (now coming down to a still-exorbitant 45%).

Germany? Tax cuts Mrs. Merkel promised when she was re-elected never materialized, though corporate rates have come down. The new conservative Spanish government of Mariano Rajoy is raising the top marginal rate of income tax to 52% from 45%. In Holland, the right-of-center government increased the top VAT rate two percentage points to 21% and doubled the country's bank tax prior to its sudden collapse last month. Italy's technocratic administration of Mario Monti has imposed new levies on property, luxury goods and repatriated wealth.

No wonder the natives are stirring. Europe's right-of-center leaders came to office on the perception that they are better economic managers than their left-of-center counterparts. What they've mainly shown is that they are just as incompetent—only a lot more severe.

Raising consumption taxes in an otherwise flat-lining economy is especially galling if it's joined to the perception (accurate or not) that the government plans to lay off government workers. Why should Europeans be made to sacrifice on an altar of austerity whose benefits have so far failed to materialize, except perhaps as a slightly more palatable debt-to-GDP score? Just who is this thing called "the economy" meant to serve?

The astonishing political result is that it is now the left that has captured the language of growth. Never mind the precise formulas: blowout deficit spending, loose monetary policy, millionaire surcharges, a Tobin tax, euro bonds financed by anybody who can turn water into wine, a "mild" dose of inflation. At least the left is talking growth, not redistribution. That's a mark of political progress.

Here's something else the European left seems to be recapturing: the language of sovereignty and democracy.

For years, it was the right that had a corner on that particular market, with its suspicion of all things Brussels. But Mrs. Merkel and Mr. Sarkozy undercut that reputation with their serially ill-fated efforts to broker grand bargains for "saving" the euro zone. Their prescriptions were rubbish—Does Greece look like it's been rescued? Has Mrs. Merkel's fiscal pact held up?—but their arrogance was worse. Nobody wants their economic future dictated to them by leaders they didn't elect, in languages they probably don't understand. Yet that's exactly what "Merkozy" sought to impose.

Now it's gone, and good riddance too. The French will probably soon come to regret Mr. Hollande, but it's unlikely Mr. Sarkozy will be missed. Nobody should be surprised if voters also give Mrs. Merkel, Mr. Rajoy and Mr. Cameron the boot at the next ballot. At its best, the right should stand for the idea that the purpose of government is to allow people to flourish, mainly by getting out of their way. Today's European right stands instead for imposing penalties on people in order to atone for the sins of government. That's a right that deserves to lose, and will, until it learns that voters want freedom, not chastity.



The Demise of Employer-Based Health Insurance

There is no question that the President wants a “single payer,” where hospitals and physicians are all paid from a single source, a single government-run program funded by general taxation. The fact that this leads to shortages, waiting lines, and rationing does not seem to concern those who have this single-minded goal.

Before he became President, Senator Barack Obama addressed members of the AFL-CIO. He stated:

"I happen to be a proponent of a single-payer universal health care program. I see no reason why the United States of America, the wealthiest country in the history of the world, spending 14 percent of its gross national product on health care, cannot provide basic health insurance to everybody. Everybody in, nobody out-- a single-payer health care plan, a universal health care plan. That's what I’d like to see. But as all of you know, we may not get there immediately. Because first we've got to take back the White House, we've got to take back the Senate, and we've got to take back the House."

The messy business of passing health care reform began in earnest as soon as President Obama took office. His party did have control of the House and Senate, but loud opposition began and the Patient Protection and Affordable Care Act (PPACA) was passed by the slimmest of margins in early 2010. In order to keep the semblance of continuity, the new law was built on the current system of employer-based health insurance. Americans have an independent streak and would not accept a government single-payer system in one fell swoop.

Employer-based health insurance has proven inadequate. It developed in a time when people were less mobile and the norm was to find a job and stay with it until it was time for the retirement dinner and gold watch. Now that people tend to regularly change jobs, getting into and out of health insurance policies leads to disruption of care as different doctors are in different plans.

Despite its drawbacks, 170 million Americans depend on employer-based coverage. What will happen if they lose it in the next two years, thanks to PPACA? The law was actually designed to discourage employers from covering their workers, as the penalty for not meeting the employer mandate is quite small, while the “minimum essential coverage” will be very expensive. The House Ways and Means Committee found that 71 of the Fortune 100 companies could save $422 billion from 2014-2023 by dropping insurance and paying the fine.

In addition, price limits on premiums with increasing mandated benefits will serve to drive the insurance companies out of business.

If PPACA is not overturned or repealed, President Obama will probably get his wish.

And would Americans get “fair” and “equal” care? On George Orwell’s Animal Farm “all animals are equal, but some are more equal than others.” Under socialism, the ruling elite never seem to have to abide by the rules that they so methodically craft for the rest of us. President Obama knows that his wife and daughters will be immune to the downside of single payer, while the rank and file will suffer greatly. The people will beg for relief from excessive taxation and access to better medical care, but will they be able to find it?

Rather than moving toward single payer, it would be better to eliminate any middleman in most encounters between patient and physician. Allow the patients to pay for routine care and purchase their own health insurance plans with the least government meddling. Big government stifles initiative and punishes achievement.

Our Constitution envisioned citizen legislators who would create laws that are so fair they are happy to live by them. It is what Americans really need. Let’s hope the Supreme Court completely voids PPACA and we can have a system based on liberty, personal initiative, and freedom to access the best care at the lowest cost. Only when the government gets out of medicine will we ever achieve that goal.




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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)


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