Tuesday, May 24, 2016
The only living Trump supporter in Silicon Valley
The most interesting discovery of the week was not that IBM, Citigroup and Microsoft were unwittingly running ads on (and therefore providing funds to) an Indonesian jihadi website – though they were – but that Peter Thiel is supporting Donald Trump in his bid to become the next president of the United States.
“Peter who?” I hear you say. Mr Thiel is not exactly a household name in these parts, but in Silicon Valley he’s a big cheese, as a co-founder of PayPal and the first investor in Facebook. He is therefore rich beyond the dreams of avarice. But he is also: a philosophy graduate; a lawyer; a former bond trader; a hedge-fund manager; a venture capitalist; a philanthropist; a far-out libertarian; and an entertaining author. So what is a guy like that doing supporting Trump?
One answer might be that he’s as much of an irritant to the Silicon Valley crowd as Trump is to the Republican establishment. Although the Valley’s tech titans like to portray themselves as non-statist disruptors, in fact most of them are – politically speaking – Democratic party supporters, albeit of an unusual kind. They may detest trade unions, for example, but they’re very keen on immigration – so long as the immigrants have PhDs from elite Indian or Chinese universities. And they’re not opposed to big government, so long as it’s “smart”, whatever that means.
Peter Thiel doesn’t fit this template at all. In 2009, he published an intriguing essay entitled The Education of a Libertarian. “I remain committed to the faith of my teenage years”, it began: “to authentic human freedom as a precondition for the highest good. I stand against confiscatory taxes, totalitarian collectives, and the ideology of the inevitability of the death of every individual. For all these reasons, I still call myself ‘libertarian’.” But, he confessed, “over the last two decades, I have changed radically on the question of how to achieve these goals. Most importantly, I no longer believe that freedom and democracy are compatible.”
So what changed his mind? Answer: the 2008 banking collapse, which Thiel describes as “a financial crisis caused by too much debt and leverage, facilitated by a government that insured against all sorts of moral hazards – and we know that the response to this crisis involves way more debt and leverage, and way more government. Those who have argued for free markets have been screaming into a hurricane. The events of recent months shatter any remaining hopes of politically minded libertarians. For those of us who are libertarian in 2009, our education culminates with the knowledge that the broader education of the body politic has become a fool’s errand.”
The emerging theme is that democratic politics is irretrievably broken. “In our time,” Thiel says, “the great task for libertarians is to find an escape from politics in all its forms – from the totalitarian and fundamentalist catastrophes to the unthinking demos that guides so-called ‘social democracy’. The critical question then becomes one of means, of how to escape not via politics but beyond it.”
In 2009 Thiel could only see three possible escape routes. The first was cyberspace: “By starting a new internet business,” he wrote, “an entrepreneur may create a new world. The hope of the internet is that these new worlds will impact and force change on the existing social and political order.” The second was – wait for it – outer space: “Because the vast reaches of outer space represent a limitless frontier, they also represent a limitless possibility for escape from world politics.” And finally there was what Thiel called “seasteading” – floating islands in international waters run as libertarian paradises, presumably with free copies of Ayn Rand’s books on every bedside table.
Sadly, none of these ideas has – as yet – borne much fruit. The internet has been captured by governments and huge corporations. Colonising Mars and escaping to other galaxies is a proposition only for Hollywood and the Starship Enterprise. And seasteading, though technically less impracticable, remains the fantasy of dreamers and flakes of Cadbury proportions.
Faced with these cruel disappointments, what is a billionaire fantasist to do? Why, hitch his wagon to that of another billionaire fantasist, of course. And Trump and Thiel have more in common than perhaps they realise. In his 2009 essay, for example, Thiel wrote: “Since 1920, the vast increase in welfare beneficiaries and the extension of the franchise to women – two constituencies that are notoriously tough for libertarians – have rendered the notion of ‘capitalist democracy’ into an oxymoron.” Trump is hoping to turn that oxymoron into a reality.
Pittsburgh Insurer Highmark Going to Court in desperate bid to recover its Obamacare losses
Health insurers have not had much to cheer about lately, when it comes to Obamacare. They have been losing money on exchanges, and there is little hope that will change. So, a large health plan in Pittsburgh has asked judges to give it Obamacare money the Administration promised, but Congress declined to appropriate.
As reported by Wes Venteicher and Brian Bowling of the Pittsburgh Tribune-Review, Highmark lost $260 million on Obamacare exchanges in 2014, and claims it is owed $223 million by taxpayers. Unfortunately, it received only about $27 million. And things are getting worse. To date, Highmark has lost $773 million on Obamacare exchanges.
It is not that Highmark has been singled out by anybody. On the contrary, the Administration announced last year it was only going to pay about 13 cents on the dollar for all insurers’ exchange losses, via Obamacare’s “risk corridors.” This was not the Administration’s preferred course of action. The Administration wanted to pay insurers one hundred cents on the dollar, which it had promised them.
However, it could only pay out monies it had collected from insurers which had profited more on exchanges than expected. Because both the Administration and most insurers badly miscalculated the risk in Obamacare’s exchanges, there were very few winning insurers, and the revenue a fraction of what was expected.
No problem: Taxpayers would cover the rest – or so the Administration and insurers initially claimed. I was among those analysts who recognized Congress needed to appropriate funds to cover the losses. And Congress was not inclined to do so. As a consequence of having dragged Obamacare over the legislative line in 2010, health insurers lost any sympathy from Republican politicians, who now control both chambers in Congress.
No industry which relies on government revenue, which health insurers increasingly do, can afford to be in that position for long. Government-dependent businesses go to great lengths to flatter politicians of both parties in pursuit of so-called bipartisan solutions. When they win, they win big. One recent example is the Medicare “doc fix” of April 2015, through which a broad coalition of health industry lobbyists managed to get near-unanimous Congressional consent for a budget-busting bill that significantly increases the federal government’s control of the practice of medicine.
Health insurance executives likely look back with some regret at their decision to go all-in on Obamacare in 2010 without any Republican support. Once the GOP took over the Congressional majority, its members attacked a number of suspect Obamacare cashflows that were being paid out to insurers, apparently in violation of the law. It was a remarkable development: Republican politicians who opposed the law were demanding it be executed as written, while the Administration and its insurer allies were demanding it be bent, folded, and mutilated to guarantee revenues to insurers in accord with their business plans.
Insurers had a small win last December, when they got a one year delay in a fee levied on employer-based policies, which funds Obamacare. It can reasonably be expected that the fee will be kicked down the road again this December, and next December, et cetera, as Obamacare becomes just another unfunded liability.
However, insurers also suffered a major loss when a federal judge decided just a few days ago that the Administration was illegally paying insurers from another pot of Obamacare money, so-called cost-sharing reductions. These are subsidies to insurers which enroll Obamacare beneficiaries whose incomes are so low they cannot afford Obamacare’s high deductibles and co-pays, despite tax credits that reduce their premiums. Insurers receive subsidies to reduce these beneficiaries’ out-of-pocket payments.
However, Congress has not appropriated funds to pay out these subsidies, so the Administration cannot pay them, according to the DC Federal District Court. In the wake of this freshly issued judgment, Highmark’s decision to ask a judge to give it taxpayer dollars not appropriated by a Congress which seeks to repeal Obamacare is a real swing for the fences.
On the other hand, taxpayers can be relieved that only Highmark, one other insurer in Oregon, and the Iowa Insurance Commissioner (on behalf of a failed co-operative health plan) have decided to go for a judicial bailout. The rest of America’s health insurers are in the same boat, not having received as much taxpayer money as the Administration promised. Almost all of them have accepted that fact, and moved on from their failed attempts to wring more money out of Congress to prop up Obamacare.
Investors’ Note: UnitedHealth Group (NYSE:UNH), Aetna (NYSE:AET), Anthem (NYSE:ANTM), are among the insurers affected by Congress’ declining to appropriate moneys to subsidize insurers via the Affordable Care Act.
Class war is making the deficit even worse
This article is about the British situation but the American situation is very similar
There are two very different ways to look at the world. The first is to obsess about inequality, including its psychological impact, and worry endlessly about the fact that some people are doing better than others. The second is to concentrate not on differences but absolutes, and to call for policies that ensure that as many people as possible can earn as much as possible.
For proponents of the first approach, reducing the number of rich people, and cutting their income, is an easy way to make progress. They want the gap between the worse-off and the better-off to shrink, and chopping down the tall poppies can achieve that very quickly. Advocates of the second approach would rather try to make sure that everybody, regardless of their income, can earn more, while helping those who cannot look after themselves.
The first group would prefer the rich to lose 5pc of their incomes even if the poor saw theirs stagnate, or in extremis fall slightly; my camp just wants everybody to have a pay rise, even if that means that the rich are getting richer more quickly. We worry hugely when the poor and middle classes don’t get pay rises, as has been the case at least in part in the US in recent years, but don’t see that as a reason to clobber those who are still enjoying rising wages.
This approach is not just better for the worse-off but also hugely superior for the public finances, as the latest figures on tax payments from HMRC demonstrate. A record 391,000 people earned more than £150,000 in salaries, wages, bonuses and dividends in 2015-16; 347,000 of these paid at least some tax at the 45p top rate (the remainder made use of legitimate tax reliefs). These additional rate taxpayers – approximately equivalent to the top 1pc of income earners – handed over an eye-watering £50.1bn in income tax to HMRC, a sum hugely disproportionate to their earnings as a result of the UK’s progressive tax system.
By contrast, millions of people paid no income tax at all, thanks to the Chancellor’s (sensible) policy of massively increasing the personal allowance. This is good news: it makes no sense to give those on low incomes benefits while simultaneously taxing them. It’s inefficient.
Roughly 19.4m people earned less than £30,000 but more than the personal allowance of £10,600; they paid £30.46bn in income tax. The total amount of income tax collected from the 24.6m basic rate income taxpayers came to £55bn, only just higher than the contribution from the 347,000 highest earners.
Compare that to the 16,000 taxpayers who earned at least £1m last year: they handed over £15.75bn to HMRC, around 40pc of their income. Those on high pay are incredibly useful to the taxman. The 5,000 who earn £2m or more hand over an average of £1.88m each per year in income tax alone.
The answer to the UK’s fiscal problems should therefore be clear: we need those on lower incomes to earn more; and we need a lot more rich people. Imagine if we were able to attract another 16,000 people on £1m or more: at a stroke, that would increase HMRC’s revenues by another £15.75bn, dramatically reducing the deficit. These people would employ staff, invest and boost the economy
in other ways, contributing further to the Exchequer. So why has the Government deliberately put in place policies to chase so many of these people away? Squeezing them may well have reduced the potential tax take from this group, rather than increasing it as planned.
Britain also needs better productivity to allow those stuck on low incomes to make more; and it needs even more upper middle-class jobs. The 4.6m people who earn enough to pay the 40p tax rate contributed £66.2bn in income tax, a massive chunk of the total. The more people earn, the more tax they pay, and the better the state of the public finances.
So forget about inequality. The real challenge is the lack of opportunity facing millions on the lower rungs of the labour market, the sluggish pay rises enjoyed by the middle and the fact that we no longer like hosting top-earners in this country. Simple, really.
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Posted by JR at 12:30 AM