The Sovereign Mind

Free thought on politics and real life

Posts Tagged ‘economy

Cash For Clunkers: Simply Unsupportable

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For those who don’t know, the government will give you $4,500 to trade in your old clunker and buy a brand new car. Sounds like a good deal, but as far as public policy is concerned, the program is simply unsupportable.

There are two reasons that proponents give to support the program:

1) The program supposedly helps the environment by getting gas guzzlers off the road and replacing them with newer, more efficient cars. It is debatable whether the program has any positive impact on the environment at all. And even if it does, the minimal impact begs the question: what else could we have spent that money on that would have helped the environment much more? It’s a little like going out to an expensive restaurant, and then justifying the expense by saying, “Well, we had to eat, right?”

2) The program is supposed to help stimulate the economy by getting people to buy new cars. Even those who see through the environmental argument often agree that it has succeeded in that purpose. And I don’t disagree, but let’s look at the issue more closely.

First, let’s start with the basics: Every dollar that the government spends is a dollar out of the pockets of a tax-payer. That should be obvious, but it seems that we sometimes forget this basic fact, maybe because we don’t see our tax bill increase at the passage of these sorts of programs. But it is true, whether the money comes from tax-dollars directly, or is borrowed (and therefore will be paid by future generations of tax-payers), or is printed (which we pay for because of the inherent devaluation of existing currency). There is no escaping the fact that there is no such thing as free money.

With this is mind, can this program be considered as anything more than taking money away from people who don’t want to buy a new car, and giving it to someone who does? The government is essentially telling you, “If you aren’t going to buy a new car, we’ll take your money and give it to someone who will.” By doing this, the government subverts the dichotomy that, during a recession, it is in each individual’s best interest to save money, but it is in the economy’s interest that we spend. I don’t blame the government for attempting to find ways to stimulate the economy during a recession, but giving people the choice of spending money or losing it is beyond over-reach.

So we must ask ourself this question: is it more important to (slightly and artificially) stimulate a sector of the economy for a very short period of time, or is it more important to respect our freedom to save or spend our money as we please? Maybe some in congress may disagree, but it seems to me that the answer to that question is obvious.


Written by Mike

August 9, 2009 at 9:04 pm

What’s Wrong With the Health Care Bill: How Small is Small?

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Continuing my series I began a few days ago, here’s another little gem within the health care bill. The plan imposes a penalty on companies that don’t contribute to health care for their employees. But don’t worry, small businesses. The Democrats are fully committed to engaging in rhetoric to ensure that you don’t think this is going to affect you. From the summary, in a section ironically entitled “Assistance for small employers”:

Recognizing the special needs of small businesses, the smallest businesses (payroll that does not exceed $250,000) are exempt from the employer responsibility requirement. The payroll penalty would then phase in starting at 2% for firms with annual payrolls over $250,000 rising to the full 8 percent penalty for firms with annual payrolls above $400,000.

Democrats know that they must continue the charade of appearing to be on the side of small business. They argue that it will only be big business that will be penalized. You know those businesses with those big pockets. (On a side note, having big pockets doesn’t always mean they have anything in them, but that’s a matter for a different day.)

But now we learn that businesses with a payroll of as little as $250,000 would be hit by a tax. Now we know that Obama means it literally when he says he wants to help the “mom and pop” businesses. Just don’t hire the uncle and a few cousins–that might put you over the limit into evil big business territory. I know that isn’t a fair representation of Obama’s position–he probably does care about helping small business. But, as is common lately, his rhetoric doesn’t match the bill. Unfortunately, congress will not be voting on the president’s speeches. They will be voting on the bill before them that they (hopefully) have read.

But I’ll ask a more fundamental question: why should it be the employers’ responsibility to contribute to health care coverage? I don’t think you can argue that employers have a responsibility to do anything except fulfill the agreement they have made with the employee when he is hired. If I’m an employer looking to hire someone, and I put out the conditions of employment, and someone looking for a job agrees with those conditions, why should the government tell us we can’t make that arrangement, or punish us for doing so.

Those who support the tax on business will argue that businesses should pay for health care because they have the deep pockets. Those who make this argument don’t understand economics. The amount that the employer has to pay for health care is approximately the amount by which they will decrease their employees’ salaries. If it were not so, then I think we should mandate businesses to pay for my groceries and mortgage also. If the money that my employer pays comes out of thin air, we could easily solve our housing crisis that way. Of course that’s ridiculous. If my employer has to pay my mortgage, my salary would decrease.

There are several problems with employer-based health coverage:

1) If I lose or change jobs, I lose my coverage. Plans aren’t portable. This contributes to the problem of the uninsured, and also makes people stay in jobs they don’t like, rather than looking for greener pastures. That is detrimental to the labor market, as it means that employers don’t have to work so hard to keep their employees happy.

2) When employers offer health care plans, they offer limited choices. Choice is essential in a free market. If I don’t like my insurance provider, I ought to be able to easily switch to another. This keeps the insurance companies honest because they would know if they do not provide good service and a reasonable price, I’d go elsewhere.

So, considering those disadvantages, why is it that we have a employer-based health system?

1) Employers are offered a tax break to give health coverage to their employees. It still costs them money, of course, but it costs them less money then it would cost their employees to buy the plan themselves, since they would not qualify for the tax break. So, employers can provide something to their employees which is of high value to them, but costs the business less. This could be solved by equalizing the tax structure so that individuals who buy health insurance benefit just as much as businesses. Businesses that want to attract the best and brightest would still be able to contribute to the health care plans for their employees, but they would not get any additional benefit from the government for doing so. In addition, those who don’t have jobs or work for companies that don’t provide health care would not be disadvantaged in the insurance market.

2) Employees like the fact that when they sign up for a health care plan through their employer, they are part of a pool. That means their cost doesn’t depend on their health status, but rather the health status of the entire work force. It means that healthy employees subsidize the health care of the less healthy. Many people see this as a good thing, but a pool is just a crutch since we don’t have a better way to charge people. A better way would be to charge people based on their behavior, which eliminates the need for pools because everyone pays what they should pay, and everyone is equally able to lower their costs by making healthy choices, regardless of pre-existing conditions.

But even if the “charge on behavior” philosophy is not palatable to some who prefer the more tried-and-true mechanism of pools, we could set up such pools at the state level, instead of putting that responsibility on the employers.

But wouldn’t taking away the incentive to provide health care (or the punishment for not doing so) from businesses cause people to lose their health insurance? It might cause some businesses to drop coverage, but it would also add revenue to the system to provide tax credits to help individuals buy coverage, as well as more help for those with lower incomes.

What I’ve outlined is true change–way more than Obama wants to take on since he is determined to build on the current system. At the very least, that proves he is wrong to suggest that the only alternative to this bill is to do nothing. One alternative is to do more. But, really it’s not about less or more. It’s about what’s right. And pinning the responsibility of health care on “big” business is wrong, costs jobs, and leads to less choice in the marketplace.

Written by Mike

July 27, 2009 at 8:58 am

Obama’s Inheritance

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When speaking to the nation about his budget, President Obama made sure we all remembered that he inherited the deficit. It was not of his own making. Of course this is true, except for the almost trillion dollar spending package, but even that can be argued was the necessary result of previous policies. So I don’t blame Obama for not wanting to take blame for the massive deficit we find ourselves in.

For a few years, the financial policies of the Bush administration seemed to be working. But the seeds of recession, planted long ago, were quietly being cultivated. Then, the weeds sprung up all at once. Now it’s up to Obama to clean it up, and he’s right to remind us that it was not his mess.

But fast forward to today, when President announced his plan to withdrawal troops from Iraq:

The situation in Iraq is the opposite of the situation with our economy. There is no doubt that the Bush administration made mistakes in Iraq. But then we changed course. Bush replaced the leadership and came up with a new plan, and had the audacity to urge us to have more patience with him, our troops, and the Iraqi people. Amid the apparent chaos in Iraq was being sown the seeds of freedom and peace that started to emerge as Bush’s time faded. While I wouldn’t go so far so say that the rose has bloomed, President Obama inherited that bud just as much as he inherited the thorns in the economy.

But did Obama go out of his way to thank President Bush for this inheritance? Did he thank him for sticking up for the plan he knew was best for the nation–the plan that Obama opposed? If he did, wouldn’t that have been a refreshing change from the politics of the past?

He didn’t, but I will. Thank you, President Bush, for giving our troops and the Iraqi people a chance. You left us with plenty of problems to deal with, but I’ll give credit where credit is due.

Written by Mike

February 27, 2009 at 8:29 pm

The Economic Surge

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“History doesn’t repeat itself, but it does rhyme.” — Mark Twain

Rewind to a few years ago, and the buzzword was “surge”. The president was pushing for a surge in troops to stabilize Iraq. The Democrats, including the then-senator Obama, opposed opposed it feverishly. Republicans were saying that they were voting for defeat in Iraq. Fast-forward to a few months ago, after things had improved in Iraq, when Obama said this:

Katie, I have no idea what would have happened had we applied my approach, which was to put more pressure on the Iraqis to arrive at a political reconciliation. So this is all hypotheticals. What I can say is that there’s no doubt that our U.S. troops have contributed to a reduction of violence in Iraq. I said that– not just today, not just yesterday, but I’ve said that– previously. What that doesn’t change is that we’ve got to have a different strategic approach if we’re going to make America as safe as possible.

So, basically, the surge worked, but things might have been even better had they tried Obama’s approach. It’s a tough political tight-rope, but Obama overcame it because the war in Iraq in general was unpopular, so some people gave him the benefit of the doubt.

Today, Obama wants to execute an economic “surge” by injecting almost a trillion dollars into our economy (put on credit). Almost all Republicans oppose it, but it will be signed by the President shortly. Democrats say that Republicans are voting for America to fail (sound familiar?). Many pundits say that the Republicans have put themselves in a risky position. There are only two possibilities, they say:

1) The economy recovers, and the Republicans appear to have been trying to stop the economic recovery, and being against the American people.

2) The economy gets worse, and the Republicans are vindicated to opposing a bill that they correctly predicted would not help, and the “we have to do something” line is proven to be a nonsensical political argument.

But they ignore another possibility. I believe the economy will recover, but as any logician will tell you, just because Y follows X does not mean that X caused Y. It will be difficult to tell whether the stimulus package really helped or not, although Democrats will insist that it did. Republicans will find themselves in the position that Democrats did just a few months ago: defending the opposition to a policy that appeared to have succeeded. I can see them saying something like this:

“Yes, the stimulus might have helped, but think of how much it cost us. We didn’t get a chance to try our plan, which would have been less costly and helped get us out of the recession more quickly.”

Even if technically true, that is a difficult political argument to make. But, it worked for Obama on the Iraq surge, so will it work for Republicans?

No. The difference is: the people will not give the Republicans the benefit of the doubt as they gave Obama, since the Republicans are seen (rightly or not) as having caused the mess in the first place.

The bottom line: it’s tough to be a Republican these days. You lose when you win and lose when you lose.

(Note: Very rarely do I consider raw political analysis like this to be very worthwhile, but given the similarities of this situation and the Iraq surge situation, I found it interesting.)

Written by Mike

February 14, 2009 at 7:36 am

What’s Wrong with the Recovery and Reinvestment Act?

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One word: “and”

To understand my point, imagine that you wake up one morning to the sound of rushing water. You find that your basement is quickly filling with water, coming from somewhere that you can’t identify. In a panic you call the number for the first plumber you can find in the phone book, and he agrees to come immediately.

After the plumber inspects the situation, he said, “Well, this is serious, but I think we can fix it and find someone to clean everything up.”

“How much is that going to cost me?” you ask nervously.

“Well, I’d say around 900 billion dollars,” he responds.

“What?! For a flooded basement?”

“Yes, and a few other things that need to be taken care of.”

You watch as a roofer truck drives up, followed by a delivery truck for the local appliance store, followed by a few other trucks, and lastly comes a sodding company.

“What are they doing here?” You ask.

“Well, I noticed that your shingles are looking pretty old. I wouldn’t be surprised if you have some leaks up there, so we’ll have to redo the whole thing. And your furnace is not Energy Star compliant, so we’ll be replacing that. And you must be loosing a lot of heat out of those old windows. The new ones you’ll be getting will save you a lot of money on your utility bill, along with the new lighting we’ll be putting in. And, your lawn could use some help. It’s very unsightly. The sodding company will take care of that.”

“But I don’t want any of that!” You respond angrily, “I just want the water to stop and my basement cleaned up!”

“Sorry pal, this is a package deal. Do you want your basement fixed or not? We don’t have much time.”

I probably don’t have to explain what I mean by that analogy, but I will just to belabor the point. As the title of the stimulus bill states, there are two purposes to the bill:

  1. Stimulate the economy to help us recover from the recession we are in
  2. Make other investments designed to help us in the long term

Stimulus must be fast. We have to inject enough money to create jobs and jump start the economy. The main measure of success is how many jobs are created, and how quickly.

On the other hand, investment implies a long term outlook. Just as you would with any of your personal investment, smart investors will take the time to do their homework. They want to be sure the investment will pay off in the long term, and that they will be getting the most bang for the buck. Most of the time, the short term gain from investing is small, so there is usually not a sense of urgency.

So how can you do these two things at the same time? They are counteracting. The result is a bill that is too watered down to stimulate, and too hasty to be a good investment for the long term.

The logical conclusion is to separate the two. Let’s pass the Recovery/Stimulus portion of the bill now, and then hash out the Reinvestment portion when we have time to debate and consider our options more carefully.

So what should we put off until later? I’ve analyzed the information from the Congressional Budget Office, a non-partisan office intended to give law-makers feedback on the budget consequences of bills. Their analysis is that only 65% of the money in the bill will be spent in the next two years. Even with that broad definition of stimulus, there is a lot in the bill that is not stimulus, but is being pushed into this bill as an attempt to get it passed quickly, without much debate. Some of these measures might be worthwhile, just as the new roof might be worthwhile for the poor guy with a leaky basement. But we should make sure these investments are the best they can be, and that means a separate bill that does not have the urgency attached.

So what can we get rid of from this bill? I looked at the CBO report, and specifically targeted any portion of the bill which does not cause at least 30% of so to be spent in the next two years. After removing those parts, we can decrease the cost of the bill by 112 billion dollars, but only decrease the amount of spending in the next two years by 20 billion. That would significantly increase the percentage of the bill that is actually stimulus. Here are the pieces I’ve identified:

Spending Item Total Amount (in millions) Amount spent in next 2 years
Distance Learning, Telemedicine, and Broadband Program 2825 467
Wireless and Broadband Deployment Grants 2,825 250
Energy Efficiency and Renewable Energy 18,500 2,635
Other Energy Programs 17,350 3,388
Federal Buildings Fund 7,500 1,300
Health Information Technology 20,231 521
Innovative Technology Loan Guarantee Program 8,000 1,680
Clean Water and Drinking Water 8,116 2,333
Other Transportation 16,100 4,300
Housing Assistance 11,129 3,217
Total 112,576 20,091

Some might argue that in a bill this size, why make such a fuss over a mere 112 billion? If your sympathetic to that argument, please read the question again a little slower. However, my number is only obtained by assuming we can either leave in or remove entire sections as they exist now. We could save even more by looking at each section individually and seeing what sub-parts we could leave for later, and which parts are truly stimulus. Lastly, we can look at what parts of this bill will be spent soon, but not on creating jobs. Considering that as the bill exists currently, each job will cost us over $200,000 to create each job, there ought to be some of that in there as well. That number has been attacked as “Limbaugh math”, but I have yet to hear the argument for why we should be OK with spending so much money on each job.

David Axelrod, advisor to Obama, responded to that number like this on This Week with George Stephanopoulos:

He’s missing the fundamental point. We’re not just spending money to create jobs; we’re investing money to strengthen this economy. We’re investing in areas like energy independence. We’re investing in creating the classrooms of the 21st century for our kids to give us the kind of education system we need. We’re investing in computerizing the health-care records of this country so that we can reduce costs and improve care. These things will pay long-term dividends to this country, and we’ve been very careful about that.”

Agreed, but if we want to be careful about that long-term investment, why try to push it through on the back of short-term stimulus?

Answer: because they know that if they don’t milk the current crisis for all that it’s worth, they might have a tough time getting these programs through later, when everyone’s thinking more clearly.

But there’s still hope. The bill has to get passed the Senate, and I hope is will be passed… without the “and”.

Written by Mike

February 2, 2009 at 7:00 am

Economics 101

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Wow, could I think of a more boring title for a blog post?

Economics is probably considered one of the most boring of topics, but it also happens to be at the root of many policy debates. As I browse some blogs in my free time, I’ve noticed that it seems a lot of people are clueless when it comes to economics. Am I especially troubled by the characterization (which is gaining supporters recently) that the free market as a failed experiment. Certainly there are aspects of our economic system that have problems and have let to our current recession, but to characterize the free market as the cause of everything that is bad is to desecrate the system that has allowed us to become the most productive society in the world.

Many policy debates between liberals and conservatives hinge on a fundamental question: What economic factors should be controlled by government, and what factors should be left to the control of the free market? Of course that’s a simplification, but that’s the root of it. In debating this question, I’ve heard statements from both sides (but not necessarily representative of everyone on their respective sides) that I believe indicate a flawed understanding of basic economics. Here are two paraphrased examples from both sides:

From the left: Businesses should be taxed more because they are lucky to be running in such a prosperous nation (the U.S.) that we live in. Business should have the pay a high premium to be allowed to do business here.

From the right: Since consumers would usually buy a cheaper car that is worse for the environment than a more expensive car that is better for the environment (all other factors being equal), that means that consumers don’t value environmental conservation. Environmentalist shouldn’t be pushing for more environmentally friendly cars if the free market won’t produce those cars by itself.

Today I stumbled across a useful website: I think I will use it to link to in response to such statements. Specifically, the first comment (from the left) exhibits a lack of understand of the negative effects of business taxes, and the second comment exhibits a lack of understanding of externalities.

Why is this important? Is it just a game for political junkies? I don’t think so. These issues are important to the future of our world–the one our kids and grandkids will live in. So I hope more people (particularly those who seek to promote government policy) will educate themselves in basic economics. And I will hold myself to the same standard. The website I linked to seems to be an unbiased economics introduction. But if you feel it leaves out important information or is biased, please feel free to offer a link of your own.

Written by Mike

December 21, 2008 at 9:45 pm

Posted in government

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The iPhone Is So 2008

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As Christmas approaches, I was recently caught up in a wave of irrational consumerism. I craved a fancy smartphone to replace my PDA and pre-paid cell-phone (yes, I’m a cheapskate). Of course, the iPhone, being the coolest of the cool, and the status symbol of the day, was at the top of my list. But after seeing the price tag on both the device and the plan that you have to buy with it, I started to look for cheaper options. I did find some smartphones that are much cheaper and meet my needs, but the cell phone plans that come with them still seemed pricey. I didn’t really need a “data plan” for extra $30 a month since 95% of my time I’m within range of a WiFi signal that I already pay for, and most of the remaining time I’m driving, when I probably shouldn’t be checking eBay anyway. And I don’t even need 500 minutes when 95% of my calls are to my wife, which would be unlimited under the family plan anyway. But alas, there aren’t many options for cheapskates like me.

I pondered on the close-mindedness of cell phone companies to fail to provide a cheaper alternative to their expensive services. I wonder if they know that there are people like me who spent hours browsing their selection online, only to decide not to purchase. Or maybe I’m just weirder more unique than I think…

Anyway, I decided to do something about it. If the cell phone companies weren’t going to provide a cheaper alternative, then I would. Presenting the “iTape N3G” (N3G = “Not 3G”). The philosophy of the iTape is simple: the main idea of a smartphone is that you really shouldn’t need to carry around both your PDA and your cellphone separately. Seriously, if God intended you to need to carry two separate devices, he would have created us with two hands…

So for those who just want a PDA and a cell-phone combined, but don’t need all of the bells and whistles of an iPhone or some other fancy smartphone, then the iTape is for you. You can find a role of it at any hardware store for about $2.99. Some assembly is required, but this makes it very customizable. The standard version just requires putting your PDA and your cell-phone back-to-back, and then wrapping the iTape around a few times. Voila! Instant smartphone!

Since the end result is *virtually indistinguishable from the iPhone, both in features and in looks, you can look just as cool as those iPhone users for about $397 less, and you can still have your PDA and phone in the same device. Cool huh? Especially as everyone and their dog is losing their jobs, “MacGyver meets Steve Jobs” is sure to be the trend of 2009.

*virtually indistinguishable should be interpreted as “somewhat similar if you squint your eyes from a distance”.

Written by Mike

December 9, 2008 at 9:24 pm

Posted in society

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