BizPlusBlog.com

As the Private Sector Shrinks, the Public Sector Grows

noreply@blogger.com (Kevin Price) — Sun, 11 Jul 2010 16:39:00 -0500

I remember the liberal, and even Marxist, teachers and professors I had growing up who talked about how wonderful it was that Russia had "zero unemployment." "Zero unemployment," I thought, "that's amazing!" Little did I know then that the jobs many Soviets were doing was digging holes and refilling them, all at taxpayer expense. This approach of massive government control over private dollars did nothing but create a perennially stagnant and backward society and economy.

It appears that Barack Obama is taking a chapter out of the Soviets own handbook as he pursues a similar policy agenda in the United States. But unlike the Soviets, who saw the virtue of people "working" even if the jobs were worthless, this administration is paying people to simply live off the government.

Dennis Cauchon of USA Today points out that "Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds." While the private sector's economic muscle was in decline, the government's was moving "full speed ahead." According to Cauchon, "At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010."

This crazy, upside economic world poses several problems for a free society. With all the incentives leaning towards idleness and all the losses in productive endeavors, the future looks dim. How will the growth of the public sector spending continue to expand with a rapidly shrinking private sector to support it? Candidate Obama pledged "no new taxes" for those who are affluent. In his strange world, that will be anyone with a job.

Cauchon's column also notes the findings of the Bureau of Economic Analysis, which "reports that individuals received income from all sources — wages, investments, food stamps, etc. — at a $12.2 trillion annual rate in the first quarter." What are the key changes as far as public and private sector? Cauchon's states that, in the private sector, there was a "record-low 41.9% of the nation's personal income (that) came from private wages and salaries in the first quarter, down from 44.6% when the recession began in December 2007." As this area shrunk, we saw a rise on the government side as "individuals got 17.9% of their income from government programs in the first quarter, up from 14.2% when the recession started. Programs for the elderly, the poor and the unemployed all grew in cost and importance. An additional 9.8% of personal income was paid as wages to government employees."

What is the future of an economy that shifts so heavily to government dependence? The first thing that should come to mind is Greece, as our debt ratio quickly approaches the same levels they have suffered from for the last few years and is now resulting in that country dealing with riots as the government cracks down on previously unchecked social spending. Even if it does not lead to a completely bankrupt economy, it will clearly lead to one that is, simply put, less dynamic. Cauchon quotes economist David Henderson of the Hoover Institution who says that this shift weakens an economy when the "People are paid for being rather than for producing," he says. The "sci-fi" world of Obamanomics continues.

The Neglected Areas in the Constitution due to a Government out of Control

noreply@blogger.com (Kevin Price) — Sun, 11 Jul 2010 16:37:00 -0500

I feel like a broken record, but the Constitution is explicit about what the federal government can and cannot do. Article I of that document lists seventeen powers that the federal government can do. The Tenth Amendment was designed to dismiss any notion that the federal government had broad powers beyond those laid out in Article I. The founders' agenda was clear -- very restrictive powers for the federal government and vast powers to the states and local governments. Thomas Jefferson may have summed it up best when he wrote in 1816 that "The way to have good and safe government, is not to trust it all to one, but to divide it among the many, distributing to every one exactly the function he is competent to. Let the National Government be entrusted with the defense of the nation and its foreign and federal relations; the State governments with the civil rights, laws, police, and administration of what concerns the State generally; the counties with the local concerns of the counties, and each ward direct the interests within itself. It is by dividing and subdividing these republics from the great national one down through all its subordinations, until it ends in the administration of every man's farm by himself; by placing under every one what his own eye may superintend, that all will be done for the best."

Instead of doing the things it is suppose to do, the federal government has pursued the role of being a panacea in all areas. It has abandoned the few -- but necessary -- elements of a strong government capable of keeping its people safe and free. There are areas in which we daily experience poor governing in several different areas in Article I, Section 8. This article will only focus on a few.

"To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.." Charles Knobloch, who is a patent attorney in the Houston area (and a partner with the firm, Arnold & Knobloch) is a contributor onmy radio show. Knobloch has stated often on my program that intellectual property rights are among the most neglected areas of the Constitution. "Three years is the average length of time it now takes to get a patent processed," he noted on a recent program. In addition to failing to make the protection of intellectual property a timely process, the US has had a spotty record at best when it comes to defending US IP rights around the world. Intellectual property rights are crucial if you are going to enjoy increased technology, tools, medicines, entertainment, and more.

"To establish post offices and post roads..." Post Offices are on life support and the number of days they are even open or delivering are soon to be dramatically reduced. The federal government has failed to make this a truly competitive institution and its decline is now looked forward to with anticipation by many (if not most) that support the cause of free enterprise.

"To declare war, grant letters of marque and reprisal, and make rules concerning captures on land and water.." The founders never intended the US to become an international police force. Changes in a way foreign policy is conducted has lead to police actions and the deferring to the President powers historically required to be voted on by the legislative branch. The current approach of regularly deferring authority is cowardly and costly (both in dollars and lives). This is not to say that the US can afford to be isolationist and pretend it can be a "fortress America," but it does mean that the nation should choose its battles properly. One way that people will know a war is worth fighting is if Congress has the intestinal fortitude to vote for it.

"To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures..." Essentially, Congress was responsible for our currency. Because of the genius of the founders, the federal government really had very little to spend on (for a complete list, see Article I, Section 8). Meanwhile, the states had huge powers in many areas, giving them the power to spend freely. But without the power to make money, they were limited in their expenditures. With such a situation, our government wisely made sure the currency was backed by precious metals and not the "good faith and credit" of a government out of control, as it is today. We had virtually no inflation from the end of the 18th century until the 1930s, because our dollar was honest and our expenditures were few. Now the government tries to monetize its irresponsible and unconstitutional expenditures and create a "tax" on all money through inflation.

We were given a very special national government. One that was small, but strong. Its purpose was well defined, its objectives were few, and its accomplishments, substantial. Again, quoting Jefferson, we enjoyed "A wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned - this is the sum of good government." We replaced this with a government that is out of control and does a poor job in virtually every area.

Will the US Government take over BP?

noreply@blogger.com (Kevin Price) — Sun, 11 Jul 2010 16:35:00 -0500

The Obama administration's imagination as to what the government should be doing is without limits. Obama, and those who surround him, seem to honestly believe that the government is the solution to most (if not all) problems. Over the last two years the government has taken over insurance companies, financial institutions, and even auto companies, so why not an energy company? Especially an energy company that is in the process of destroying our Gulf Coast. That is the exact argument being used by former Secretary of Labor (under Clinton) Robert Reich. Reich is also an adviser to President Barack Obama and is the administration's point person for promoting bizarre government agendas. In this situation, Reich is proposing a policy approach Hugo Chavez used in Venezuela of taking over foreign companies in order to meet "national interests." I wonder what BP and the United Kingdom will have to say about this.

Reich seems to be the official tester of strange ideas for the Administration. He comes out with odd policy approaches and writes articles or give speeches in order to see what type of reaction he gets. What a job, but he relishes it. A great example was his comments on the health care reform debate. While speaking at the University of California, Reich talked about what an "honest" politician would say when running for President, if "that candidate did not care about becoming president." Reich, acting as the "sound" leader stated, "Thank you so much for coming this afternoon. I'm so glad to see you and I would like to be president. Let me tell you a few things on health care. Look, we have the only health care system in the world that is designed to avoid sick people. And that's true and what I'm going to do is that I am going try to reorganize it to be more amenable to treating sick people but that means you, particularly you young people, particularly you young healthy people...you're going to have to pay more." This is definitely the case, especially if the government is going to be the one behind the "reorganization." This is also true if it is going to be a government run system, because the only hope for price containment is in competition and there will be none of that in a national health care program. He goes on to say, "By the way, we're going to have to, if you're very old, we're not going to give you all that technology and all those drugs for the last couple of years of your life to keep you maybe going for another couple of months. It's too expensive...so we're going to let you die." Finally he said "I'm going to use the bargaining leverage of the federal government in terms of Medicare, Medicaid---we already have a lot of bargaining leverage---to force drug companies and insurance companies and medical suppliers to reduce their costs. What that means, less innovation and that means less new products and less new drugs on the market which means you are probably not going to live much longer than your parents. Thank you." Nut job? Maybe, but he is also the typical policy type that comes from this administration.

People were not particularly surprised by Reich's speech on health care and I am beginning to question if they will be shocked by what he has to say about BP. In a recent article he wrote, "It's time for the federal government to put BP under temporary receivership, which gives the government authority to take over BP's operations in the Gulf of Mexico until the gusher is stopped. This is the only way the public will know what's going on, be confident enough resources are being put to stopping the gusher, ensure BP's strategy is correct, know the government has enough clout to force BP to use a different one if necessary, and be sure the President is ultimately in charge."

I believe that there is no role for the federal government to own any business. I also believe that it is extremely dangerous for the government to get in the business of taking companies that are from foreign countries. That has a certain "petty dictator" feel to it. I must say, I like Reich's use of the expression "temporary receivership." These words remind me of the late economist, Milton Friedman, who reminded us that "Nothing is so permanent than a temporary government program." A thought to ponder when we contemplate getting the government out of the many businesses it has found itself in.

"Extreme Measures" draws Attention to how Health Care is Improved

noreply@blogger.com (Kevin Price) — Sun, 11 Jul 2010 16:34:00 -0500

Recently my wife talked me into watching a little movie entitled "Extraordinary Measures," staring Brendan Fraser and Harrison Ford. The film had "made for TV" written all over, although the story is engaging and the lessons learned, significant. Fraser stars as a desperate father with two seriously ill children fighting for their lives. Ford plays a research scientist poised to make a significant discovery in the treatment of a terrible disease. It is inspired by a true story. The children in the story suffer from Pompe's disease, which, according to the film, those who get it as a child usually die in the 9th year. Pompe is an autosomal recessive metabolic disorder that attacks muscles and nerve cells through out the body.

My wife, Stacy, has a heart for these type of movies. We watched it quietly together and were inspired by the story. Fraser plays John Crowley, a biotechnology executive who works in the marketing side of the industry and, in the quest of saving his own children, partners with a scientist at the University of Nebraska who is on the edge of a breakthrough on treating Pompe. In order to do this, Crowley leaves a lucrative job with a major health care company in order to try and help his children. To do so he gives up a lucrative salary and will depend entirely on his entrepreneurial skills.

The movie is inspiring as Crowley first takes the developing treatment to a venture capital (VC) firm to convince them that it can significantly improve the quality of the lives of Pompe patients and that it is a worthy investment. Early stage development will require millions by the firm and assurances from Crowley that the therapy would be subject to Food and Drug Administration (FDA) review within 18 months. He has two children who are dying, so Crowley does not hesitate to agree to the terms and to make the science catch up later. In order to meet the 18 month deadline, Crowley and company hire a team of young scientists to work around the clock to get the drug ready. It becomes clear that, in spite of the amount invested and the huge amount of energy behind it, they would not meet the deadline without additional help. The VC firm then sales the development to a larger drug company and that is when things really begin to take off. With hundreds of millions of more dollars brought to the treatment, the drug finally gets a chance to face FDA review and to be used on actual patients. Meanwhile, Crowley's daughter has suffered a couple of near death experiences, so there was little time to spare.

The goal of a drug company is to have the most effective results, so the firm decides to limit the type of patient used in the tests to infants. No one under three would be allowed to participate. Furthermore, no employee would be allowed to have his or her child participate because it could undermine the objectivity required in pursuit of such science. This is devastating news for Crowley who is now a part of the company and his children are beyond the age of three. He is desperate -- even willing to steal the drugs in order to save his children. Fortunately he doesn not have to as the head of the research makes a pitch to do a "sibling" test as part of the program because it is so rare to have family members with this disorder, than the company fires Crowley to eliminate the conflict of interest.

In the end, the medicine is very successful in treating younger patients and even leads to many having completely normal lives outside the confines of wheel chairs and respirators. Crowley's own children see an end of the disease's progression and enjoy remarkable improvement. This is a real tearjerker.

I turned to my wife who was in tears and said, "that turned out to be a great movie." She agreed, even if she could not express that verbally. I then said, "You know what impressed me most?" She put together the words to say, "the power of love when parents want to save their children." I paused, but had to get my point out. "Yes, that too, but also the power of markets when it is capable of making money to improve the lives of others." Money, and the prospect of making more money, was behind the development of this drug each step of the way. She did not like it, but that is the most important lesson of this movie for me in the times we live in. More than 90 percent of all health care drugs and treatments come from the United States. It isn't because we have more "love," it is because we have more incentives. And, as we see in the movie, "Extreme Measures," incentives really do matter.

Obama Boasts about Jobs Created by Census

noreply@blogger.com (Kevin Price) — Sun, 11 Jul 2010 16:33:00 -0500

I grew up in Detroit, Michigan and left that city when I was 13 years old. It was bad then. The common joke among "Michiganders" that "flew" South in search of jobs and opportunities is that we hoped that "the last person who leaves turns the lights out." That was back in the 1970s and the situation is even worse now. With unemployment at more than 20 percent, the actual population is now less than 1 million people. In fact, it is roughly half the size it was around 60 years ago. It no longer benefits from government programs designed for large cities and the situation is so bad that they are literally tearing down complete neighborhoods in order to reduce crime and make room for other "opportunities," whatever those end up being. In that city's current tax, regulatory, and labor environment, it is not likely to attract anything except more of the crime that has made it a wasteland.

Cleveland, Ohio is another city following a similar path as Detroit. Over the last year I have become friends with a gentleman named Mark Pogue who has been without a job for two years and is seriously looking at moving South in order to create opportunities for his family. He is like many from that once great city that have no choice, but to leave. If Cleveland, Detroit, and other one time great cities on the Midwest want to improve in the furture, they will have to figure out how to get people to stay there.

Cleveland has always been a blue collar, hard working, town. Although it has never been particularly glamorous, it had been very successful as it employed and took care of families that came there for opportunities for generations. Now it is a city on life support and Nick Gillespie of Reason.comsuggests that saving that town entails keeping the population.

When a chamber of commerce discusses a town's success on websites and brochures, one of the things they use to measure a city's success is its population growth. Gillespie points out that the numbers are not very good for Cleveland. It has experienced a decline that is very similar to Detroit, as the town has gone from almost 1 million residents in the 1950s to less than half of that today.

Yet, Cleveland is not without hope. It was not that long ago that it was a town enjoying renewal. The downtown area enjoyed enormous redevelopment (largely government driven and, therefore, expensive on taxpayers) and was becoming a cultural hot spot with a new sports stadium and the creation of the Rock and Roll Hall of Fame. But let's face it, jobs, not culture, keep cities rich in people. As a result, much of the older venues in the city are ugly reminders of how great it use to be and newer buildings are becoming monuments to the false promises of politicians who told the people that Cleveland was poised for a comeback. Millions of dollars from taxpayers were extracted from activities that make economies grow to things that get politicians reelected and fixed for life. Gillespie calls them "sweetheart deals" that demonstrate disdain towards the real needs of the public.

So how do you revive a city like Cleveland? Gillespie suggests that, since the problems of the city exists on several fronts, so should the solutions. Cleveland needs to lower the cost of government services, anything that can be done by private companies through competitive bidding should happen immediately. When you think of the high cost of government employees versus private ones, this would immediately drive costs down. This competitive attitude should be seen in the way young people are educated. The city should explore charter schools and other "choice" options on a large scale to attract people who will want their children in Cleveland's schools. Cleveland should aggressively lower its tax rates as much as possible to be more competitive to other cities that might be interested in relocating and it should reform regulations to make the city more friendly to entrepreneurs. Saving Cleveland will happen from the ground up, not the government down. Policymakers need to operate from that simple premise.

Cleveland's Plight is Familiar Story

noreply@blogger.com (Kevin Price) — Sun, 11 Jul 2010 16:32:00 -0500

Economics 101: The Left's Refusal to Embrace Reality

noreply@blogger.com (Kevin Price) — Sun, 11 Jul 2010 16:30:00 -0500

I am always shocked by the type of policy proposals that come from the political left. As a rule, the left completely disregards the ability of humans to respond to policy in a protective manner -- be it taxation, regulation, or licensure laws. The way individuals and businesses protect themselves is usually in a manner that does harm to the larger economy. For example, when the minimum wage goes up, unemployment always goes up for the very groups such a policy is "intended" to help -- young people and minorities. The law is suppose to increase the quality of life for these low income earners, the result is less jobs, which means there is no benefit at all.

A recent article in the Wall Street Journal by Daniel Klein begins to shed some light on the real reason there is a distance between liberal policies and reality. .The column discusses the results of a simple economics test among people of different ideological perspectives and it shows a huge disconnect among liberals when it comes to the logical consequences of certain public policies.

The article asks the reader to "Consider one of the economic propositions in" a "December 2008 poll: "Restrictions on housing development make housing less affordable." People were asked if they: 1) strongly agree; 2) somewhat agree; 3) somewhat disagree; 4) strongly disagree; 5) are not sure. Basic economics acknowledges that whatever redeeming features a restriction may have, it increases the cost of production and exchange, making goods and services less affordable. There may be exceptions to the general case, but they would be atypical. Therefore, we counted as incorrect responses of 'somewhat disagree' and 'strongly disagree.' This treatment gives leeway for those who think the question is ambiguous or half right and half wrong. They would likely answer 'not sure,' which we do not count as incorrect. In this case, percentage of conservatives answering incorrectly was 22.3%, very conservatives 17.6% and libertarians 15.7%. But the percentage of progressive/very liberals answering incorrectly was 67.6% and liberals 60.1%. The pattern was not an anomaly."

It would be nice if the above was an exception, but these answers epitomize liberal thinking when it comes to the link between policy and consequences.

Klein points out a trend through exploring other questions. 1) Mandatory licensing of professional services increases the prices of those services (unenlightened answer: disagree). 2) Overall, the standard of living is higher today than it was 30 years ago (unenlightened answer: disagree). 3) Rent control leads to housing shortages (unenlightened answer: disagree). 4) A company with the largest market share is a monopoly (unenlightened answer: agree). 5) Third World workers working for American companies overseas are being exploited (unenlightened answer: agree). 6) Free trade leads to unemployment (unenlightened answer: agree). 7) Minimum wage laws raise unemployment (unenlightened answer: disagree)...How did the six ideological groups do overall? Here they are, best to worst, with an average number of incorrect responses from 0 to 8: Very conservative, 1.30; Libertarian, 1.38; Conservative, 1.67; Moderate, 3.67; Liberal, 4.69; Progressive/very liberal, 5.26."

How big was the gap between those with a free market philosophy and those who support excessive government action? Klein notes, "Yet on every question the left did much worse. On the monopoly question, the portion of progressive/very liberals answering incorrectly (31%) was more than twice that of conservatives (13%) and more than four times that of libertarians (7%). On the question about living standards, the portion of progressive/very liberals answering incorrectly (61%) was more than four times that of conservatives (13%) and almost three times that of libertarians (21%)."

When I look at the gap between the left and those who support a view grounded on liberty, the psychologist inside of me wants to come out. I want to evaluate the political left and determine why the link between policy and consequences is not there. It could be they make decisions that are emotional and with little regard to logic. The desire to take away economic and social problems through mandates seem wonderful on the surface, but they do not happen in reality. It is interesting that the left, which seems to make decisions based on emotions, does not understand the role emotions play when it comes to bad policies. Liberals think people are like trees, if they are attacked they will obediently comply. In reality, when people or businesses are attacked by harmful policies, they fight or take flight. Because of this reality jobs disappear (with higher minimum wage), businesses close (because of excessive regulations), and people suffer from policies that simply do not work in the real world.

The Uninsured and Emergency Rooms

noreply@blogger.com (Kevin Price) — Sat, 3 Jul 2010 22:21:00 -0500

Rarely would one expect to find anything interesting from an agency called the National Center for Health Statistics (NCHS), but a report on how emergency rooms are used and by types of groups is creating quite the stir among advocates of government health care and ammunition for opponents of socialized medicine. NCHS is the nation's primary health statistics agency and its new report suggests that the perception of our emergency rooms being dominated by the uninsured is based more on fiction and propaganda than on fact and reality.

The prominent use of the emergency room by the uninsured was one of the most frequently heard arguments for the President's socialized medicine program. Since people know they can get treatment there without paying immediately (if at all), they would fill up the room regardless of how small the need. The argument goes on that this care costs so much more and when done for non-emergency needs, it creates a disruption of care for those who really need emergency treatment. Devon M. Herrick, a health economist and senior fellow at the National Center for Policy Analysis, believes the data from the NCHS paints a very different picture.

So who are the biggest users, those most likely to misuse, and even abusers of emergency rooms? According to NCH,S it is a group that already has government health care...individuals in the Medicaid system. Here are some other findings:

Approximately 32 percent of these Medicaid enrollees used the emergency room at least once during a 12 month period in 2007. Meanwhile, those with private health insurance were only about half as likely (17 percent) to go to an ER, and a similar number (around 20 percent) of the uninsured did the same in that time frame.
Medicaid enrollees were three times more likely than those with private insurance and twice as likely as those who are uninsured to go to the ER twice in that past year.
There are approximately 120 million ER visits made in the United States each year. These make up approximately 11 percent of all ambulatory visits.

One thing that there is little debate among health care professionals is that many of these 120 million ER visits could be better handled in other environments (such as a doctor's office, emergency clinics, etc.). Dr. Stephen Nichols, a regional medical officer for Schumacher Group, says "In general, 5 percent to 25 percent of patients who visit an emergency department in a community hospital have non-urgent complaints that could easily have been addressed in an outpatient setting," The Schumacher Group contracts for emergency department services at community hospitals.

The Heartland Institute in its report on the uninsured and their use of emergency rooms, quotes Dr. John Dunn, an emergency room specialist from Brownwood, Texas who noted that "Thirty percent to forty percent are emergencies or urgent care and deserve treatment within a reasonable time. But it is care that could be seen to in an urgent care clinic or a well-equipped office, though the patients probably are better off in the emergency department."

Why are Medicaid patients the most likely to use the ER in a less responsible manner? It simply comes down to the economic way of thinking. People with private insurance pay significantly more in co-pays for using an emergency room over a clinic or doctor's office. Therefore, avoiding the Emergency Room makes economic sense to them as consumers. Obamacare will essentially have all Americans treated similarly to the current Medicare patients. As a result, one can expect ER abuse to explode once socialized medicine goes fully into effect. This NCHS study not only weakens the argument for socialized medicine, but would be a devastating blow if facts still mattered in public policy debates.

How Would Federalism Work?

noreply@blogger.com (Kevin Price) — Sat, 3 Jul 2010 22:20:00 -0500

"Restoring the Constitution" is a phrase that is catching on with people. So is "federalism" as people lament a national government that has become out of control and is spiraling our nation into a downfall. But many also wonder what, exactly, do these concepts mean?

Many have dropped the term "conservative" altogether, because there is really very little left to "conserve" these days. Taxes, regulation, and spending are out of control and the other institutions that have supported our liberties are either being abused or are in decline. The US is on the fast track towards socialism. We need a different paradigm to put our nation back on track. That is where the term "restoration" comes to mind. The United States has lost sight of the things that have made it the most free and prosperous country in the history of the world.

To "restore the Constitution," we would have to review at the things the government can and cannot do according to our founding document. Article I, Section 8 lists the seventeen powers specifically enumerated to the federal government. All of these things are important and the government's function in these areas was suppose to be strong, in order to protect the liberties of every American. Some of the things allowed include standard weights and measures, coining money, post offices and post roads, the protection of intellectual property, and a national defense. Beyond these and a few other very specific items, there was not much for which the federal government was responsible.

So how did new medicines get regulated? How would certain industries be licensed? What about the many other things done today by the federal government, who would do them? This is where we get to the idea of "federalism." You see how it was designed to work clearly in the Tenth Amendment of the Constitution: "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." That word, reserved, speaks of exclusivity. This was not a preferential view of public policy ("it would be best if the states and people took care of these things"), but a mandate (if it is not listed in the US Constitution, it is for the states and the people).

The vast majority of regulations that exist through out state governments came into place from states watching the works of one another. With the many states, our country had a vibrant laboratory with new ideas being brought to the surface and each state emulated those laws that worked best. This system worked very well. As the rest of Western civilization largely limped through the 19th Century with stagnant economies and governments in excess, the US was a vibrant powerhouse that focused on industry and innovation. Government did not get in the way, but largely cleared the way for progress.

The ideas behind this system are both simple and profound. The state governments had virtually unlimited powers, but limited amounts of money. It could not "print money" to fund its programs, because only the federal government had the power to do such. On the other hand, the federal government only had 17 powers and it had no reason to use inflation as a vehicle to fund its programs. This contributed to the value of the US dollar remaining constant from the era of the founding until the early part of the 20th century (during the New Deal we began to devalue our currency to pay for "extra Constitutional" or unconstitutional government programs).

Money was not the only restraint put on the states, but also good old fashion competition. If any one state became too excessive in its regulations, taxation, generosity in social spending, or in any other way, people could (and would) vote with their feet to go to places with more fiscally responsible environments. During the early 19th century, the Whig Party's "internal improvements" program (very similar to earmarks today) had a devastating effect of state budgets around the country and led to massive migrations nation wide because of the high taxes that followed. In no time every state, except for Massachusetts, had prohibitions against such programs placed in their constitutions. Since people could leave states because of policies that were economically harmful, all states tended to demonstrate much more restraint in their spending and regulations, which led to greater prosperity for the nation as a whole.

Federalism works. It is in decline today only because of the appetite of the federal government. The national failures seen through out the federal government today -- inflationary monetary policies, unemployment out of control, and a debt growing exponentially -- are all very eloquent arguments for restoring both the Constitution and federalism.

Obama Seeks Another Bailout

noreply@blogger.com (Kevin Price) — Fri, 2 Jul 2010 22:46:00 -0500

In early 2009 the Obama administration informed us that, without more subsidies, the US would see unemployment of eight percent. In a little over a year the government has spent trillions of dollars in bailouts and unemployment is now at ten percent. Furthermore, there is no sign of relief in sight. With that, Obama is trying to do what he does best...ask for more bailout dollars.

FoxNews.com reports that "Congressional leaders received a letter from the president asking for almost $50 billion for distribution to state and local governments, saying that increased spending is 'urgent and unavoidable,' the (Washington) Post reported. The money would protect the jobs of teachers, police and fire fighters. 'Because the urgency is high-many school districts, cities and states are already being forced to make these layoffs,' Obama wrote, 'these provisions must be passed as quickly as possible.'"

Many clichés come to mind when you see this scenario. With a Bush bailout, Obama plan, and now this current effort, one thinks of "three strikes and your out," or "third time's a charm," but I think the most accurate might be that the "definition of insanity is to do the same things over and over again, expecting different results."

Instead of pursuing more government dollars, the administration should learn the lessons of these type of expenditures to date:

Bailouts of industries actually have an adverse effect on business behavior. For example, there is a growing view that government bailouts of banks have made them less likely to give loans, since such money came with numerous strings (which include prohibitions for some loans, regulations, etc.) and other factors that make lending less attractive. Generally speaking, the amount of loans generated has seen very few changes since the bailout of 2008 or any of the other actions since then.
The reason public employment is particularly vulnerable is because these jobs cannot support themselves without more tax dollars. They are not self sustaining. When Obama did his little dog and pony show in 2009, in which he had photo opportunities in front of law enforcement officials in cities around the country, many economists, pundits, and writers warned that such was unsustainable without more tax dollars. Proof is in Obama's new request for another $50 billion dollars.
Real job creation is sustained through tax, regulatory, and market environments that encourage such. Lower corporate tax rates or lower rates on anything that can stimulate economic activity, leads to employment that is self sustaining. In fact, these jobs lead to the creation of more employment through the engine of free enterprise. Every one of these type of jobs that are created are through voluntary exchanges and not the government confiscation of wealth.
One of the reasons unemployment is so high is because every time the government pursues bailouts, there is a destabilizing impact on the business environment. These bailouts do not happen in a vacuum as businesses ponder future tax increases, inflation for printed money to pay for such programs, new regulations and conditions that come from the bailouts, and other issues that hinder -- rather than spur -- economic growth and job creation. These bailout foster more caution rather than spontaneous economic activity.

Real economic growth comes from having the lowest corporate taxes in the industrial world (instead of the second highest, like it is today). The government should also create a regulatory environment that is competitive (in terms of ease of doing business) with any other industrialized country. Business should be allowed to face the negative consequences of failure (and enjoy the restoration of moral hazard) in order to encourage companies to behave more efficiently. Finally, the government should provide incentives to work rather than be dependent on the government. Such steps would actually make it possible for Obama to increase the revenue coffers, rather than ask for more money that is simply not there.

The Next Major Financial Concern Could be College Tuition

noreply@blogger.com (Kevin Price) — Fri, 2 Jul 2010 21:56:00 -0500

For decades the cost of college has roughly been double or even triple the pace of inflation. The increases in recent years have been so fast and high, many are concerned that we are about to witness another bubble in America similar to the housing one that we have yet to fully recover. Recently, I saw from theNational Center for Policy Analysis (NCPA and they quote extensively, Naked Law) that there are many indicators that this bubble is about to burst.

The cost of going to college is now doubling every nine years, on average, because there are typically eight percent increases each year.
Because the government has made it extremely easy for students to get money (and even "more money" in increases) thanks to the government, supportive parents and immediate gratification, colleges have made frequent tuition hikes their primary vehicle for solving their money problems. While fund raising has flatlined and investments have plummeted, students have quietly turned over more and more money to Uncle Sam.

Students are accomplishing this expensive right of passage called college by borrowing more now than ever in the history of higher learning. In fact, according to NCPA, the number of students who graduate with over $25,000 in debt has tripled in the last decade alone. Furthermore, 2/3rds of today's college students borrow money to pay for college and they take on a debt of $23,165 on average.

Some of the behaviors being deployed by for-profit colleges in their quest for dollars are disturbing. Some have gone so far as to paying homeless people to take out federal loans to enroll with no intention of attending. These loans are very easy to acquire because of the government's backing, clever schools are getting these people to enroll and giving them 10 percent of the action. In the end, what you have, is a $20,000 loan paid to the school and a $2,000 "stipend" for the homeless person -- thanks to the generosity of the federal government in the form of tuition payments.

Colleges and universities are continuously arguing that they "need more dollars." Yet it appears that these institutions have spending problems that are similar to the government's. This is seen in the fact that university presidents have a salary that is sky high, while we have a historically weak economy. USA Today has reported that 23 presidents of private colleges made more than $1 million in 2008, while 110 more made over $500,000. This is a new phenomenon, linked to the "trough" mentality pervasive in these schools in the way they look at the federal government. As of 2002, there were no "million dollar" university presidents.

Higher education is a perfect example of government out of control and how public dollars artificially increase demand and leads to enormous waste without accountability. Market sensibilities need to be brought to colleges and universities today.

How Bad is the National Debt?

noreply@blogger.com (Kevin Price) — Fri, 25 Jun 2010 15:47:00 -0500

We have known for years that our debts and deficits have been out of hand, but the Congressional Budget Office (CBO) is painting a picture that is almost sci-fi in its proportions. It is the kind of picture that we would assume would come from the Third World or, at least, from Greece or Spain in the EU.

The founders of this republic designed a uniquely American political model that promised fiscal integrity. Simply put, the federal government was limited to 17 specific powers, none of which would cause the kind of financial strain our country faces today. Meanwhile, all other powers were left to the states, but the inability of those governments to print money made them fiscally healthy and naturally small. Because of this, it took almost 200 years for the federal debt to reach $1 trillion. Many found that alarming at the time, but since then we have arrived to the point that we add a $1 trillion to the debt every year.

The CBO is now arguing that the US is facing a crushing debt and this nation is being forced into the position of having to dramatically cut social spending in order to stay afloat. Other findings include that:

Federal spending will grow to 26 percent of gross domestic product (GDP) within the next ten years and reach highs of up to 35 percent by 2035.
Take growing health care costs and add an aging population and you have a significant increase in federal spending and the national debt that will grow worse unless there are serious policy changes.
The national debt is projected to grow as high as 87 percent of GDP in the next decade. To make matters worse, it will reach 109 percent by 2025 and could peak at 185 percent by 2035.
The CBO politely calls the long-term outlook of the budget as "daunting," and argues that growing costs will limit the choices policy makers have and force draconian cuts in spending.

There are huge debates on all sides of the political spectrum on how spending has grown out of control The political left argues that "expansionary" military policies have led to a costly "military-industrial complex" that has put us in this dire situation. The political right argues that it is the outrageous growth in domestic spending (which is more than 3 to 1 to defense spending) that has caused our financial crisis. Bottom line, our financial crisis is linked to the simple fact that our government seems to no longer be bound by the rule of law. Without Constitutional restraint, there is no fiscal restraint. Until the former is addressed, we can expect our financial situation to only get worse.

Prosperity in Texas makes a Case for Federalism

noreply@blogger.com (Kevin Price) — Fri, 25 Jun 2010 15:46:00 -0500

Article I, Section 8 of the Constitution makes it clear -- the federal government is limited to 17 specific powers and nothing more. To make sure the people understood such, the founders gave us the Tenth Amendment, which states: "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." The founders wanted a weak federal government and strong states for several reasons, among them:

The delegates to the Constitution Convention were sent there to represent the interests of the states. There was no national government and it had no representation at that event. It was entirely about the interests of state governments.
The states knew it was better to have problems solved in specific states, instead of making any issue a national problem. The concept is simple, "divide and conquer."
Competition among the states were designed to maximize liberties. Regulations would be modest, as would taxes, in all the states in order to prevent the exodus of unhappy citizens.
When problems are solved on a state level, other states get the next idea on how to tackle the issues they face.

Today, states could learn from Texas, which has led other states in job creation. The Texas office ofAmericans for Prosperity, notes the Workforce Commission found the state added "43,600 nonagricultural jobs in May. This marks the largest over-the-month increase in employment in the nation and is the largest monthly gain in more than three years."

"Individuals and businesses are flocking to Texas during these tough economic times," said AFPF State Director Peggy Venable. "The reason for this is clear - our business environment is competitive, taxes are low, and we have no income tax. All of the right elements are in place to ensure prosperity and opportunity in our state."

States are competing for businesses. Some states, like Michigan and Ohio, are not even contenders because their tax, labor, and regulatory environment are hostile to job creation. Those that are still "players," like Texas, recognize that taxes and regulations are simply a fixed cost of doing business. These things are very similar in the eyes of decision makers as the cost of office space, labor cost, and other factors. Just like companies have a choice on these factors, they also have a choice as to where they do business. They will look for the most cost effective pricing in order to be more competitive.

Since Texas has among the lowest costs for labor in the country, among the most friendly regulatory environments, and among the lowest in business taxes, Texas is very hot for business. The federal government, on the other hand, is providing a huge weight on all businesses to such an extent that other countries -- regardless of the virtues of Texas -- are looking more attractive daily. The current economy and the example of Texas makes a great case to restore the founders' idea of federalism.

The Truth about Taxes

noreply@blogger.com (Kevin Price) — Fri, 25 Jun 2010 15:46:00 -0500

Recently I have been chronicling the development of a specific and even systematic economic policy in the Obama Administration. It is a program that is based on the simple idea that a bad economy is a good thing, because of the long term "reforms" such can produce.

This policy was articulated early in the Obama administration as seen in an interview White House Chief of Staff Rahm Emanuel had with the Wall Street Journal, stating that "You never want a serious crisis to go to waste, and what I mean by that is an opportunity to do things that you didn't think you could do before." Emanuel was noting that it is difficult to make major public policy changes when the economy is strong and healthy. In other words, if everything is well, why do you need “change?” When things are bad, however, you have some justification.

This view was further reiterated recently by Attorney General Eric Holder, who told graduates at Boston University that "Positive change is the consequence of unfavorable and not favorable circumstance. Progress is the product of darkness, not light. Whenever you look into our past, this is true... It was economic turmoil that brought us the progressive era and the New Deal." In other words, the Great Depression led to 25 percent unemployment, but look at the amazing Leviathan called big government we received from it. In the end, "the Great Depression was a good thing." This is a hard concept for most Americans to buy.

The theme continued with one of the President’s key allies in the Senate, Christopher Dodd (D-Conn.) who, upon passage of a very controversial and far reaching banking bill, is quoted by the Washington Post (with tears in his eyes) as saying that "It's a great moment. I'm proud to have been here. No one will know until this is actually in place how it works. But we believe we've done something that has been needed for a long time. It took a crisis to bring us to the point where we could actually get this job done” (emphasis added). This bill could damage the lending abilities of banks, could take away the ability of the middle and lower income groups to even be able to get a checking account, and have even greater implications on individuals and businesses. With a crisis though, you can do things you cannot do under normal circumstances. In fact, you can even make sweeping policies, without knowing their implications, as seen in this far reaching banking legislation.

I have never been comfortable with conspiracy theories. After all, a conspiracy theory looks at the types of choices that are made and (particularly if the results are negative) the theorist makes conclusions on the intent of the policy. We are naturally uncomfortable with such, because no one wishes to judge the motives of others. The Obama Domestic Doctrine is neither a conspiracy nor a theory, but a stated policy intention reinforced by senior officials in the administration and its allies in other areas of government. The administration has made its view clear: economic hardships and the bad policies necessary to achieve such, are a "good thing" for the economy in the long term, because of the "positive" long term effects. Furthermore, policies that would actually relieve economic hardship may be "harmful," since such could undermine the need for government expansion. I wonder how many American had such in mind when they voted for this President and this Congress.

The Continued Development of the Obama Domestic Doctrine

noreply@blogger.com (Kevin Price) — Sat, 12 Jun 2010 17:00:00 -0500

The "Macro" Could Learn from the "Micro"

noreply@blogger.com (Kevin Price) — Sat, 12 Jun 2010 17:00:00 -0500

The headlines that dominated the news from Congress this week could be summarized by one seen at Bloomberg.com: "Republicans Thwart Bill With Unemployment Aid." That dastardly GOP, always hurting America's poor! The fact the national debt is now growing at a rate of $1 trillion annually, has finally become an issue to Republican members. Bloomberg notes: "The latest version would have added $33 billion to the budget shortfall...Republicans said the cost-cutting didn't go far enough." The Obama administration initially sought $50 billion in aid.

But the cost was not the only concern. The truth is, Republicans are worried that, after months of financial assistance, those on these benefits may be getting too used to getting 'something for nothing" and are concerned about what affect such plans are having on job searches. It is not much different from the forty something sons in the movie "Step Brothers," you have to give these guys an incentive to take care of themselves. Sure, in the long term, subsidy of adults makes for a funny movie, but also for a disastrous domestic policy. Such policies foster long term dependence and poverty, when people are needing economic freedom and the prosperity that comes with it.

I have spoken before of my father-in-law from Minnesota, whom I consider a friend and really enjoy his company. We both love golf, classic rock, and my family, but when it comes to politics, we tend to have to keep our conversations short. One time when, he and I were both golfing we began discussing his future retirement, at that time he noted that he planned on moving to South Dakota. I knew he was from there originally, but I also knew he loved his adopted home. So I asked him why he was leaving and he said, "that's easy, South Dakota has a much better tax situation for retirees than virtually any state in the country." I cannot begin to state the many times he had told me how unpatriotic businesses were to leave the country because of tax and other laws.

Obviously I couldn't resist, "so here you are, the average American, who is smart enough to change where you live to protect your wife and you from higher taxes, but you don't expect businesses to do the same thing with often large numbers of employees and even greater tax implications?" It is very rare to get him to get quiet once we get started (and he would say the same about me), but he had that knowing look on his face that this conversation was now done.

The United States has the second highest corporate tax rates of any industrialized country in the world and could be number one in this dubious area as early as next year. Businesses are about efficiency, profit, and looking out for the interest of its stockholders. Taxes, like regulations and licensure laws, are just a fixed cost of doing business. If the costs get too high, businesses have no choice but to move to better places for commerce. It isn't personal, it is just business and now it is easier than ever to do such.

Most of the things that work or don't work on a micro level, translate the same on the macro level, because in both cases they include human nature and humans tend to respond to incentives (and disincentives) the same way. If the government could eliminate their fantasy and replace it with reality, all of our lives would be so much better. If you work more, you make more in business, but we want a tax system that equalizes the rewards of our activities? If companies do that, they go out of business. As we look at economies all over the world, so do countries. We need to elect public officials who will ask the question, "would the approach of this policy work in my home, my work, or any other part of my life?" If the answer is no, it will not work for the nation. That is economics in the real world and that is exactly what this country needs, a little dose of reality.

G20 Considers Europe's Economic Nightmare

noreply@blogger.com (Kevin Price) — Sat, 12 Jun 2010 16:59:00 -0500

It is that time of the year again where riots break out in the city that has the misfortune of being the host of the G-20 meeting. The unfortunate city this year is Huntsville, Ontario (Near Toronto, Canada). Most of the protests are in opposition to the blatant capitalism that the participating countries are "guilty of," according to organizers. What "capitalism" they are talking about these days, it is hard to say as these countries reconsider the austerity measures that are the only means many of these nations have to save themselves, according to Ann Mettler of the Lisbon Council.

It is obviously best to make reforms when economies are stronger and are more able to better sustain cuts to services in programs. Unfortunately, European countries cannot afford such a luxury, according to Mettler. For example, France has not enjoyed a balanced budget in almost 4 decades and this includes many years of economic growth, which could have made cutting spending less painful. Meanwhile, members of the European Union have been accumulating debts at a break neck pace and governments are saddling themselves with increased obligations, particularly for pensions, and without any plan for paying for them in the future. Furthermore, these governments have long taken a chapter out of America's book of pursuing social welfare at the expect of what is in the best interest of the economy as a whole. They simply pass the burden on to future generation and future elected officials.

The "writing has been on the wall" for these countries for quite some time. Standard & Poor's predicted back in 2006 that by 2050, the debt burdens in Italy and France would be well above 200 percent of gross domestic product (GDP), and about twice as high in Portugal and Greece. It was also predicted four years ago that the aging European demographic would create serious problems for the "next decade." Well the next decade has arrived and there is no plan or strategy poised to address the problem.

So the people of Europe -- particularly the hard hit country of Greece -- are complaining about the severe "austerity measures" designed to get spending under control. For most of these countries, such is the only serious attempt to look at the financial numbers in decades and is well over due. Mettler argues that the Union has faced a three headed dragon for years: excessive pressure on public spending, an aging population, and a shrinking share in the world economy. These realities require these countries to make decisions that, just a few years ago, seemed unimaginable. Unfortunately, the US is right around the corner from having to make similar choices.

Obama's Controversial Domestic Doctrine

noreply@blogger.com (Kevin Price) — Sat, 5 Jun 2010 23:35:00 -0500

It seems every President is remembered for something. In recent decades, we recall Ronald Reagan ending the Cold War without a single shot and for making it possible for individuals to control more of their incomes (through tax cuts), and calling that (wisely) patriotic. With George H.W. Bush we saw a dramatic increase in regulations that benefited very large companies and the breaking of a "no new tax" pledge. There are few that wonder why he was only a one term president. Then there was Bill Clinton who, at first, attempted a massive take over by the federal government in health care and other industries, but was savvy enough to read the political "tea leaves" when the Republicans took over the Congress in 1994 to govern as a moderate. In fact, his biggest policy achievement may have been the ending of "welfare as we know it," which led to a dramatic decrease in the number of people below poverty level.

If you fast forward a little you find George W. Bush, who created a controversial foreign policy that became simply known as the "Bush Doctrine." The Bush Doctrine argued that the US could act unilaterally and without regard to other international organizations in protecting its interests from potential terrorists. This approach was used to pull the US out of some relationships (the ABM Treaty and Kyoto Protocol). Some have argued that the Doctrine was used as grounds for a preemptive strike against Iraq. Everyone on both the left and right debate its merits to this day. Bush was also known for setting the stage (with TARP) for a massive take over of the US economy.

So what will be Obama's policy legacy? I believe many will look back at what will be called as the "Obama Domestic Doctrine." Very early in the Obama administration, the President's Chief of Staff, Rahm Emanuel, told the Wall Street Journal that "You never want a serious crisis to go to waste, and what I mean by that is an opportunity to do things that you didn't think you could do before." What "things" was Emanuel talking about? Obviously the massive take over of the health care system is something they would argue because things "are not working" in that area today. More government bailouts would be a part of the Administration's solution to problems the country is facing. How about the restoration of the power of unions at the expense of the individual worker? The list goes on. As long as things are "bad," the case can be made for doing anything. It is when the economy is working well and prosperity is increasing that it becomes difficult to make the case for more government intervention.

This view by the Obama Administration is not isolated to Emanuel. Recently the Attorney General, Eric Holder, gave a speech to Boston University in which he sang the praises of the difficult times we have had in history because of the policy changes that came as the result of them. He said that "Positive change is the consequence of unfavorable and not favorable circumstance. Progress is the product of darkness, not light. Whenever you look into our past, this is true... It was economic turmoil that brought us the progressive era and the New Deal." Interestingly, on the micro level, when something goes wrong in the lives of friends or family, we want to help out temporarily so those people can get on their feet (AKA independent) again. The Obama Administration sees policies that create permanent dependence on the state as good. Those type of policies, according to Emanuel and Holder, are the result of weak economies and not ones that are prosperous. Simply put, "strong economies mean strong individuals, and that is bad." "Weak economies mean weak individuals, and that is good." I did not state it, I'm only reporting it.

With such a view that the expansion of government into areas it never had a role in historically as "good," is it safe to assume the Administration will continue to pursue policies (moratoriums on drilling, increases of minimum wage, higher taxes on businesses, etc.) that will add to our historically high unemployment and economic instability? Obama's senior advisers seem to be making just such a case.

America's Road to Serfdom

noreply@blogger.com (Kevin Price) — Sat, 5 Jun 2010 23:35:00 -0500

It seems as though millions of Americans have woken up to the reality that the United States is on the fast track towards socialism. The individual is shrinking in importance as we give homage to the collective mob. This is not a new problem. Barack Obama has simply made the situation so bad that Americans have finally begun to wake up and take notice. It is too bad it has taken so long, we have needed awareness for generations.

It is interesting that many of the Founding Fathers found themselves testifying to legislative bodies about what they meant when they wrote the Constitution. Some members of Congress in the early 19th century, who heard James Madison's eloquent testimony that the federal government actually owed its existence to the states, argued that is not what the founders meant. Madison stated in Federalist Paper 45 that: "The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite." It is clear what Madison meant.

However, Madison's own colleague and one of the co-authors of the Federalist Papers, Alexander Hamilton, had a consolidated view of government that stood in contrast to Madison. These two views -- the dispersion of power and its collection, have become the two biggest themes and tensions in US history.

From the founding era until the mid 19th century, those who supported the dispersion of power to the states largely ruled the day. Certainly, there were movements away from the Founder's original intentions, but the states remained largely strong and the federal government was mostly very limited. The following are some of the major benchmarks that got the US to the point it is today:

The Civil War. This was the first major paradigm shift from state power to its consolidation by the federal government. Before the war, it was believed that since the states created the federal government, they could succeed if they deemed it necessary. Our history books argue this war was about slavery, but the US is the only major country that required a civil war to end that institution. This war had far more to do with the consolidation of power than liberating slaves. Before the Civil War, Americans would say, in talking about their country, "The United Statesare..." Following the Civil War, they would say, "The United States is..." This reflected a significant change in US politics.
The progressive policies of Woodrow Wilson. Wilson greatly weakened states' rights when US Senators were no longer chosen by state legislatures (through the Seventeenth Amendment) but through direct vote. This may have made the majority stronger, but it weakened the power of the states to protect individuals. Furthermore, Wilson brought us an income tax in the Sixteenth Amendment, which was explicitly opposed by our founders in Article I, Section 8 of the Constitution because of the fact it would harm wealth creation and the government had no business knowing how incomes were earned. Finally, the federal government created the Federal Reserve, which started us down the road to political, rather than sound, money.
The New Deal. Franklin Roosevelt created an entire shift in the role of government from protector to provider. His many "New Deal" programs changed the expression "general welfare" (which is beneficial to all) into specific welfare that harmed the economy and created entitlements. Many of his policies were reversed by the courts, many more changed the role of government forever.
Lyndon Johnson's "Great Society." Johnson's "War on Poverty" ended up becoming a war on the poor as the number of people below poverty level grew. Johnson chilled personal ambition with welfare programs that gave people every incentive to stay poor and, for the first time in US history, the percentage who were below poverty level found themselves growing every decade.

This leads us to where we are today. Barack Obama has utilized "Czars" as a way to have an unaccountable government when it comes to the Legislative branch. He is passing laws that are clearly unconstitutional and against the will of the voters (e.g., socialized medicine). He is developing a foreign policy that rewards our enemies and threatens our friends. He is waging a war on wealth creation that has lead to the highest unemployment in over 25 years and has developed a domestic doctrine that pursues a bigger crisis as a case for more government. Obama is not our first "mover" towards socialism, but he may be one of the most effective. We need to understand where we came from and how we got here, if we are ever going to get this republic on the road to liberty.

BP Disaster makes Contrarian case for more US Offshore Drilling

noreply@blogger.com (Kevin Price) — Sat, 5 Jun 2010 23:35:00 -0500

British Petroleum's (BP) environmental disaster off the Gulf Coast has dominated the news headlines for several weeks. Unfortunately, the media seems to have limited its focus on the oil spill and not on the ways it could have been prevented.

Since the disaster I have spoken to several energy industry leaders who have told me, on the basis of anonymity, that BP has a reputations of being slack in the way they drill oil and its safety standards do not compare to what US companies enjoy. In fact, a similar accident on the part of a company from the US would have led to an immediate shut off because of the technological and safety standards. I have been told that BP is "impatient" with US companies because in its view the latter "are" slow in their processes and are "obsessed" with safety.

The economic case for increased domestic drilling is simple and with our current economic crisis, it is more important than ever. It will quickly lower gas prices by increasing future supplies. What most opponents of domestic drilling fail to realize is that the mere threat of increased production can lower prices. A simple debate on the subject has had the power to lower the price per barrel by over $30. This is without a vote and without new exploration. This is merely due to rhetoric. Imagine the impact once we increased drilling.

The national security argument makes perfect sense too. In 1970 we imported 24 percent of our oil. Today it is nearly 70 percent, and that number continues to grow. If foreign countries decided to stop supplying us, we would be in a true crisis. Security, as well as prosperity, are wrapped up in our energy future. The shrinking US oil supply is not because of scarcity, but because of poor policies on the part of the US government.

The disaster off the coast provides the moral and environmental case for domestic drilling. Increased US drilling is the "green" thing to do. For years we have been told by environmentalists that this planet is little more than a "big blue marble." Simply put, environmental disasters on any part of the planet has an adverse impact on the entire planet. If that is the case, who better than the United States to increase drilling? Right now, Cuba and Venezuela are eying off shore drilling opportunities near the United States. Some of these are very close to where BP's disaster took place. Regardless of how backward BP is, it is generations ahead of Cuba in technology. Do we prefer their technology, safety standards, and labor over that of the US? Any time the United States can take the lead on drilling; people, animals, and pristine environments are better protected compared to the means of any other country.

International waters -- in the Atlantic, Pacific, and Gulf Coast -- are very close to the shores of the United States. Do we want the pursuit of energy that can be found there to be done by the leader in technology and safety or by countries like Cuba, Venezuela, or even Great Britain? Drilling will happen, but by which countries? The BP disaster makes an eloquent case for the US to take the lead.

The Constitution vs. Health Care "Reform"

noreply@blogger.com (Kevin Price) — Tue, 1 Jun 2010 22:22:00 -0500

One of the few "funny" stories to come out of the sweeping health care legislation to go through Congress was that the majority who wanted reform -- but did not want it applied to them -- woke up finding themselves subject to those laws. They, too, will eventually find themselves burdened by the same burden of taxes, regulation, and rationed care that the rest of us will suffer. This was not the only thing they failed to notice, but also the fact that this bill is an easy target for attack in the courts.

Investor's Business Daily (IBD) notes that several parts of the law should simply not survive a constitutional challenge. Nancy Pelosi was the subject of many jokes when she essentially said, "we will not know what is in the bill until we vote on it." Many now wish they had looked a little closer at the fine print.

The first and most obvious place for the courts to focus on according to the IBD piece is "the individual mandate that requires those who aren't previously covered by insurance to buy a plan." The federal government has never had the power to require individuals to purchase something from a private or publicly owned company. Politicians lack a fundamental understanding of this principle. Recently I moderated a forum that featured the Democrat's nominee for Governor of Texas, Bill White and I asked him about his view of the President's health care reform and, in particular, the appearantly unconstitutional mandate that indivudals would have to buy something from a company. He, quipped, "like auto insurance?" Auto insurance has been a requirement for decades, but always on a state level. Even then the anology is only true if someone wants to own and drive a car. The federal government's powers are different from the states as seen clearly in Article I of the Constitution. White is a graduate of Harvard and did his law degree at the University of Texas at Austin, he should know better, but like most in public policy today he is clueless when it comes to federalism. In spite of changes in the courts, I do not see this bill holding up.

Another area that is attracting attention on a constitutional level is the expansion of Medicaid, which forces states to increase spending on that program. Add the troubling facts that some states (such as Louisianna and Nebraska) received "sweetheart deals" that benefit their states at the expense of the rest of the nation.

The problem is, even if these provisions were struck down, the bulk of the law would remain intact, as will the burden that accompanies it. But that may not be the case, IBD notes, it quotes Greg Scandlen, a senior fellow at the Heartland Institute. Scandlen notes that "due to a little-known legal concept the entire law would unravel if a single part was found to be outside the Constitution." He goes on to state that "Apparently there was no 'severability' clause written into this law, which shows how amateurish the process was," he wrote. "Virtually every bill I've ever read includes a provision that if any part of the law is ruled unconstitutional the rest of the law will remain intact. Not this one. That will likely mean that the entire law will be thrown out if a part of it is found to violate the Constitution."

Although the legal community seems to be dismissing much hope that this bill will be overturned, it is clear that this legislation is walking on thin ice. With almost 3,000 pages and huge mistakes like those covered above, this bill is begging to have major changes or to be disregarded entirely. The case for "reform of the reform" is stronger now than ever.

The war on the working class continues

noreply@blogger.com (Kevin Price) — Fri, 28 May 2010 12:31:00 -0500

I personally hate conspiracy theories. like most, I hear such and my eyes begin to glaze over and I eagerly wait for the person to stop talking so I can move on to another conversation. However, there is something about the Obama administration that makes it very difficult to not question the intent, as well as the consequences, of their policy choices.

Recently Eric Holder, the Attorney General of the United States, gave the commencement address at Boston University at which he told the students about the wonderful and "progressive" reforms that came out of bad economies. Essentially, he is arguing that major actions by government can only happen under the worse possible economic circumstances, because people are otherwise fine with the status quo. Holder's remarks reminded me of White House Chief of Staff Rahm Emanuel who quipped, "You never want a serious crisis to go to waste," Emanuel then went on to discuss the major changes you can make in just such an environment.

Essentially these high ranking public officials are sounding a mantra of more problems leading to more change. With such a philosophy, it should not be a surprise that we continue to see policies that are contributing to the continued destruction of the economy. Unemployment is at the highest level in over a quarter of a century, the national debt is growing at over $1 trillion dollars a year (in the early 1980s the accumulated debt of the US government was only making that mark for the first time), and inflation looms around the corner as cheap money is being produced to pay for this massive government expansion.

Particularly harmful will be the President's far reaching health care reform legislation, which will require small businesses to provide health insurance to their employees. It is being marketed by the administration as having a minimal adverse effect because this burden will be offset by a tax credit for each of the covered employees. Without such, it is unlikely the bill would have ever navigated through the Congress. However, with the federal government's incredible appetite, that will like be modified as the law is implemented. Even without a single change in the current law, the present credit is already arbitrarily reduced as a business grows, essentially discouraging employers from hiring more workers or increasing their salaries. Devon Herrick and Pamela Villareal (both of the National Center for Policy Analysis) have noted that this bill is going to clearly undermine job growth and be particularly harmful to higher paid workers.

The tax credit is suppose to be helpful to small firms. Businesses in select industries that have 25 or fewer employees will quality for a tax credit worth up to 35 percent of the employer's contribution to health insurance during the period of 2010 to 2014. After 2014 this is how the picture looks:

Although employers may qualify for a 50 percent health insurance tax credit for the first two years, they must pay for at least half of the expense.
Employers will have to make these purchases through newly formed "health insurance exchanges" in order to qualify. It is yet to be seen if these will be competitive. Since they are largely government controlled (and potentially monopolistic), it is highly unlikely.
Than the law begins to get sticky and companies will likely slip through the tax credit cracks when it comes to being qualified as employers must have fewer than 11 workers, earning an average of $25,000 or less, in order to qualify for the full tax credit. Therefore the law is punitive towards individuals who make more than $25,000 a year. This is not affluent by anyone except the government.
Finally, the credit is not available to sole proprietorships and their family members, yet this is one of the most common type of small business in the United states.

The policy implements an ugly trade off for firms that would like to do more for their employees. As the company's average pay goes above $25,000, the credit is withdrawn at a rate of 4 percentage points for every additional $1,000 in average pay. Eventually it is completely withdrawn once the average pay reaches $50,000. In addition to this, the credit is also incrementally withdrawn for each increase in the size of the business beyond 10 workers (regardless of average pay), and it disappears once the firm reaches 25 workers.

Therefore this legislation will mandate businesses to pursue low wage workers and avoid those who enjoy better skills and typically receive higher pay. It may also simply force employers to avoid the costs of having many employees by choosing technology over workers (which has a higher initial cost, but would clearly become cheaper over time in the new health care environment). Another option could find companies pursue vendors (particularly overseas) in order to avoid these prohibitive employee costs entirely.The war on the working class continues.

Kevin Price is a nationally syndicated columnist and host of the Price of Business on CNN Radio. Learn more about him and his activities at www.PriceofBusiness.com.

Finally, a sensible look at bailouts

noreply@blogger.com (Kevin Price) — Thu, 27 May 2010 23:18:00 -0500

Political economy is one of my passions. As a radio host and syndicated columnist I get several free books a month. They are usually unsolicited and not of much interest, every once in a while I get one that is worth reading and spreading the word on. "Too Big to Save?" by Robert Pozen is just such an example. The book's subtitle is "How to Fix the US Financial System" and it offers an agenda to do that and so much more. It offers sanity in an industry that has lost its moral compass and he provides direction going forward. His book is filled with some important facts that cannot help but wake one up to the causes of our financial crisis and how to solve such problems in the future.

Pozen is a refreshing voice on the issues surrounding the bailout. Most of the analysts of the subject have pure academic backgrounds or mere activist experiences. The former cannot have any real idea how such things happen and the latter believes everything requires more government control in order to avoid some from making a profit. Pozen has serious academic credentials. He holds degrees from Harvard and Yale. Furthermore, he is on the faculty of Harvard University. What is more important is that he has an understanding of business and the financial system. According to his website, he "is Chairman of MFS Investment Management®, which manages over $200 billion in assets for over five million investors worldwide. This represents an increase of 50% from the first half of 2004 when Bob was named to his current position."

The book is filled with common sense arguments that are built on the idea of restoring the integrity of financial institutions, rather than promoting political agendas. Furthermore, it points out several important factoids that are designed to simply make you think about where we are and how we got here.

Up until 2008, no housing slump in any country had ever caused a worldwide financial crisis.
Until mid-2008, the Federal Housing Administration offered loans that required just a 3 percent down payment. In spite of this low sum, many nonprofits sprung up (and funded by construction developers and home builders) to cover the cost. It was a house of cards waiting to fall.
The stock market crash became even worse after Congress authorized the Treasury to spend billions of dollars "resolving" the financial crisis. Many rightly argue that the worse is yet to come.

Pozner's solutions to the problems surrounding the financial are refreshing and filled with common sense. The crisis we have today is rooted in "geniuses" with political, social and even profit agendas rather than sound financial principles. Pozner points to the better way:

He argues for the restoration of loan securitization as a key to economic and housing recovery. The reason housing had never been a source of major financial catastrophe in the past is the integrity in the process, like due diligence and monetary "skin in the game" that proves one to be a worthy candidate of a home loan.
The federal government's efforts to buy "toxic assets" are not viable and poorly designed to meet goals. A great example is the use of such for loan modifications. To date, 80 percent of all homes that experienced a modification are again in foreclosure.
The federal government has been wild and indiscriminate in it recapitalization of financial institutions. It has bailed out many large banks that did not want the assistance, over 500 small banks that are anything but "too big too fail," and many insurance and credit card companies without explanation.
Far reaching legislative restrictions of executive compensation have clearly made the situation worse. For example, limits on "golden parachutes" have generally increased the cost of most terminated packages. Furthermore, in order to be competitive, companies forced to have strict limits on bonuses have, instead, dramatically increased base salaries. This means the executives can enjoy higher rewards with lower performance.

Pozen's excellent book goes on to evaluate the potential restructuring of the financial industry, the importance of fair value accounting, and the huge downside government actions in the financial industry has had on taxpayers. It is an excellent book and really "must reading" for anyone interested in serious answers to our current financial crisis.

Kevin Price is a nationally syndicated columnist and host of the Price of Business on CNN Radio. Learn more about him and his activities at www.PriceofBusiness.com.

When the problems of Greece hit close to home

noreply@blogger.com (Kevin Price) — Thu, 27 May 2010 12:10:00 -0500

Americans have been in shock watching the images of buildings — and even people — in flames as the government of Greece implements austerity measures to stop the bleeding caused by decades of irresponsible fiscal policies and socialism. We Americans naturally think, "thank God I still live in the US. That could not happen here."

Recently Dale Hurd of CBNNews.com has painted a dark future of our own republic if we do not change our spending priorities. Furthermore, he points out several scenarios — none of them pleasant — if we fail to fundamentally change the direction our country is going.

Hurd points out in his column that the "federal debt as a percentage of the Gross Domestic Product now stands officially at around 60 percent. But with the course the country is on, it will hit 150 percent in 10 years, and 300 percent by 2050" (emphasis added). He goes on to compare our situation with the one in Greece, which began to spiral when its debt reached 115 percent of GDP. We will reach and surpass that number in less than ten years. Because Greece is a member of the European Community and its currency is tied to the Euro like most member countries, other countries have (at least) a short term incentive to bail the country out in order to protect the value of their money. Those countries are, in fact, doing just that. Who will bail out the United States? Considering the disdain by other countries towards the US, one should not have any hope that others will come to the rescue.

The columnist quotes Anne Vorce of the Committee for a Responsible Federal Budget, who said she is not sure when America will enter economic crisis, but noted that "The problem is you don't know when you reach a tipping point until you reach it, but we're well beyond normal peacetime historical experience already." If the US entered into any additional major national security conflicts or faced any series of natural (or other disasters), we could find our situation deteriorate rapidly.

What I found most disconcerting about the article was the words by Hurd about the future of the United States of America. He said we only have to look to our friends in Argentina to find a disturbing window of the future. "Before World War II, Argentina was one of the most prosperous nations in the world. With a strong industrial base and thriving middle class, it attracted immigrants much like America. But within 15 years, Argentina went one of the richest nations to one of the poorest. Argentina President Juan Peron, who some historians say was a fascist, fomented class warfare and bashed business, banks and the wealthy. He made labor unions his allies and unleashed massive social spending that the nation couldn't afford." This sounds eerily familiar as we have a sitting President with certain obvious "corporatist" inclinations and disdain for those in the entrepreneurial (most of whom are middle income) class.

So what does the future hold? Experts point to several possible scenarios, none of which offer much to be optimistic.

Long term economic stagnation. We as a nation simply get use to doing without. High unemployment becomes the rule rather than the exception and the idea of an expanding economy and growing opportunities becomes something for the history books. Many experts see this as one of the better scenarios.

On the opposite end — and the worst case scenario — we have a government that goes into default. This means it cannot fulfill financial obligations, pay its bills, and it leads to a rush on the dumping of its Treasury bonds as countries no longer see us as a good investment.

Another possibility is hyperinflation. On a single day last year the US Government pumped $1.4 trillion into the money supply in order to offset the high cost of bailouts. This "funny money" has the potential of devaluing all dollars that are out there and it appears this approach to monetary policy could become a permanent part of our economic strategy.

The bottom line is that the US is going to have to make tough decisions about the future of our spending or the consequences of our behavior will make decisions for us. "Doing nothing" is a course that was followed by countries like Argentina that was propelled from a major economic player into third world status. There has to be a better way for the United States of America.

Kevin Price is a nationally syndicated columnist and host of the Price of Business on CNN Radio. Learn more about him and his activities at www.PriceofBusiness.com.

A Radical Solution to our Fiscal Crisis

noreply@blogger.com (Kevin Price) — Fri, 21 May 2010 00:00:00 -0500

I have been writing for decades, but I have probably used the word "crisis" more in the last two years in my articles than in all the other years combined. There is a reason for that, the use of such hyperbole gets old. I think such words should be used with restraint or they will eventually fall upon deaf ears. Unfortunately, any word short of "crisis" simply does not make the grade in the times we live in today. The government is doing more (poorly) and spending more (than ever) and it is bankrupting our futures and the futures of those who will not even be born for several generations to come.

Currently the national debt is now growing at a rate annually that originally took almost 200 years for our country to reach for the first time. We are a nation in financial ruin and we continue to spend as if money grew on trees. Desperate times call for desperate measures. It is time for Americans to seriously consider the damage that comes from mob rule.

According to the government's own statistics, less than half of all Americans even pay taxes. This is significant because we now have a country where the majority is lulled into sleep as the minority is essentially oppressed by those who have "no skin" in the political process. They have absolutely no problem with spending growing out of control because whatever they receive is with minimum burden on them.

Meanwhile USA Today reports that well over half of the population receives direct assistance of various types from the federal government. This includes perennial welfare moms and the super rich who enjoy government bailouts.

The terrible situation we are in begs for radical change. The Constitutional type. In the early days of the Republic, people had to be property owners and even taxpayers before they were allowed to vote. Furthermore, the federal government was very limited in what it could do. With only seventeen enumerated powers and those voting having a vested interest, frugal government was much easier to achieve and maintain.

The principles of frugal government can be found on the micro level. If a board of directors of an organization or business has a vote on an item that directly benefits one of those decision makers, that person is expected to abstain. It only makes sense. If that did not happen there would be cries of impropriety and would plant the seeds of financial ruin for any group or company.

The United States is going to have to take a similar approach to solve its financial problems. The classical economist John Stuart Mill advocated the bold proposition that, if people received any government assistance, they would have to turn in their right to vote until they were no longer on the government dole. This policy would apply to the mega rich, the very poor and everyone in between who were getting direct government assistance. People seem to be concerned about "influence peddling." They warn about lobbyists and political action committees throwing money at politicians in order to get their vote on key issues. Yet, influence peddling runs both ways -- it is a two sided coin. Politicians who want to get reelected make all sorts of promises of money, goods, or services in order to buy votes. If the voter became disenfranchised while on the government's budget, politicians would have to find other ways of getting our votes. Maybe they would boast about how frugal they are in the way they represent the voters. A radical approach to government? Maybe, but it seems to me it could be long overdue.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is also host of the Price of Business (M-F at 11 AM on CNN radio). Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.