Posts Tagged ‘Letter from the Capitol’

Letter from the Capitol has a piece describing how Obamacare is just the first step in transitioning America’s citizens into paying a Value Added Tax (VAT) on goods on top of income tax in order to support our new Democratic Socialist future.  The last section on describing Obama’s impact on history is a lot nicer than I would have put it.

March 31, 2010

ObamaCare: Stalking Horse for VAT Taxation

Indiana Gov. Mitch Daniels says we must live “like good Europeans” as ObamaCare stifles choice & raises costs.  Which may explain why Fidel Castro called ObamaCare “a true miracle” and compared it to Cuba’s CastroCare….

Charles Krauthammer divines the true method behind ObamaCare’s fiscal madness: force adoption of a European-style Value Added Tax, creating a womb-to-tomb European Welfare State, with high taxes, high unemployment & high benefits allocated by government:

American liberals have long complained that ours is the only advanced industrial country without universal health care. Well, now we shall have it. And as we approach European levels of entitlements, we will need European levels of taxation.

Obama set out to be a consequential president, on the order of Ronald Reagan. With the VAT, Obama’s triumph will be complete. He will have succeeded in reversing Reaganism. Liberals have long complained that Reagan’s strategy was to starve the (governmental) beast in order to shrink it: First, cut taxes — then ultimately you have to reduce government spending.

Obama’s strategy is exactly the opposite: Expand the beast and then feed it. Spend first — which then forces taxation. Now that, with the institution of universal health care, we are becoming the full entitlement state, the beast will have to be fed.

And the VAT is the only trough in creation large enough.

As a substitute for the income tax, the VAT would be a splendid idea. Taxing consumption makes infinitely more sense than taxing work. But to feed the liberal social-democratic project, the VAT must be added on top of the income tax.

One reason for a VAT is that, as economist Alan Reynolds writes, the administration’s plan to extract $1.2TR from rich taxpayers over the next decade will not work.  Such filers already pay over 50 percent of income taxes.  Reynolds explains:

President Barack Obama’s new health-care legislation aims to raise $210 billion over 10 years to pay for the extensive new entitlements. How? By slapping a 3.8% “Medicare tax” on interest and rental income, dividends and capital gains of couples earning more than $250,000, or singles with more than $200,000.

The president also hopes to raise $364 billion over 10 years from the same taxpayers by raising the top two tax rates to 36%-39.6% from 33%-35%, plus another $105 billion by raising the tax on dividends and capital gains to 20% from 15%, and another $500 billion by capping and phasing out exemptions and deductions.

Add it up and the government is counting on squeezing an extra $1.2 trillion over 10 years from a tiny sliver of taxpayers who already pay more than half of all individual taxes.

It won’t work. It never works.

The maximum tax rate fell to 28% in 1988-90 from 50% in 1986, yet individual income tax receipts rose to 8.3% of GDP in 1989 from 7.9% in 1986. The top tax rate rose to 31% in 1991 and revenue fell to 7.6% of GDP in 1992. The top tax rate was increased to 39.6% in 1993, along with numerous major revenue enhancers such as raising the taxable portion of Social Security to 85% of benefits from 50% for seniors who saved or kept working. Yet individual tax revenues were only 7.8% of GDP in 1993, 8.1% in 1994, and did not get back to the 1989 level until 1995.

Put simply, taxpayers alter their investment, tax & work strategies to minimize the impact of punitive levies.

Herb London warns of ObamaCare’s threat to liberty.  A WSJ 3/30 editorial explains what I missed last week; ObamaCare does not explicitly call for hiring 16,500 IRS agents.  The figure is a GOP extrapolation from the IRS budget, to derive an estimate of what will be needed to enforce compliance on the new levies; if the IRS is left at present levels of resources revenues will be lost.

A WSJ editorial last week offered emerging examples of diminished health care choice, already underway due to ObamaCare.  At NRO Rich Lowry warns that deteriorating finances will force choosing between guns and butter, and that Obama clearly will choose to preserve the latter.  Nobel economist Gary Becker’s WSJ interview presents an optimist, but one who fears, as in the old joke about optimism & pessimism, that his optimism may be unjustified.

A WSJ editorial notes major companies already writing down their asset values due to anticipated ObamaCare impact–$14B during 2010, according to one consultant.  Naturally, a senior Obama administration hack calls these “irresponsible” while California thug-Rep. Henry Waxman (D-Beverly Hillbillies) plans an April 21 kangaroo-court show trial of major CEOs.  NRO’s Rich Lowry adds detail on Waxman’s efforts to muzzle companies hit by ObamaCare.

A WSJ editorial today describes just how outrageous this pressure is–companies are required by law to do what Waxman warns them not to do:

So the wave of corporate writedowns—led by AT&T’s $1 billion—isn’t caused by ObamaCare after all. The White House claims CEOs are reducing the value of their companies and returns for shareholders merely out of political pique.

A White House staffer told the American Spectator that “These are Republican CEOs who are trying to embarrass the President and Democrats in general. Where do you hear about this stuff? The Wall Street Journal editorial page and conservative Web sites. No one else picked up on this but you guys. It’s BS.” (We called the White House for elaboration but got no response.)

In other words, CEOs who must abide by U.S. accounting laws under pain of SEC sanction, and who warned about such writedowns for months, are merely trying to ruin President Obama’s moment of glory. Sure.

Presumably the White House is familiar with the Financial Standard Accounting Board’s 1990 statement No. 106, which requires businesses to immediately restate their earnings in light of their expected future retiree health liabilities. AT&T, Deere & Co., AK Steel, Prudential and Caterpillar, among others, are simply reporting the corporate costs of the Democratic decision to raise taxes on retiree drug benefits to finance ObamaCare.

Mark Steyn notes that one firm is heading for incorporation in Canada, no less–yes, CANADA:

In 2003, Washington blessed a grateful citizenry with the Medicare prescription drug benefit, it being generally agreed by all the experts that it was unfair to force seniors to choose between their monthly trip to Rite-Aid and Tony Danza in dinner theater. However, in order to discourage American businesses from immediately dumping all their drug plans for retirees, Congress gave them a modest tax break equivalent to 28 percent of the cost of the plan.

Fast forward to the dawn of the ObamaCare utopia. In one of a bazillion little clauses in a 2,000-page bill your legislators didn’t bother reading (because, as Congressman John Conyers explained, he wouldn’t understand it even if he did), Congress voted to subject the 28 percent tax benefit to the regular good ol’ American-as-apple-pie corporate tax rate of 35 percent. . . . I refer you to the decision last year by the doughnut chain Tim Hortons, a Delaware corporation, to reorganize itself as a Canadian corporation “in order to take advantage of Canadian tax rates.” Hold that thought: “In order to take advantage of Canadian tax rates”—a phrase hitherto unknown to American English outside the most fantastical futuristic science fiction.

Another little-noticed provision in ObamaCare: Money for long-term care will be automatically deducted from worker paychecks unless employees opt out; it is an estimated $146/month payment to give $75 daily care; some cost estimates peg the deduction at $240/month.  Cost at the lower figure is estimated at $100B.

Weekly Standard editor Matthew Continetti sums up what ObamaCare will do to Obama’s historical reputation:

The liberal line is that President Obama has secured his place in history by signing into law the Patient Protection and Affordable Care Act of 2010. And secured it he has. Henceforth Obama will be remembered as the man who accelerated America’s mad dash toward bankruptcy. He will be remembered as the leader who promoted a culture of dependency. He will be remembered as the figure who sacrificed a dream of national unity upon the altar of big government liberalism. It’s true: Obama is now a president of consequence. And almost all of those consequences are bad.

The fiscal picture was bleak before Obama made it worse. Government debt is 60 percent of the gross domestic product and climbing. The deficit is projected to remain above 4 percent of GDP for the next decade. The week before the president signed his health care reform into law, Moody’s warned that America’s AAA bond rating may be downgraded. The day before the signing ceremony, the nation learned that Warren Buffett is a safer investment than U.S. treasuries. One needn’t look across the Atlantic, where a penniless Greece is a supplicant to the IMF, to see our future. Look to California, where the economy is crippled by high taxes, high spending, and burdensome debt….

Gone is the charismatic young man who told the 2004 Democratic National Convention in Boston that there was no Blue America and no Red America, only the United States of America. All that remains is a partisan liberal Democrat whose health care policy bulldozed public opinion, enraged the electorate, poisoned the Congress, and set into motion a sequence of events the outcome of which cannot be foreseen.

This tarnished White House complains incessantly about the crises it inherited from its predecessor. Crises? You ain’t seen nothing yet.

The latest public health care horror show from the UK–presaging America’s ObamaCare future: nurses declining to bring a dying patient a glass of water.


Bottom Line.  Coupled with America’s rapidly deteriorating financial position, ObamaCare is a massive, potentially fatal economic train wreck in the making.


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John Wohlstetter has a posted on the recent grandstanding of House Speaker Nancy Pelosi and the Obama Administration’s recent twist in the “torture scandal”.

April 24, 2009

LFTC – “Torture” & Nancy: What Did the Speaker Know, & When Did She Know It?

Nancy Pelosi now says she never knew of the harsh interrogation techniques in any detail.  Her comment brings to mind the question famously asked in 1973 by then Senator Howard Baker, at the Watergate Hearings, in his capacity as Ranking Minority Member of the Senate Watergate Committee: “What did the President know, and when did he know it?”  When the White House tapes were disclosed, and revealed that President Nixon knew more about his administration’s cover-up of the Watergate campaign scandal, his fate was sealed; Nixon resigned within days, as his support in Congress collapsed.

Peggy Noonan writes of torture hearings and the damage they surely would cause, in a riveting column:

Why have reservations, then, about release of the memos and the investigations that will no doubt follow?

For these reasons. Prisoner abuse has been banned. Mr. Obama himself, as he notes in the quote above, banned it. It’s over. The press, with great difficulty, and if arguably belatedly, did and is doing its job: It uncovered and revealed the abuse. The historians are descending, as they should. Hearings, commissions or prosecutors would suck all the oxygen out of the room and come to obsess the capital, taking focus off two actual, immediate and pressing emergencies, the economy and the age of terror. Hearings, especially, would likely tear up the country as we descended into opposing camps. They would damage or burden America’s intelligence services, and likely result in the abuse of those who acted from high motives, having been advised their actions were legal. As for the memo writers, some of whose constitutional theories were apparently tilted to the extreme in favor of the executive, it is hard to see how it would help future administrations, or this one, to have such advice, however incorrectly formulated, criminalized.

Finally, hearings would not take place only in America. They would take place in the world, in this world, the one with extremists and terrible weapons. It is hard to believe hearings, with grandstanding senators playing to the crowd, would not descend into an auto-da-fé, a public burning of sinners, with charges, countercharges, leaks and graphic testimony. This would be a self-immolating exercise that would both excite and inform America’s foes. And possibly inspire them.

Meanwhile, a resurgent Taliban is moving toward Islamabad and, possibly, the Pakistani nuclear arsenal; Israel and Iran are at loggerheads; and Iraq and Afghanistan continue as live and difficult wars. And that’s just one small part of the world.

What a time to open a new front, and have a new fight, and not about what is but what was.

Nancy has been quoted by several GOP Members in the room when she was briefed, asking if the detainees were being pushed hard enough for information.  This was shortly after 9/11, when Nancy feared she and the Golden Gate Bridge would be blown into the Pacific by al-Qaeda.  Nancy now feels safe, and has for years, and wants to extract (well, torture–slowly and with maximum pain) the maximum possible political damage for the GOP out of this mess.  If there is a Truth Commission on Torture, or what ever it will be called if created, I join those who call for Nancy to be sworn in as first witness.  And I dream that a tape will be discovered, with Nancy’s voice on it, calling for tougher pressure on detainees.

Wesley Pruden writes of Nancy:

Perhaps the president imagines that nobody cares much about what happens to lawyers, but he has set in motion something neither he nor anyone else can control. Some of the Democrats in Congress, eager now to join the mob, will regret what they cry for. Rep. Nancy Pelosi, for one, was a member of the House intelligence committee and sat in on super-secret briefings after Sept. 11. She concedes that she heard about waterboarding but she doesn’t remember exactly what she heard. Just like Barack Obama sleeping through 20 years of the Rev. Jeremiah Wright’s rabid sermons, Ms. Pelosi dozed through the briefings. Her colleagues on the intelligence panel say they remember her demanding that the CIA do more to get the “intelligence” to prevent another attack.

Republicans in the Senate, including John McCain and Lindsey Graham, are finally finding their voices. So is Joe Lieberman, a courageous Democrat. If we’re going to have hangings, Ms. Pelosi may be at risk of becoming our most famous female hangee since Mary Surratt paid her debt at the end of a rope for hanging out with John Wilkes Booth.

This probably will not happen.  But back in 1973 no one dreamed that the President of the United States would (a) tape his private meetings and (b) not burn the tapes.  The rest was, as they say, history.  Here the history is still to come.

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Letter from the Capitol has a very good article for anyone who still believes that Socialism will work.  A Texas Tech professor did a little Socialism experiment in one of his classes.  Read below for the results.

April 01, 2009

Socialism: A Class Experiment

Sent me by an LFTC reader–perhaps urban legend, but I think not:

An economics professor at Texas Tech said he had never flunked a student before but had, once, failed an entire class. That class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer. The professor then said ok, we will have an experiment in this class on socialism.

All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A. After the first test the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. But, as the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too; so they studied little. The second test average was a D! No one was happy. When the 3rd test rolled around the average was an F.

The scores never increased as bickering, blame, name calling all resulted in hard feelings and no one would study for the benefit of anyone else. All failed, to their great surprise, and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great; but when government takes all the reward away; no one will try or want to succeed.

Could not be any simpler than that….

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Letter from the Capitol has a sad story about the most recent gift giving between Obama and British PM Gordon Brown.

Gordon Brown comes over from the UK to give Obama a pen made out of the wood of the HMS Gannet, a Navy vessel that served on anti-slavery missions off Africa, a framed commissioning paper for HMS Resolute, a sister ship to the HMS Gannet that came to symbolize British-American goodwill when it was rescued by the U.S. from icebergs and given to Queen Victoria, and a first-edition of Martin Gilbert’s seven-volume biography of Winston Churchill.

Obama gave Brown . . . 25 DVD’s of “American classics” that you can pretty much buy in any Wal-Mart or movie store bargain bin.  Obama gets priceless history, and Brown gets a bunch of old movies you can get anywhere.  I hope Obama got the right region encoding for Brown; US Region 1 DVD’s won’t play in the UK Region 2 DVD players.

On top of that, Obama recently had the bust of Winston Churchill removed from the Oval Office; it had been there since 9/11.

March 06, 2009

44’s Special Gift for Gordon Brown

The Mail Online reports that UK PM Gordon Brown, mindful of President 44 having tossed the Winston Churchill bust out of the Oval Office (sent to the British Embassy), gave 44 a first edition biography of the Great Man, plus a pen hewed from timber of a British warship.  Brown also delivered a gracious address to Congress extolling the “special relationship” and calling more more cooperation.

So what did 44 give Brown in return?  25 DVDs with classics of American cinema.  As humorist Dave Barry would say, “I am not making this up….”

Daily Telegraph piece speculates why:

On US radio’s Garrison show today, I was asked for my reaction as a true born Englishman to President Obama’s double insult – first the sending back of the Winston Churchill bust, then his snub to Gordon Brown. “Tough one. Really tough one,” I said, torn – as most of surely are – between delight at seeing Brown roundly humiliated, and dismay at having the special relationship so peremptorily, cruelly and bafflingly ruptured.

Iain Martin is quite right here: no matter how utterly rubbish we have become as a nation in the Blair/Brown years, Britain’s friendship is something Obama will come to regret having dispensed with so lightly. This was not the act of a global statesman, but of a hormonal teenager dismissing her bestest of best BFs for no other reason than that she felt like it and she can, so there.

What was the guy thinking? In researching my new book Welcome to Obamaland, I discovered that Obama’s judgment is pretty dreadful – but this? My favourite theory so far – suggested by presenter Greg Garrison – was that it was a move calculated to please his Lady Macbeth. At the moment in Britain, we’re still in the “Doesn’t she look fabulous in a designer frock” stage of understanding of Michelle Obama. Gradually, though, we’ll begin to realise that she is every bit the terrifying executive’s wife that Hillary Clinton was. Or, shudder, Cherie Blair.

The snub was Brown not getting the handshake in the Rose Garden treatment.  As for the DVDs, it could have been worse.  44 could have given Brown CDs.

Also from Fox News:

Obama’s Blockbuster Gift for Brown: 25 DVDs

While the British prime minister presented Obama with uniquely historic gifts symbolizing America’s relationship with England, the president gave Brown a set of movies.


Friday, March 06, 2009

Let’s hope he’s a Star Wars fan.

President Obama gave British Prime Minister Gordon Brown a set of 25 classic American films to mark his historic visit to the White House, British media reported on Friday.

Brown, the first European leader to visit Obama since his Jan. 20 inauguration, was presented with a “special collector’s box” of DVDs during his two-day visit to Washington.

Downing Street, which reportedly tried to keep the present a secret, declined to say what movies were included in the set.

“One reason for the secrecy might be that the gift seems markedly less generous and thoughtful than the presents taken to Washington by the Prime Minister,” London’s Evening Standard newspaper reported.

The Daily Mail, however, reported the movie set included ET, Star Wars and The Wizard of Oz and was produced by the American Film Institute on “special request” from the White House.

Brown, who is not known to be a movie buff, gave the president and his children several uniquely historical gifts.

The first of which is a pen holder fashioned from the oak timber of HMS Gannet, a Navy vessel that served on anti-slavery missions off Africa.

Another treasure given to Obama is a framed commissioning paper for HMS Resolute, a Royal Navy ship that came to symbolize British-American goodwill when it was rescued by the U.S. from icebergs and given to Queen Victoria. It is the sister ship of the HMS Gannet.

Finally, Brown gave Obama a first edition of Martin Gilbert’s seven-volume biography of Winston Churchill, whose World War II partnership with President Franklin Roosevelt symbolized the U.S.-Anglo alliance.

For Sasha and Malia, Sarah Brown, the Prime Minister’s wife, gave each an outfit from Topshop, a British chain of clothing stores, and selected six children’s books by British authors which have yet to be published in the U.S.

In return, First Lady Michelle Obama presented the prime minister’s two boys with toy helicopters modeled after Marine One.

Obama was so touched by the gifts, he called Brown on board his private jet on Thursday to thank him. The call was placed after Brown addressed a joint meeting of Congress, the White House said. The two reportedly spoke for 10 minutes.

The White House later issued a press briefing to put on record how much Obama appreciated the gifts.

“The pen set is being displayed on the Resolute Desk in the Oval Office and the books are in the President’s personal study adjoining the Oval Office,” the White House said in a statement.

During Brown’s first trip to America in the summer of 2007, he was given a fur-trimmed brown leather bomber jacket by President George W. Bush.

The prime minister’s reaction to the DVD set is not known.

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John Wohlstetter from Letter from the Capitol has a short, but interesting, article on the topic of “green energy”.  Wind and solar energy cost 100x more than the same energy output offered by natural gas.  Keep reading for more.

March 05, 2009

“Green Jobs” Snow Job; Snowball Warming

Manhattan Institute scholar Max Schulz asks how one defines “Green jobs” as a distinct category.  MS notes that “Green” means uneconomic subsidies, make-work jobs, etc.  His economic numbers are stunning: In terms of money per megawatt hour, solar ($24.34) & wind ($23.37) are about 100 times–yes, that’s one hundred–more expensive than natural gas (25 cents), 55 times more expensive than coal (44 cents), 35 times more expensive than hydroelectric (67 cents) & 15 times more expensive than nuclear ($1.59).

Energy author Robert Bryce further documents the limits of renewables and predicts we will continue for a long time to depend upon hydrocarbons.  Our annual consumption of wind + solar energy is the equivalent of 27.7 million barrels of oil, versus our daily consumption of 19 million barrels.  Put another way: We use as much oil in 35 hours as we use of wind & solar in one year.

Policy ace William Tucker recounts a recent conference on energy at which Green fantasies about the viability of “renewable” fuels met head on with inconvenient reality.  This is more evidence on how the Green technologies are far less powerful & efficient, and consume far more human, land & financial resources than do fossil fuel technologies.  WSJ political ace John Fund reports that cap & trade resistance is creating a coalition centered on “Rust Belt” states and uniting business groups in opposition.  Meanwhile, the WSJ reports that a biodiesel trade war is brewing as Uncle Sugar & Auntie EU square off in a protectionist tariff tit-for-tat.  Bet that’ll be great for jobs.

See a pattern?

Having fun with global warming Chicken Littles is easy pickings these days.  Last year it was Al Gore holding forth on GW on…the coldest day of 2008–in a year when all over the globe cold-weather records dating back decades, even centuries in some cases, were broken.  Remember when Al Gore screamed all through the 1990s as hot weather records were broken that each event was evidence supporting GW?  Well, it wasn’t, in that no single day or season proves anything much.  But sauce for the goose….This year’s fun came on March 2 when House Speaker Nancy Pelosi missed the year’s biggest GW rally in DC–because of a snowstorm.

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John Wohlstetter from Letter from the Capitiol has a post up detailing how the stock market is reacting to Obama’s policies and actions.

March 04, 2009

Obama’s Stock Market: Investors Vote With Their (Financial) Feet…Exit!

A WSJ editorial sums up the detritus of 44’s first days by looking at the collapse of the Dow Jones Industrials this year.  As of January 2 the Dow closed at 9o34, its highest level since the autumn panic plunge.  It closed at 6763.29 Monday, March 2, a 25 percent plunge (from January 19’s 8279.63 close the DJIA has fallen more than 18 percent).  Economist Robert Barro sees a 20 percent chance of a crashing market bringing about a depression (technical economist definition: a drop of 10 percent in GDP or consumption).  Since 1870 America has seen two depressions: 1917 – 1921, with a 16 percent macro-economic plunge, and the 1929 – 1933 Great Depression, with a 25 percent plunge.  (Barro doesn’t count the 1937 – 1938 “Depression within the Depression” period, when indicators fell back to near-1933 levels.)

Here are key DJIA metrics from Nov. 3 through March 2 (four months) that collectively flesh out the picture (I made two minor corrections–the date Obama was elected & one spelling miss):

November 4, 2008: Obama is Elected
November 4, 2008: 9326.04 Open
November 4, 2008: 9139.28 Close

January 20, 2009: Obama is Inaugurated
January 20, 2009: 8,279.63 Open
January 20, 2009: 7,920.66 Close

February 17, 2009: Obama signs stimulus package into law.
February 17, 2009: 7,845.63 Open
February 17, 2009: 7,502.59 Close

February 27, 2009: Obama announces budget
February 27, 2009: 7,180.97 Open
March 2, 2009: 6763.29 Close

Let us then trace the (rounded) numbers from 9326 to 6763. On Election Day the market fell nearly 200 points, a 2 percent drop.  From there to January 2–the first trading day of 2009, after a smooth transition, when Obama as President-Elect had appointed moderate economic advisers–and with Bush 43’s Detroit rescue depriving his remaining days of any market credibility, thus permitting investors the “audacity of (financial) hope”–the market fell another 100 points, but remained well above the nadir of autumn, and above (see WSJ chart) the 7500 low in that period.  On January 19 the market closed at 8279, about 9 percent lower than January 2.  Since January 19, to March 2, the market has fallen another 18 percent.   (March 3’s 10-point move was statistically irrelevant, so I did not adjust the numbers this AM.)

Divide these metrics into two periods, for simplicity: Nov. 3 close – Jan 19 close, from 9326 to 8279, down 5.6 percent; 8279 Jan. 19 close to 6763 Mar. 3 close, down another 18.3 percent–to a full 10 percent below the 7500 transition period bottom.  Thus, the DJIA has fallen more than three times as much (18.3 percent is 3.26 times 5.6 percent) since 44 was inaugurated than during his transition.  This second fall took 6 weeks, versus 11 weeks for the first fall during the transition; this equate to a 6 times faster fall in value since Obama took office, adjusted for the different duration of the two periods.  This makes sense, because a moderate transition has been followed by a left-wing blowout in President Obama’s first 6 weeks.

The WSJ editors point to “sources of recovery” already at work, but that have failed to lift the DJIA:

The price of oil and other commodities have fallen by two-thirds since their 2008 summer peak, which has the effect of a major tax cut. The world is awash in liquidity, thanks to monetary ease by the Federal Reserve and other central banks. Monetary policy operates with a lag, but last year’s easing will eventually stir economic activity.

Housing prices have fallen 27% from their Case-Shiller peak, or some two-thirds of the way back to their historical trend. While still high, credit spreads are far from their peaks during the panic, and corporate borrowers are again able to tap the credit markets. As equities were signaling with their late 2008 rally and January top, growth should under normal circumstances begin to appear in the second half of this year.

Yet the beginnings of recovery elude us.  The WSJ details the policies of Team 44 & a liberal Congress that punish producers & investors & lenders, while rewarding non-producers, non-investors & borrowers.  Investors are on a capital strike, voting “no confidence” in Team 44’s nostrums.  AIG’s fourth taxpayer capital infusion does not do wonders for investor confidence either.  Nor does the confidence offensive launched by Team 44 help; verbal reassurance brings to mind the chaotic “Animal House” final scene, when as the Delta tank rolls downtown and marbles spill all over the pace, one ROTC guy screams: “Everyone remain calm.  Everything will be alright….”  Presidents are rarely good sources of market advice.

WSJ pundit Holman Jenkins fingers government intervention as a major cause of investors going on strike:

Investors don’t have to put their money in any particular company’s stock, or in stocks at all — and the wholesale flight of investors from bank stocks has put almost the entire weight of recapitalizing the financial sector on the taxpayer.

Shafting Citi’s preferred stockholders by forcing them to convert at a loss to common stock sends a signal to investors to stay away from equity ownership where government invests and can (inevitably, will) run the enterprise with political considerations put before economic value creation.  And now FDIC Chairman Sheila Bair wants to draw $27B capital FROM banks to shore up FDIC, whose “funds” are (like the Social Security & Medicare “trust funds”) an accounting fiction!!  She would dun banks by increasing the premium they pay for FDIC insurance.  True, as the WSJ editors note the sum is a fraction of the $4.76TR in total deposits covered by FDIC, but why draw ANY capital away from banks and thus reduce their lending base, when we want banks to lend more?

As for 44, yesterday, as noted by Bill Kristol, he said not to worry.  (I would say that 44 gave us an Alfred E Neuman “What me worry” moment):

“What I’m looking at is not the day-to-day gyrations of the stock market, but the long-term ability for the United States and the entire world economy to regain its footing. And, you know, the stock market is sort of like a tracking poll in politics. You know, it bobs up and down day to day. And if you spend all your time worrying about that, then you’re probably going to get the long-term strategy wrong.”

44 continued:

“Now, having said that, the banking system has been dealt a heavy blow. It has to do with many of the things that Prime Minister Brown alluded to: lax regulation, massive over-leverage, huge systemic risks taken by unregulated institutions as well as regulated institutions. And so there are a lot of losses that are working their way through the system. And it’s not surprising that the market is hurting as a consequence. In fact, you know, I think what we’re seeing is — is that as people absorb the depths of the problem that existed in the banking system, as well as the international ramifications of it, that, you know, there’s going to be a natural reaction.”

Kristol observes that the “natural reaction” began last fall, and thus the steeper drop since January 20 is a (natural) reaction to Team 44’s policy moves & statements.  And yes, markets do fluctuate.  That is all one can say for certain about the future–markets fluctuate.  But when people see their 401k become a 201f, with the plausible prospect that soon it will become a 104c, they get worried.  Thus Kristol writes: “No, the stock market isn’t like a tracking poll. Tracking polls were just about the electoral prospects of Barack Obama. The stock market is about real money, about the real livelihoods of real Americans.”  President 44 needs to worry more about it.

At bottom is a nugget from the 2008 Democratic Presidential debate in which ABC’s Charles Gibson pointed out that recent capital gains tax cuts had generated more revenue for the Treasury, while capital gains tax hikes had produced less, and thus did candidate Obama really wish to raise them, when deficit reduction was a major goal of his?  To which, astonishingly, Obama answered that he would raise capital gains taxes even if the result produced less federal tax revenue, in pursuit of redistributive fairness.

There you have it.  After making moderate noises throughout the transition and appointing relatively centrist economic advisers, Obama turned to the ultra-left Democratic leadership in Congress to write his proposals.  And he embraced the result as his own.  Now the stock market has voted on the result: Investors have voted with their financial feet, running for the exits.

Steve Forbes sees Washington v. Wall Street coming to a head soon, with one view (growth first) or the other (redistributive “fairness” first) prevailing.

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John from Letter from the Capitol has a good article on ten myths of health care, taken from Sally C. Pipes, President & CEO of the Pacific Research Institute.

February 27, 2009

Health Care: Ten Myths

Sally C. Pipes, President & CEO of the Pacific Research Institute, has written a superb book, The Top Ten Myths of American Health Care (2008).  Her analysis bears a close look.

Myth One: Government Health Care is More Efficient.  Figures used to justify this claim ignore costs government mandates impose upon private insurers; all 50 states impose cost-increasing mandates, with the average state imposing 38 mandates.  Medicare routinely underpays, passing on costs to be picked up privately.  Medicare does not count as costs such things as salaries & marketing expenses under Part D–the drug benefit part of Medicare.  Studies show Medicare wastes up to 1/3 of money it spends.  medicaid, which is bankrupting New York State, is riven with fraud–one study found 40 percent of NYS Medicaid expenses to be based upon fraudulent claims.  The past decades hugely popular SCHIP–State Children’s Health Insurance Plan–covers 6 million children.  But SCHIP also covers 600,000 adults in 14 states; in 6 states there are more adults than children using SCHIP.  SCHIP goes to families earning up to 300 percent of the poverty level.  Processing claims takes an average of 127 to 177 days in the public sector, versus 89.5 days in the private sector.

Myth Two: We’re Spending Too Much on Health Care.  In 1950 the average American spent $500 annually on health care, which accounted then for 5 percent of GDP; in 2006 the average individual cost was $,7026, and health care consumed 16 percent of GDP.  (Adjusted for the more than 8-fold inflation since then, the 1950 average figure would be $4,147 in today’s dollars–thus the true rise on HC costs is 1.7 times, not 14-fold.)  Other factors driving up costs are benign: rising life expectancy, fewer premature deaths due to things like heart disease, leaving more people to die of old age.  Also, HC is nowhere near the 5.4 percent of total household expenditures, close to the 4.5 percent spend on clothing, but 40.8 percent on housing, 18.3 percent on transportation and 1`8.2 percent on food.

Myth Three: Forty-Six Million Americans Can’t Get Health Care.  in 2007 there were 46 million Americans–6 million of them children–classified by the Census Bureau as uninsured, then 15.3 percent of the population.  But those uninsured for a brief period are counted equally as those without insurance for the entire year.  Some 38 percent of the uninsured have incomes of at least $50,000 per year.  Over 10 million uninsured are not US citizens.  Many young people self-insure (which makes sense for everyday problems but is risky for catastrophes).  As many as 14 million Americans–including 5 million of the estimated 8 million children without insurance–are eligible for insurance but have not enrolled.  Some 8 million “working poor” Americans are without insurance and need it, but can (and often do) get care at hospital emergency rooms (enormously inefficient, though).

Myth Four: High Drug Prices Drive Up Health Care Costs.  In 2007 drug costs were $2,600 per household.  They are key for managing chronic diseases, which make up 85 percent of total health care costs.  About 6 in 10 Americans have at least one chronic disease, and such problems account for 79 percent of physician visits and 82 percent of hospital admissions at Johns Hopkins.  Drugs, however, are far cheaper than surgery, and have replaced surgery in many chronic disease management protocols.  For every 5,000 to 10,000 compounds under development, 5 make it to clinical trials and one to market.  RD costs are covered by only two in ten drugs, with an average per drug of $1.3B.  The costs of unsuccessful drugs must be absorbed by the successful ones.  But 65 percent of drugs purchased in the US in 2007 were generic brands.

Myth Five: Importing Drugs Would Reduce Health Care Costs.  Drug importation from Canada is popular int eh US.  But the US spends four times as much on drug R&D as the UK and 17 times as much as Canada.  Generics are often cheaper in the US.  Canada allows patent theft, so US drug companies make deals to sell drugs in Canada at lower prices, leaving American consumers to pick up R&D costs.  American firms account for 90 percent of new drugs worldwide, and thus venture capitalists invest 15 times as much in US firms as overseas.  The Congressional Budget Office estimates that allowing drug importation will reduce total HC costs only one percent, hardly worth the damage to drug R&D in the US>

Myth Six: Universal Coverage Can Be Achieved by Forcing Everyone to Buy Insurance.  A better way is to allow more closely tailored policies.  Young people might purchase a catastrophic-only policy, but pass on a one-size fits all policy, often required by state HC mandates.  Employer costs are raised by forcing companies above a threshold size to either provide health insurance and partly pick up the tab (the employee portion is tax-deductible), or else pay a specified percentage into state HC funds–so-called “pay or play” mandates.  Some 60 percent of Americans thus purchase insurance through their employer, and thus don’t see their HC cost bill in full.  (The employer, of course, extracts his HC contribution by paying lower wages than otherwise would be offered; this is a hidden cost of the third-party payer system of HC.)  Two other HC mandates drive up HC costs: “guaranteed issue” – forces insurers to issue policies to all who ask; “community rating” – forces insurers to issue policies without regard to pre-existing conditions, on a on-discriminatory basis.

Myth Seven: Government Prevention Programs Reduce Health Care Costs.  Up to 75 percent of HC costs result from lifestyle choices, with 10 percent attributed to obesity alone.  But “obesity” is defined by government statisticians by Body Mass index, under which many celebrities and athletes are deemed “obese”–think New England Patriots QB Tom Brady, Brad Pitt & California’s Governator!  Worse, those who live healthy lifestyles wind up costing society the most, as they die of old age, and wither away while HC costs in the final phase of life skyrocket.

Myth Eight: We Need More Government to Insure Poor Americans.  Roughly 37M Americans, 12 percent of the total, live under the officially-defined poverty line (the 12 percent figure has changed little over the decades).  Why in 2003 did only 69.5 percent of primary physicians accept Medicare patients?  Well, how about because for a one-hour consultation, Medicare pays the princely sum of $20!  As for Medicaid (government-funded HC for the poor), the federal government pays an average (varies widely by state) of 57 percent of Medicaid expenses ($338B in 2007); yet Medicaid still consumes an average of 22 percent of state government budgets–more than education–and is estimated to consume 60 percent of Florida’s 2015 state budget.  Medicaid passes of immense administrative costs, in the form of regulatory compliance, to the private sector (as the IRS does).  Medicare & Medicaid administrative costs are much higher.

Myth Nine: Health Information Technology is a Silver Bullet for Reducing Costs.  With 90 percent of doctors and over 2/3 of hospitals still keeping paper records, computerizing HC records–HIT, or Health Information technology–is a favorite cause of reformers.  A 2005 study by the RAND Corporation found potential savings of $77B annually if HIT is well implemented.  But that is only 3.3 percent of the $23.TR Americans spend on HC every year.  and since when does government efficiently implement such programs?  Private doctors are ahead of the public sector in implementing HIT.

Myth Ten: Government-Run Health Care Systems in Other Countries are Better and Cheaper Than America’s.  Much is made of how Americans spend more per capita and as a share of GDP than Europeans.  America also lags in certain HC areas, such as infant mortality.  Part of that is lifestyle issues–obesity, for instance.  Part of that is urban pathologies that lead to high rates of infant mortality, which reduces overall US life expectancy.  Yet Americans who do not die from car accidents or homicides outlive their European counterparts.  But socialist countries ration HC by queuing–standing in line.  Waiting lists are far longer.  In Canada the average wait time between seeing a primary care physician and a specialist is 18 weeks.  Doctor shortages are common.  In Nova Scotia officials use a lottery to ration access.  US doctors are better paid, and put far more advanced technology in their offices.  Even the US public sector is better: It funds roughly five times as much R&D as Europe does.  Finally, queuing never stops senior officials from jumping line–if need be, going outside their country to find specialized care, often in (naturally) America.

Health care maven Regina Hertzlinger says that market reforms as a better way to change HC.  American Enterprise Institute HC scholar Robert Helm cites three roadblocks to HC reform: employer-subsidized HC, Medicare & Medicaid.  The three 800-pound gorillas of HC will likely stymie constructive reform.

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