Monthly Archives: July 2012

Federal Power vs State Power

Posted on by
Reply

Here’s an example of the 10th Amendment in action, which the Supreme Court presumed to ratify, again, in their recent NFIB v Sebelius ruling on the Patient Protection and Affordable Care Act.  Politico is reporting that a number of southern states are going to take advantage of the Court’s ruling to refuse to expand their existing Medicaid programs.  The states are Texas, Florida, Mississippi, Louisiana, and South Carolina.  Wisconsin, Missouri, Kansas, and Iowa also are rejecting the expansion in cost and Federal power by refusing the Trojan horse that is the Medicaid attempted mandate.

Other states leaning toward refusing the Federal government’s attempted mandate include New Jersey, Virginia, and Georgia.

Outsourcing

Posted on by
Reply

Outsourcing isn’t necessarily bad, when it’s done for appropriate reasons—that is to say, for sound business purposes.  Outsourcing lets a company lower its own costs, so that it can prosper.  That prosperity both facilitates customers’ ability to get their needed products at lower cost and it facilitates the company’s ability to grow—and so to hire more labor.  This is true whether the outsourcing is to another company that uses American labor or whether the outsourcing is to an overseas company.  A lot of  the difference between those two types of outsourcing depends on labor costs and on government regulatory and taxing costs in those two areas.

Moreover, potsful of American businesses have global reach and need facilities in other countries: sales staffs, managers, production, and so on.  This is business in the 21st (and 20th) centuries.  Likewise, potsful of European, Asian, South American companies do business in the US, with salesmen, managers, production, and so on here; many of their employees are Americans.  Are those companies “outsourcing?”  Should they take their marbles and go home?

But what happens when it’s Federal dollars—your and my money collectively—and not private enterprise’s that are being spent, and that are claimed to be getting spent on jobs promptly available for Americans?  As Governor John Sununu pointed out in a recent interview with Andrea Mitchell,

When you’ve sent $500 million to Fisker and it goes to Finland immediately. When you send the solar money and it goes to Mexico. When you send the turbine money and it goes to Denmark. And we can go on all day. There is $29 billion worth of purchases that came out of this administration, outsourced jobs to foreign countries. Mitt Romney outsourced zero. Obama outsourced 29 [billion dollars].

Here are a couple of examples, albeit from a Republican-sponsored Web site, among other sources:

The People’s Republic of China:

North Carolina-based LED maker Cree Inc got $39 million in stimulus money in January 2010 and opened its first plant in the PRC.  Over half of the company’s employees are in the PRC and Cree’s CEO Says the company’s strategy is “Cree Chip, China Heart.

Sempra got a $337 million loan guarantee for an Arizona solar plant, putting American taxpayers on the hook for the loan.  However, the solar panels will be supplied by SunTech, a Chinese solar panel manufacturer.  While it’s true that SunTech has built a solar panel plant in Arizona, it will supply, at its peak, 10% of the panels for the Sempra project.  The other 90% will come from factories in the PRC.

Japan:

According to a 2010 report from American University, Eurus Energy America, a subsidiary of the Japanese company Eurus Energy, got $91 million in stimulus monies to build a wind farm in Texas, but the wind farm was built with 180 wind turbines built by the Japanese company Mitsubishi.

There are lots of others in those $29 billion.

Obamacare vs Romneycare

Posted on by
Reply

Just to be clear from the start: I don’t like Romneycare.  I think any time a government thinks it knows better how I should allocate my resources and my priorities than I do, it’s making a grave mistake.  Against that background, I want to look at the “debate” over Obamacare and Romneycare.

Here’s President Obama:

[W]hen you hear all these folks saying, oh, no, no, this is a tax, this is a burden on middle-class families, let me tell you, we know because the guy I’m running against tried this in Massachusetts and it’s working just fine.

Except that it’s not working that well, as President Obama surely knows, since of course he looked into the matter before he began pontificating on it.  Between half and two-thirds of those uninsured before the plan was implemented remain so—not quite universal coverage.  And this failure stems from the same thing that makes Obamacare a failure: it’s cheaper to pay the penalty in MA than it is to get health insurance.  Furthermore, as recently as 2011, National Review Online was reporting that Massachusetts still has the highest health costs in the US.  Mandates and subsidies—here for folks required to buy insurance but can’t afford it—just don’t work, whether implemented by Republicans or Democrats.

Against that baseline, there are major differences between the two programs.

President Obama has inflicted a trillion dollars in tax increases over Obamacare’s first 10 years to cover its cost.  Romneycare didn’t raise taxes at all.

Stan Dorn, of the Urban Institute, claims that Romney got Federal financial help in the form of Federal Medicaid money.  This is disingenuous, though.  Romneycare simply diverted Federal Medicaid funding it already was getting from its originally targeted hospitals (vis., to pay unpaid bills) to subsidies to individuals with which to buy their own policies.  As Josh Archambault, of the Boston-based Pioneer Institute, put it

Affordable insurance on their own.  The federal approach simply put them on the public rolls….

There’s another difference that both candidates are ignoring, and that difference centers on the 10th Amendment.  What one state does for its own citizens, for good or ill, is not a valid reason for the Federal government mandating or proscribing that same thing for all states and all Americans.  Each state, under the 10th Amendment, is free to makes its own decision concerning what is appropriate for its citizens.  Of course, this States’ Rights argument would be wholly irrelevant were the Progressives willing to admit that Obamacare is originally and completely President Obama’s idea, instead of trying to blame it onattribute it to Governor Romney.

Taxes

Posted on by
Reply

It’s tax season, again, because the Obama tax increases are looming at the start of next year—just 6 months off.  It appears that President Obama is bound and determined to tax his favorite disliked group of Americans.  In an interview with North Carolina’s WRAL TV, Obama was asked whether he would veto any bill that extended all the tax cuts. [President] Obama said,

[Y]es, and the reason is, we can’t afford it.

We can’t afford to cut spending?  How does that work, exactly?  President Obama had more to say:

We don’t need more top-down economics.  We need policies that grow and strengthen the middle class.

If he truly believes that second part, when is he going to let the 20+ jobs bills languishing in the Senate to come to a vote so they can be passed, he can sign them, and the middle class can grow be strengthened?

Then he doubled down on his demand to increase taxes.

So let me be clear to [House Republican Leader John] Boehner and everyone else: we should not hold middle class tax cuts hostage any longer[.]

In response to which I have to ask, when are you going to stop, then, holding Americans hostage to your taxing demands?  When will you cancel your tax increase and make the Bush tax cuts permanent, instead of vetoing a tax cut bill that includes all Americans and not just your preferred group?

Then Our Obama added this amazing remark:

With all the other budgetary pressures we have—with all the Republicans’ talk about wanting to shrink the deficit—they would have us borrow $700 billion over the next 10 years to give a tax cut of about $100,000 each to folks who are already millionaires[.]

Really?  What borrow (which, incidentally, the Republicans are not proposing)?  President Obama is saying he can’t find $70 billion of spending cuts in his budget each year?  Obama’s 2012 budget proposed spending $3.8 trillion in spending.  He really can’t figure out how to cut his spending proposal by less than 2%?  Hmm….

Moreover, the tax bill he has said he’ll sign–extending the Bush tax cuts exclusively for his favored Americans–is only a temporary extension.  He won’t even allow that to be permanent.  This despite the fact that the continued uncertainty can have no favorable effect on our economy as individuals and businesses continue to husband their resources against that continued uncertainty.

Oh, yeah: President Obama also is imposing a penaltytax increase of some $285 per year, for not buying Obamacare’s health insurance starting in just 18 months.  And this rises to $2100 per year in 2016.  And those are floors: households that make more than $28,500 per year (or rather less than those $250 thousand Obama “promised”) in those 18 months will have to pay 1% of their income as that penaltytax, and beginning in 2016, households that make more than $83,400 per year (still way less than those $250 thousand Obama “promised”) will have to pay 2.5% of their income as that penaltytax.

Health Insurance vs Health Welfare

Posted on by
Reply

The question of universal health coverage is one well worth discussing at the national level; the goal of universal coverage is to make health care services ubiquitously available, for rich and poor alike.  It’s a laudable goal.  However, in order to have a coherent discussion, it’s necessary to review the terms of the subject.

Too often, though, the discussion assumes that health care and health insurance are so much a part of each other that they cannot be had separately.  This is wrong.  Health care is what you get from your doctor or hospital.  You’re getting treatment for a medical condition, advice about how to treat a medical condition, advice about how to avoid getting a medical condition.  In return for these health care services, someone pays the doctor or hospital money.

Many people pay for these services with cash out of their own pocket, and many more would prefer to do so, were they given the choice.

Others—the vast majority of Americans (I’m eliding the free riders in the market)—pay for these services by buying something we call insurance: they pay a periodic premium to a health insurance provider for a policy that obligates the insurance provider to pay (most of) the costs of a medical condition should that condition actually arise at some time in the future.  The insurance company makes its money by selling lots of such policies on the bet that few enough people actually will incur the covered condition within a given time frame that the aggregated premiums over that time frame will more than cover the actually required medical payouts.  That’s what insurance is, including health insurance: it’s one person transferring part, or all, of a risk of something untoward happening to him to another—an insurance company, for instance—in return for an agreed upon fee.  For that fee, the entity accepting the risk, or the agreed part of it, agrees to cover the cost of that untoward event should it actually occur, with the aggregated fees over lots of such agreements, being enough to cover the required cost payouts.

Health care and health insurance, thus, are entirely separate industries: one is the actual provision of services, and the other is simply a means of paying for those services.

But for the risk transfer, or insurance, industry to work, though, two things must occur: the first is that the fees charged for the risk assumptions must be voluntarily agreed to between the two parties to the risk transfer.  If the fees are dictated to one or the other side, without any market flexibility, they run a very strong risk of being too high for the one party to afford, or too low for the other party to be able to cover the agreed costs.

The other thing that must occur is that the fees must be consistent with the risk assumed.  To take an over-simplified example, if a man has a risk of a medical condition that costs $1,000 to treat, and the likelihood of his incurring that condition within the next year is very high, and he wishes to transfer 80% of that risk to an insurance company (i.e., get the company to pay $800 should the condition arise), then the insurance company must be able to charge a premium that, over the course of a year, sums to $800 in order to break even.  Of course, if the insurance company were to sell that same policy to lots of folks subject to that medical condition, actuarially it’s highly unlikely that all of them—even with the same risk—will incur that condition in the same year.  This would allow the insurer to sell the policy for a lower premium than it could if the customer population were limited to that original single person.

With lots of companies in the market selling policies for a given coverage, competition ensures that a single company does not abuse single-company monopoly power and overcharge.  Nation-wide marketability of that policy both enhances the competition and expands the customer base with the insured-against condition, thus increasing downward pressure on the policy’s premium—the risk transfer fee.  This downward pressure makes insurance more accessible to more people.

The actual situation facing us, though, is a market structure of government limits on the policies offered, government limits on the premiums allowed to be charged, and two critical government mandates: every individual must buy health insurance—must buy those government-limited policies—and every insurer must accept all customers.  There is little to no market flexibility—or pressure—to structure coverages to match the risks being transferred, nor is there much flexibility to match the fees charged to the risks being transferred.  This combination of government limits and mandates is a health welfare program of universal coverage.

My own view is that universal coverage is unnecessary, never minding its laudability, and that health welfare (or welfare generally) is actively suboptimal when it’s the first resort, rather than the last resort after market forces have taken their effect on prices and availability.

Because the welfare program’s risks and fees do not match, and because competition among health insurance purveyors is limited, inefficiencies will rapidly develop in the form of coverage payouts being too great for the premium income in some areas and too little for the premium income in others, with a strong bias toward too little premium income.  While companies’ desires to charge more, including “too much,” would be heavily constrained by competitive pressure, the government’s bias is to hold down costs to its voters, without regard in the short term to the market consequences, and the bias is unchecked.

This drives the welfare program to one or more of three outcomes: the insurance companies must prevail on the regulatory authorities to raise premiums, they must get tax dollar help from the government to make up the shortfall, or they must stop providing that insurance coverage.  All of these represent stark cost increases to the insurees: either they pay higher premiums today (even for conditions for which they do not want coverage or whose risks are very low, because those conditions are included in the required coverage allowed to be sold), their taxes go up tomorrow, or next week they lose their insurance coverage altogether until they move to another company—if one is left in business.  Indeed, this is the rationale for the Individual Mandate requiring everyone to buy insurance: all those extra premiums, hopefully from young, healthy Americans who aren’t likely to need a payout (and who also aren’t likely to want to buy the coverage) are intended to provide those extra monies and so avoid any of the three outcomes.