Category Archives: political economy

Hasn’t Our Economy Been Managed Disastrously Enough?

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Congressman Dennis Kucinich (D, OH) considers that the oil and gas businessmen are greedy b*stards, and they cannot be trusted.  He wants to put their business’ profits under government control—and not just any part of government; he wants to cut the Congress out of the picture and set up another Board for President Obama.  He’s joined by five more Democrats.

The Democrats, worried about higher gas prices, want to set up a board that would apply a “windfall profit tax” as high as 100 percent on the sale of oil and gas, according to their legislation. The bill provides no specific guidance for how the board would determine what constitutes a reasonable profit.

This “Reasonable Profits Board” is intended to control gas profits in the industry.

Further, in an amazing display of economic ignorance, the bill Kucinich proposes actually requires, in all seriousness, that it’s the oil and gas companies who must pay the tax.  They really don’t believe that the cost increase would be passed on to the customers.  They really don’t understand that the tax, and the cost bump to the end user, would simply depress the business’ ability to fund their own operations, expand hiring, search for more oil and gas supplies, conduct R&D, and so on; and it would similarly reduce consumers’ ability to put food on their tables and pay their rents.

But it’s all for a good cause.  Kucinich earmarks the taxes for funding alternative transportation programs when oil-and-gas prices spike.  This is just ridiculous on its face.  If those “alternative transportation programs” were any good, they wouldn’t need government subsidies—your tax monies—to compete in the market.  Just look at how the Obama High Speed Rail boondoggle, including the California bullet train, for instance, have turned out.  See who’s left holding the bag for that “alternative transportation program” stuff and nonsense.

I’m a bit confused by another aspect of this proposal, though.  It’s a lot of trouble to get such legislation passed these days, especially with unruly Republicans running amok in the House.  It would be a lot easier just to have the EPA issue a rule.

The other Democrats who are pushing this invasion of the free market are these

  • John Conyers, Jr. (D, MI)
  • Bob Filner (D, CA)
  • Marcia Fudge (D, OH)
  • Jim Langevin (D, RI)
  • Lynn Woolsey (D, CA):

All six need to be replaced at the 2012 election, if not in the Democratic Party primaries leading into the election.

Keystone XL: Too Many Jobs

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Take some of them out.  President Obama has chosen to kill the Keystone XL pipeline project, which aside from contributing to reducing our dependence on overseas (literally—and so especially vulnerable) oil, would have generated some 20,000 jobs in the near term and a few hundred thousand long term jobs from work in follow-on and associated enterprises.

Naturally, it’s those evil Republicans, who imposed an arbitrary deadline on his “environmental” assessment process, that are to blame, he says.  Of course, he ignores the fact that the environmental assessment—which had already taken three years—was complete, and that’s why it was in the State Department’s hands in the first place last fall, when he first tried to duck the question.  What’s arbitrary is his decision to cancel the project, a decision that he thought needed to be delayed for more than a year that has now been made fully a month ahead of a deadline set solely to stop his stalling.

It’ll be interesting to see the justification Obama is required by law to provide Congress to explain his decision (which explanation he would have been required to provide had he approved the pipeline, also).

In the meantime, we have these Alinsky-esque obfuscations to keep us distracted.

When President Obama took office, the United States imported 11 million barrels of oil a day. The President has put forward a plan to cut that by one-third by 2025 by…transitioning to a wide range of clean energy technologies [among other means].

and

[T]he Department of Energy’s (DOE) Loan Guarantee Program has already supported more than 40 clean energy projects….

Clean energy projects like Solyndra, Beacon, Evergreen Solar, AES Eastern Energy LP.

The White House goes on:

[T]wo of the Administration’s programs – the DOE Loan Guarantee Program and the EPA’s Mercury and Air Toxics Standards – will create more than 10 times the amount of jobs generated by the Keystone XL pipeline, which will only generate a few thousand temporary jobs.

The DoE’s Loan Guaranty Program’s effectiveness can be seen above.  The EPA’s Mercury and Air Toxics Standards already are costing jobs as coal-fired electricity generating plants are shut down, eliminating jobs permanently in those closed plants.  The EPA’s program also is costing jobs at the small businesses that depended on those plants for their power.  These jobs are lost, at best, for the intermediate term, until the businesses can restart when new plants come on line in a few years—for those businesses that can restart.  Yes, the EPA’s Standards will provide jobs for the conversion and compliance tasks mandated—but it’s these jobs that are the temporary ones.

Obama has opened another front in his class warfare election campaign: this time between his overzealous “green” backers and (erstwhile) working Americans.

An Example of Centrally Managed “Capitalism”

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In the People’s Republic of China, reports The Wall Street Journal, the urban population has, for the first time in Chinese history, now exceeded the rural population.  This situation serves as a backdrop for some of the problems in China’s centrally managed economy.

One problem involves access of the newly migrated people to public services in their new cities—accesses their already resident neighbors have.  It seems Chinese can only have access to public services in the towns and villages they’ve just left, because that’s where their families have been registered.  Under China’s household registration system—intended to rationmanage access to such services so as to prevent their being overwhelmed—only registered households can avail themselves of the public’s weal.

More importantly, such property rights as a Chinese citizen might have, have gone by the boards.  It seems that city—and village—managers are seizing farmers’ land that lies on the margins of the rapidly growing cities, and on the edges of the just departed villages, too.  In fact, farmers on the outskirts often are willy-nilly uprooted and moved into apartment complexes so their land, including the old homestead, can be consolidated into larger tracts.  Bigger farmers know better how to run the farmland, after all, and more lucratively, developers can take the land out of production and turn it into shopping malls and luxury homes for the growing populations of middle class and wealthy.  Just to rub salt into the farmers’ wounds, the urban leadership pays the farmers a token for their land (it’s not an outright confiscation), and then charges market rates as they flip the land to developers, pocketing the difference—ostensibly for the town or city budget.

The Chinese government seems powerless to stop this.  The local central managers insist they need the income from their land flips to “maintain growth, service debt and top up their budgets.”  Further, pressure to continue the practice will continue: Beijing intends to build an additional 36 million units of affordable “social housing” just in the next 5 years.  Those buildings have to sit somewhere.  And this doesn’t consider the ordinary housing building that will occur for those who don’t need “social housing,” or all the building for all the supporting infrastructure—schools, shopping malls, government buildings, roads and streets, and the like—that will go up along with all that housing construction.

Hmm….

Government Intervention Gone Awry

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Peter Suderman, writing for Reason, suggests that Obamacare, far from being the cost saver the Progressives insist it to be, actually is a cost increaser.  It seems that Obamacare is inflating health benefit costs at a sharply more rapid pace than was the rate of increase before Obamacare’s ram-through.  According to a series of Kaiser Foundation annual surveys of employee health benefits, in 2008, the cost increase for employer-provided family health benefits was 5%.  In 2009, the cost increase was 5% again, and in 2010—the year Obamacare was passed before anyone was allowed to know what was in it—the cost increase was only 3%.  But in 2011, that cost increase was 9%.  And it’s going to get worse.

This is reminiscent of another government intervention into our health care system: the creation of Medicare.  Under the Johnson administration, Medicare (and Medicaid) were established as interventions in the market for medical services because government Knew Better then, too, how markets should work.  Far from reducing costs, though, these programs also made the situation worse.  In the year before Medicare was passed, the cost of a hospital bed was rising at 5% per year—three percentage points above the overall rate of inflation for that year.  By the fifth year following Medicare’s enactment, the cost of that same hospital bed was rising at 8% per year, a 60% increase in the rate of inflation for that bed, against a baseline, still, of just 4% overall inflation—the relative cost of a bed had doubled.  Further, the combined “advantage” of Medicare and Medicaid, through 2001, accounted for fully 25% of the inflation in the overall cost of medical care.  The tax exempt status of employer-provided medical coverage (another “boon” for the individual), accounted for another 33% of the inflation in total medical services cost: these two government interventions were responsible for nearly 60% of the inflation in the cost of medical care.

Medicare premiums themselves have risen rapidly since the inception of the program.  1965’s $3 per month premium had risen to $94.60 in 2011.  If the premiums had only risen with general inflation, they would be in the $14-$15 per month range today.  Additionally, the doctor and hospital reimbursement rates—those Medicare-approved amounts—are too low to allow the doctors and hospitals involved to recover their costs.  As a result, these health service providers are driven increasingly to refuse Medicare patients altogether.  Despite this, Medicare participation is mandatory: Americans must purchase Medicare, whether they want it or not, even in the face of this dwindling service, and this artificially elevated demand for a decreasing supply also contributes heavily to cost increases.

Mandatory participation in Medicare has not achieved the goal claimed for it: an overall reduction in the cost of health services.  It is, though, succeeding in reducing the availability of medical services generally.

And so it is with Obamacare.  New mandates—the Individual Mandate, requirements that insurance companies cover people’s health condition, regardless of risk and at government mandated price ranges—increase demand.  Although there are those price controls, the regulations will drive insurers increasingly out of an increasingly unprofitable market, and this will drive costs upward in the form of inaccessibility of health services and long waits.  Further, Obamacare’s tax hikes will be passed on to consumers.  There are those price controls, but as we saw with the Nixon price controls, ways will be found around them.

Rest assured, also, the quality of care will fall through the floor, too.  There’s another Obamacare regulation: medical loss ratios, whose values are mandated under Obamacare, require insurers to spend a high percentage of their premium revenue on federally defined clinical services (Government-mandated, not market-driven, and so not necessarily wanted by us), and this is at the direct expense of R&D.  And of course health insurers are interested in research—not only in how to better provide insurance products to customers (there are profits to be made in offering better products and doing so more efficiently, and without those profits, the search for more and better won’t occur), but also in medicine itself.  Medical research is part of that search for profit: more, and more efficiently provided, medical services also are profitable, as is a long-lived, healthy customer base.  Only now there’ll be less money available for that research.

Once again, we’re stuck with an artificially elevated demand for dwindling supplies, and this time supplies of decreasing quality as well as quantity.

Made in Germany

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The EU is at it again, still trying to manage economies, and this time they’re taking on the German powerhouse whose piggy bank they want to raid directly to bail out the rest of Continental Europe.

Spiegel International Online reports

Whether it’s attached to a car, a dish washer or a pepper grinder, the “Made in Germany” label is key to selling products made in the country. But if the European Union has its way, goods carrying the tag will soon have to comply with higher standards….

EU Commissioner Algirdas Semeta plans to restrict the sought-after “Made in Germany” label to products where at least 45 percent of the value content comes from Germany. Until now, EU rules defined the country of origin as the place where “the last substantial, economically justified processing” took place.

Spiegel reports further that a part of the beef is that, under the current regulatory régime,  products could be produced almost entirely outside of Germany (for instance), and only the finishing touches applied in the domestic factory.  This is an exaggeration, or it would be in a truly open, information-flowing free market—something that’s been anathema to the Europeans for decades, and which lack underlies the current European economic malaise.

In the modern globally integrated economy, “Made in Germany/France/United States/etc” has been a bit of a misnomer for a long time: “Assembled in…” would be more accurate.  German—and American—automobiles, for instance, are built up from parts made in a number of foreign locations where labor is cheaper and necessary supplies, especially commodity supplies (iron, plastics, and so on), are nearer by and so cheaper to obtain.  Then the parts are shipped for final assembly in Germany or the US.  To do the whole thing overseas, only applying the last coat of paint in the domestic factory, and claiming that to be domestically made would, at best, irritate an informed market’s public, and it would eliminate the value of any “Made in” claim.  Businessmen aren’t smarter than their customers, nor need they be better informed.

Moreover, in the near term, and in perpetuity, bureaucratic imperatives involved in the record keeping needed at all “production stages to establish where most of the value of the product was created,” assuming “most of the value” could be defined adequately, will only increase production costs—and so costs to the consumer who’s being “protected” by this foolishness.

EU leadership is both exposing its jealousy of German success and demonstrating once again how the euro zone is too fractionated to support a common currency and how the EU itself is too fractionated to support the tighter integration that many want and that the Brits have correctly eschewed.  And the European political class is demonstrating once again its contempt for the intelligence and wisdom of the common man whom it purports to represent.