Tag Archives: freedom

“Tin Cups,” Is It?

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An AP article certainly makes one attitude plain.

In a piece otherwise about US efforts to get other nations to help pay for the costs of developing, training, and equipping an indigenous Afghan army, the AP’s anonymous writer says,

U.S. officials have had their tin cups out for months.  Marc Grossman, the top State Department official for Afghanistan, recently hit up European nations….

While there is an element of begging in the manner of President Obama’s entreaties to other nations that they honor their obligations; it’s hardly a matter of tin cup-holding to insist that those nations do, in fact, honor their obligations.

The writer also notes that

…someone has to pay for that army in an era of austerity budgets and defense cutbacks.

It’s true enough that times are tough for everyone.  They’re tough not only for the nations that have to be begged to honor their commitments, though; they’re also tough for the women and children—and men—of Afghanistan, and they’ll be especially so after the US, NATO, and other participating nations leave.

It’s also true enough, moreover, that these straits, while not the result of the original purpose of the US’ invasion of Afghanistan, have become obligations due to the mission creep in our involvement.

A lesson here, aside from the unseemly need to press NATO and others in the present involvement to satisfy their obligations—which shame is on those who must be pressed—is to not allow such coarse mission creep the next time.  And there will be a next time, since the terrorists don’t agree that the war is over, or there will be a new Dark Age descended.

A Greek Exit

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This is beginning to look possible.  Moreover, it would be beneficial for the remainder of the euro zone, the remainder of the European Union, and for Greece.  The Greeks have an entirely different set of social mores, economic goals, purpose of money, and purpose of government from, say, northern Europe, and the shotgun wedding that tried to meld the two sets was doomed from the start.

A Greek departure, aside from the benefits to all, is a theoretically simple thing to achieve.  There is no mechanism in the EU governance documents for handling—or preventing—a nation’s departure, and there is no mechanism in the euro zone governance documents for handling—or preventing—a nation’s departure, either from the euro zone while remaining in the EU, or from both the euro zone and the EU.  There is only for Greece, as an ironically named shoemaker’s ad has it, to just do it.

No, the departure would be an engineering task.  But like all engineering tasks, the devil is in the details, and a departure could be smooth and quickly done, or it could be a clumsy affair, stumbling on at great cost for years.

The Wall Street Journal has one set of possibilities for effecting a Greek withdrawal from the euro zone, but there are additional details that need consideration, also.

How does Greece leave the euro?
In one scenario, a Greek authority would have to agree on a date with the rest of the euro zone for its departure and for the introduction of a new currency (let’s call it the new drachma). It would say that from that date, all public salaries, contracts and pensions would be paid in drachma. Bank deposits would also be redenominated. The authority would likely decide an initial conversion rate on domestic contracts from euros to new drachma—say one-to-one—then it would likely let the exchange rate of the new drachma be decided by the currency market.

This is fine for internal matters, but Greece—its government entities, its private businesses, and lots of individual citizens—have international dealings, not least with Europe.  An initial exchange rate (and a pegging schedule, or timing for letting the “new drachma” float freely) with the EU, with Turkey, with China, with the US, et al., all would have to be worked out: the “Greek authority” would be in no position to impose its domestic exchange rate externally.  This negotiation will be no easy matter, either, especially in light of an expected free fall, but to unknown depths, in market value of the “new drachma.”

Among the things to be handled, for instance: euro-denominated Greek bonds, sovereign and corporate, held by the European Central Bank, by member nation central banks, by private enterprises external to Greece.   Also in the mix would be cross-border private enterprise contracts for delivery of goods and services to be paid for in euros.

Nor, after all, can we dismiss domestic private enterprise questions: the “Greek authority” can announce an exchange rate to its heart’s content; many of these domestic businesses still will feel sufficiently put upon—or will consider that they no longer have anything to lose, anyway—that they will sue.

A major new litigation industry will be spawned.

Moreover, the euro, as a “sound currency,” likely will still circulate widely in Greece; although any influx in euros would necessarily be dependent on actual commerce—just as the US$ circulates with some ease in Mexico and the Philippines (or did when I last was there some years ago), for instance.  The Greek government’s problem here is to manage the domestic exchange rate in this grey market, rather than to attempt to ban that market altogether.  The best way to eliminate that grey market is to better manage the Greek economy—which is to say, to get out of the way of the economy—so that it can recover and the “new drachma” can take its place as a usable currency.

What would the ECB do?
The ECB probably would no longer be able to lend to banks against Greek government debt as collateral.  With no euros available, this would be the moment when the government would have to distribute another currency as a means of exchange.

Timing is everything, but this is simply an exercise in clock watching—there’s no rocket science here.

What would happen to the debt [emphasis added]?
The debt would largely fall into two categories: money that the government owes to its bondholders and official creditors, and money that the banking system owes to the ECB.  As both of these types of debts are under international law, they would have to be restructured by negotiation. Domestic debt would likely be redenominated in new drachmas.

Here is the other nub of the problem.  The Greek bailout “negotiations” are exactly about how to deal with this debt.  After having left the euro zone, and especially after having left the EU, should it come to that, it would be far easier for the Greeks simply to repudiate that debt and walk away.  This is what Alexis Tsipras, head of the SYRIZA party (now Greece’s second most powerful party), wants to do.  However, such an outright repudiation would cause damage to perceptions of Greek reliability that would take decades—a rollover of generations—to redress.

No doubt, the transition period surrounding a departure will get ugly.  The Institute of International Finance thinks it would cost…somebody…€1 trillion ($1.29 trillion) for the Greeks to quit the euro zone.  Moreover, until things settle out, Greek businesses and banks will find it very difficult to obtain funds for cash flow—the sort of short term borrowing that is a part of the normal operation of businesses.  It’s in this period that the grey market of euros for “new drachmas” and euros for Greek goods and services—entirely within Greece, mind you—will get started.

The rest of the euro zone and of the EU have their own fears of a Greek departure: contagion and a run on the banks of many of the other nations—not stopping in southern Europe, but heavily damaging France, Netherlands, Belgium, even Germany, all of whom (and others) have loaded up on Greek sovereign debt in an effort to prop them up.  This fear of contagion is overblown.  Yes, there would be a brief run on the banking institutions of the rest of the PIIGS—mostly Spain, Italy, and Portugal—and of France, Netherlands, and Belgium because investors are cautious sheep.  Yes, actual losses, and sharp ones, will occur.

But the best way to get  a sheep caught in a fence out of that fence is to try to push it deeper in.  Walk now, and the storm will be harsh, but brief, and those other PIIGS, and the rest of Europe, will weather it.  Nor the euro zone nor the EU are at risk—although, as I’ve written elsewhere, a real fragmentation would benefit everyone.

Germany, the United States, and Mandatory National Healthcare

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Miriam Widman, writing last week in Spiegel Online, points up the fallacies of government-mandated national health insurance, although this wasn’t her intent.  Her lede:

In Germany, people are baffled by how hostile a country as religious as the United States can be to the principle of mandatory healthcare insurance.  Not even conservatives question the system, which businesspeople say gives Europe’s largest economy a competitive advantage.

Let’s look at her argument and German bafflement.

First, a minor point:

[Germans] also question the continued portrayal of US President Barack Obama and his health reform backers as socialists and communists, noting that healthcare was introduced in Germany in the 19th century by Otto von Bismarck, who was definitely not a leftist….

Terms like “Left” and “Right,” “Liberal” and “Conservative,” are terms whose meanings evolve over time—as they must.  No one would confuse today’s conservative, for instance, with the 18th century conservative who insisted on the supremacy of monarchist governments over the people they ruled; nor would anyone would confuse today’s liberal with that same century’s liberal, who demanded a limited government subordinate to, and responsible to, the Sovereign people who hired it.  Widman’s remark here is simply a non sequitur, borne of a sloppy conflation.

Moving on,

[M]andated coverage is something that is simply not questioned in Germany.  Furthermore, even the most pro-market politicians wouldn’t dare to dismantle the country’s health insurance system.

This is a trap into which Americans simply are loathe to fall, for the reasons outlined below.

The requirement that everyone buy health insurance is based on a simple concept, healthcare experts agree.  Allowing healthy people to opt out of having health insurance destroys the insurance community and leaves insurers covering only the sick.

Leaving aside the careful elision of who these “experts” are, this claim simply demonstrates a complete misunderstanding of what insurance is.  I’ve written here and here about the nature of insurance—a risk transfer industry—I won’t repeat that here.  I’ll just point out that what the Germans have, and what Obamacare is, are simply welfare programs.  Their connection to insurance exists only via a commonality of names.

America’s Health Insurance Plans…filed an amicus brief with the Supreme Court in January saying the required coverage mandate cannot be divorced from Obama’s healthcare reforms.  …it wrote: …

“A wide range of experts has consistently agreed that enacting guarantee issue and community rating has severe unintended consequences unless they are paired with a strong commitment to achieve universal coverage through an effective and enforced personal coverage requirement.”

In plain English, this means that if only sick people sign up for insurance it is impossible to insure people regardless of pre-conditions, or to limit insurance companies’ ability to set prices based on an individual’s history and risk.  Everyone has to take part—sick and healthy people—for the system to work.

AHIP is right on this.  However, with respect to “set[ting] prices based on an individual’s history and risk,” this is exactly what insurance is.  MOreover, as Milton Friedman showed in a 1991 Wall Street Journal article on the effects of federally inflating health care demand through government mandated participation in Medicaid, our first universal health care welfare program, such mandates simply inflate the cost of both health care and of the “insurance” that claims to cover those costs.

The right answer here is to allow free market forces to govern both a true risk transfer industry and the health care provision industry (an aside: these two industries too often are erroneously assumed to be one and the same).  Just as the breakup of the world’s best telephone system—Ma Bell—led to lower prices to consumers and an even better suite of communications services, so competition will lead to lower insurance—risk transfer—costs for the consumer, lower medical costs to the consumer, and an even better suite of services in both industries.

Widman cites a private business proprietor, who extolls the virtues of an employer providing at least some of her employees’ health insurance:

“As an employer I would never question hiring somebody and not insuring them,” says Seattle native-turned Berlin café owner Cynthia Barcomi. … The American entrepreneur said she’d offer health insurance to her employees even if she weren’t required to by law…because people are more productive if they think their employer cares about and believes in them.

Indeed.  This is one of many sound business solutions to a question of employee productivity.  For government to mandate that this particular solution must be used by all businesses, though, regardless of those business’ individual, unique circumstances is both immoral and inefficient.  It’s immoral because it takes away the responsibility of the business owner for the outcomes of her business decisions and arrogates that responsibility to government.  It’s inefficient because it mandates a one-size-fits-all solution whose costs of implementation—costs driven in part by the artificial demand created by the mandate—prevent that business owner from implementing other solutions that might be better in his business’ circumstance.

Then Widman plays the religion card.

“For me the US is a very religious country. It doesn’t matter which religion I look at—love thy neighbor is a very, very important point in religion,” [National Health Insurers Association spokeswoman, Ann] Marini says. … Wolfgang Zöller, a member of Bavaria’s conservative Christian Social Union party, argues that Christian principles support a national healthcare system and both are compatible with capitalism.

Here, too, the larger point is missed.  It’s certainly true that our Judeo-Christian ethos and morality levies on each of us individually a requirement to look out for the least among us.  But this is not a mandate on government to absolve us of that individual responsibility by arrogating the obligation to itself and applying a universal mandate to all of us.  That responsibility is levied by our Creator on each of us individually because each of us is unique and in unique circumstances.  The manner in which we satisfy our obligation must, therefore, be individual—even though many of us may adopt similar means.

Then, on what basis does government presume to dictate to each of us what our religious practice must be?  On what basis does government dictate to any of us how we must carry out our religious practice—or that an atheist or agnostic must carry one out at all (oh, wait—government has already made these arguments here and here)?

That larger point, though, is irrelevant to Marini, Zöller, and their ilk.  Zöller makes this clear:

The question of health insurance is a humane question.  I want every person—independent of age, independent of income or pre-existing conditions—to have the possibility to be helped when he is sick.

This is certainly a discussion we all should have.  But what Zöller is describing isn’t insurance at all—it’s welfare.

In the end, Americans and Germans must answer for themselves two questions.  First, we must answer definitively the question of whether we want insurance or welfare.

And then we must all answer the question of whether we want government to impose a one-size-fits-all solution (to a thus far misunderstood problem) on all of us, regardless of where our individual choices, our individual situations, might take our private businesses, or us.

Defense and the Russians

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The Russian government has shown their fundamental view of the United States and of their relationship with us.

Russian President Dmitry Medvedev said last year that Russia will retaliate militarily if it does not reach an agreement with the United States and NATO on our missile defense shield.

At a daylong Missile Defense Conference that took place in Moscow last week, the Russians made explicit their threat against us.  General Nikolai Makarov, the Russian armed forces chief of staff said, referring to missile defense installations currently contemplated by us in eastern Europe,

A decision to use destructive force pre-emptively will be taken if the situation worsens[.]

Makarov extended the scope of Russia’s intended actions.  He displayed on a large-screen video system for the benefit of conference delegates from 50 countries, including the US and NATO, computer-generated imagery depicting the reach of the American radar and missile systems that are components of our missile defense shield.  Russian missiles were shown streaking toward the US before being intercepted.

But this overt aggressiveness is not a new position for the Russians.  They threatened nuclear attacks against Poland four years ago if we deployed components of a then current missile defense shield there and in the Czech Republic.  We quietly canceled those plans.  The Russians invaded Georgia over a manufactured pique and perpetrated a Sudetenland-like partition of that country while we stood meekly by.

A couple of questions arise.

Why would Russia be thinking about a nuclear attack against the US?

Why would Russia casually threaten us in front of the world?

Perhaps they sense timidity on the part of the US administration.  Certainly, in the face of these public threats against both our allies and our homeland, our own State Department Special Envoy for Strategic Stability and Missile Defense, Ellen Tauscher could only say that it was

pretty clear that this is a year in which we’re probably not going to achieve any sort of a breakthrough.

But this was the point President Obama was making a couple of weeks ago to Medvedev when Obama pleaded for more time on the defense question—he’d have more flexibility to give the Russians what they want after he’s no longer accountable to the American people.

So much for Reset.  In the face of such naked threats of war—of preemptive war—how can the US do anything at all other than to press ahead with the deployment of a missile defense shield, now including defense against the long-range ICBMs that Russia has shown with their little demonstration that they fully intend to use against us?  On what basis can the Obama administration seriously be talking about disarming us in the face of these overt threats?

Some Thoughts on Free Markets and Limits

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I was driving to the airport to pick someone up after a too-long absence the other day when the traffic load struck me (figuratively).  I was driving on a modern freeway with no impediments to traffic flow.  Adjacent to this was a frontage road with traffic lights.  Even though the traffic loads were the same on both roads, the traffic on the frontage road stayed bunched up and slow moving—neither the drivers who wanted to go faster nor the slower drivers were able to go as fast as they wished due to the limits imposed on everyone traffic by those lights.

On the freeway, however, the traffic quickly got strung out and widely spaced, as the faster drivers moved apace, and the slower drivers—moving faster than their brethren on the frontage road—moved at their preferred slower pace.

What has this to do with free markets, one might ask.  It’s those limits.  The traffic lights—the limits a government applies to a centrally managed economy that requires (limited) licenses to manufacture so as to not over produce, licenses to sell so as to avoid unsanctioned pricing, licenses to handle the manufacturing scraps, donations to the correct political cause, and “protection” for everyone—keep everyone bunched up and slow-moving.  Certainly, the speed range between the fast-movers and the slow-movers was much narrower than the speed range on the freeway, but everyone was moving much more slowly than we were on our freeway.

Of course, on closer inspection, the analogy breaks down, but that closer inspection, now that we have the overall picture from the analogy, demonstrates the power of the free market economy compared to one that’s controlled by government, one that has those “traffic lights.”  Within the context of this post, the individual actors on each of the two highways are largely unrelated to each other, with the cars on the traffic light-limited highway, for instance, connected only by the physical presence of a car in front that’s held up by a red light or that is a slower-moving car in the forced bunch and so is holding up all the cars behind it.

In a free market economy, though, all the players are inextricably intertwined.  Indeed, the fast-movers don’t merely facilitate the slow-movers’ ability to get along down the market road, these fast-movers actually help pull the slow-movers along—even though the speed range between economic fast-movers and slow-movers in the free market is wider than it is in the managed economy.

Take luxuries, for example.  Two come to mind: air conditioners and televisions.

Oh, wait; these aren’t luxuries anymore, and they haven’t been for decades.

When these things first came out, only the rich, the economic fast-mover, could afford an air conditioner in the window of his house or a TV in his house’s living room.  But in a free market, these fast-movers helped create the market for the air conditioner and the television.  Call it a status symbol—I’ve arrived—or a desire to be first on the block to have one, or any other reason, only the rich both could afford such things and were interested in acting on the desire.

Air conditioner and television producers, wanting to sell more into that nascent market, produced more, and so more were bought.  In the free market economy, others wanted a piece of that action, and they produced air conditioners and televisions.  Competition between the producers—which doesn’t exist in a managed economy—began driving prices down, which made these luxuries more affordable—which drew in more producers wanting a taste of the money, which drove prices down even more, and ultimately, nearly everyone could—and did—buy.  Today, most houses have central air, and of those that don’t, most have window air conditioners that cost as little as $100—an unheard of level of cheapness 50 years ago—and air conditioning comes standard in our cars.

Today, most houses have multiple televisions, and increasing numbers have 50″ and 60″ plasma or LCD televisions, technologies not even imagined in the ’50s when television sets first started to become widely affordable.  And our higher end (no longer strictly high end, even) cars now have DVD players, or streaming video, or both—again, technologies unheard of just a bit ago.

Moreover, it’s those fast-movers that do the hiring of those slow-movers, either directly into their own production facilities, or indirectly, by the market’s push to get more manufacturing online, into other production facilities that are newly built or expanding existing operations to support the burgeoning market for all those (ex-) luxury goods. The ripples spread, too.  Supporting functions grow: the transistor and chip manufacturers to support the circuits in all those televisions, for example.

All this because the economic fast-movers wanted a luxury good, and a free market, unlimited by government “guidance,” enabled those luxuries to become commodities.

Finally, one too-often overlooked result is that those relatively farther behind free market slow-movers are vastly better off than are their slow-moving counterparts in the managed economy.  And with the jobs created by that free market, they have excellent opportunities to move up their economic ladder.