Tag Archives: political economy

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Some of you may recall that the Supreme Court is due to issue its ruling on the Obamacare case of whether the Federal government is allowed to pay health coverage plan premium subsidies to citizens who bought their health plans through ObamaMart instead of State-built and –run exchanges.

Health and Human Services Secretary Sylvia Mathews Burwell on Thursday defended the landmark 2010 US health law as sharply lowering the rate of uninsured Americans, improving health-care quality and making it more affordable.

The Wall Street Journal paraphrased her additional remarks:

Directly addressing the possibility that the US Supreme Court later this month will overturn a central provision of the law, she said such an event would mean “the number of uninsured would jump,” that “affordability goes away” and that a “death spiral” would ensue in the health insurance systems in some three dozen states.

Never mind that the law is quite explicit: it authorizes the subsidies only for those who bought their plans through exchanges established by the States and not through the Federal government’s ObamaMart. Obamacare also is completely silent about costs if the subsidies are, in fact, limited those State exchanges’ plans.

Burwell’s argument is a typical Democratic Party aargument: it’s a good idea, therefore ignore the law, do what we want.

It may be a good idea. If it is, change the law. In the meantime, do what the law says, not what you wish it to say. William Howard Taft, an earlier Chief Justice, had this to say on doing the “right” thing rather than obeying the law:

It is the high duty and function of this court…to decline to recognize or enforce seeming laws of Congress, dealing with subjects not entrusted to Congress, but left or committed by the supreme law of the land to the control of the States. We cannot avoid the duty even though it require us to refuse to give effect to legislation designed to promote the highest good. The good sought in unconstitutional legislation is an insidious feature because it leads citizens and legislators of good purpose to promote it without thought of the serious breach it will make in the ark of our covenant or the harm which will come from breaking down recognized standards.

Taft wrote that in finding a law unconstitutional, but it applies just as clearly to any regulation or procedure purported to be on the highest grounds but that contradicts a law.

I hope today’s Supremes still understand this and don’t fall for the irrelevant blandishments.

Update: An earlier iteration of this post said that Taft had found a law unconditional; in fact he had found unconstitutional.  A sharp-eyed reader caught that.

Another Argument for the UK to Leave the EU

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Under EU law, governments have some leeway in limiting access to welfare, but in most circumstances can’t discriminate between their own nationals and those of another EU country.

But those rude Brits disagree. They want to make scarce resources preferentially available to British citizens. How terrible is that? The British government, for instance, requires those who apply for child welfare payments actually to live in the UK and to do so legally.

And this effrontery:

The British government justifies this condition “to prevent a burden on the welfare system.”

Never mind that the Brits have no requirement to justify to foreign jurisdictions how they spend their resources. But it doesn’t matter:

…Mr [Michael, the European Commission’s lawyer in this matter] Wilderspin retorted that “an increase in the financial burden cannot justify a failure to comply with EU law.”

Pay up, Sucker. It doesn’t matter if you haven’t the money, or have other uses for what you do have. Your [dare I say it?] Betters Know Better.

Time to leave guys. The EU has gotten arrogantly dysfunctional.

Energy Subsidies

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Mr [Congressman Dave, R, WA] Reichert is co-sponsoring legislation to extend the PTC [Production Tax Credit] because the subsidies “reduce electricity costs and create jobs.”

But what jobs? Lower costs for whom? Who do you think pays that subsidy? Three years later, there still aren’t any in significant number. Electricity costs aren’t lower for the producers, and Reichert still hasn’t explained who’s paying for those subsidies (answer: we taxpayers are).

Mr [Congressman Steve, R, IA] King, who likes to advertise himself as a principled conservative, his line is that “Iowa is a wind energy success story” that only needs the federal government to “provide stable, low tax rates.”

Three years later, again left unanswered: if it’s so successful, why does it need federal subsidies? Why does it need subsidies at all? Why does it need continuation of subsidies as old as 1992—now 23 years on?

Oh, wait:

One need not literally seize the assets of businesses and install gov’t bureaucrats into management position to effectively nationalize those businesses. All it takes is to make them dependent on gov’t and/or direct their activities through regulatory constraints.

Or government subsidies.

Artificial Markets

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The Car Battery and battery car industries are two, and the situation hasn’t gotten any better in the three years since Mike Ramsey’s piece in The Wall Street Journal.

Since 2009, the Obama administration has awarded more than $1 billion to American companies to make advanced batteries for electric vehicles. Halfway to a six-year goal of producing one million electric and plug-in hybrid vehicles, auto makers are barely at 50,000 cars.

Two of those companies, in fact, have since gone bankrupt: Fisker Automotive and A123 Systems now are wholly owned by People’s Republic of China’s Wanxiang Group Corporation. Without repaying us American taxpayers.

The underlying problem isn’t unique to the Obama administration; his has just been the most recent and most egregious. The plain fact is that government stinks at creating industries and at creating markets. Only free markets—only people acting voluntarily and freely in accordance with their own wishes and needs—can do that. Free markets won’t always succeed at that, either, but in that case, the only ones who suffer losses are those who (voluntarily) made the bet. On the other hand, if they succeed, everyone gains to some degree.

When governments fail at this, though, everyone loses to some degree. Worse, while the same universal gain results from a government success, even neglecting greater friction losses from government involvement, there will have been no choice in the matter.

If the thing can’t survive without government intervention, it’s not ready for market. If it’s not ready for market, it’s…inappropriate…for taxpayers to be forced to prop it up with their tax money.

Overcomplexifying

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That’s what the Federal Reserve is doing.

Many Federal Reserve officials entered 2015 thinking they likely would start raising short-term interest rates by midyear. That idea got put on ice after a winter economic slowdown, partly attributed to the dollar’s rapid rise in previous months.

And

Fed officials say they won’t act until they see more labor-market improvement and are confident that inflation will rise toward their 2% goal.

Wrong.

The Fed’s mission, by statute, is to manage inflation and work toward full employment. It also has a requirement to maintain moderate interest rates, the subject here, but that’s largely subsumed in managing inflation. Inflation, for the last several years, has been held artificially low by the Fed’s holding interest rates artificially low and by this historically slow recovery and slow-growth economy in which we’ve been mired since the Panic of 2008.

The artificially low interest rates are not “moderate” by any stretch: they’re much too low and for entirely the wrong reason. Normal interest rates are in the 5%-7% range, and they’re not there because of Fed diktat, not because—properly—of market forces.

The inflation rate extant these last few years have been below the Fed’s target rate, and the most effective tool the Fed has is its interest rate management. Hence, interest rates must rise, in order to facilitate the inflation rate rising to the Fed’s preferred range (which isn’t a hard 2%, it’s a range from 2% to around 3-3.5%).

There are additional reasons rates need to rise. Borrowers are reluctant to borrow, for all the low rates, because the economy remains sluggish: there are too few buyers, whether consumers or other companies, because there’s too much uncertainty in the economy’s future. A robust, growing economy will take care of that. That requires the government generally get out of the way of the economy, and it requires the Fed to get out of the way of the market and, among other things, interest rates.

The other reason is that too many folks are dependent on fixed income instruments for their own income. These last six years of suppressed interest rates have depressed those folks’ income.

A strong dollar has nothing to do with any of this. The dollar is strong for two reasons: one is that we pay interest rates, low as they are, are higher for dollar denominated debt instruments than for other currencies. The other is that, sluggish as our economy is, it’s still doing better than much of the rest of the world. Neither of those are going to change anytime soon, but notice the key factor in both of those: the dollar’s strength is a reaction to those factors, not a driver. The dollar is strong in response to interest rates, a strong dollar is not driving rates.

The Fed needs to let rates rise and ignore the dollar. Full stop.

With moderate interest rates and inflation under control, the economy will have a chance to grow. From that, employment will improve, and not just the headline number; the labor participation rate will improve, too. The dollar will take care of itself.