Tag Archives: political economy

All the more Reason

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…to speed reform of the way in which our economy produces medical care services and in which we pay for them.

[A] 66-year-old couple retiring this year with average Social Security benefits can expect medical costs to consume 67% of the Social Security they will receive in retirement.

A 55-year-old couple who plan to retire in 10 years can expect to devote about 90% of their lifetime Social Security benefits to healthcare costs.

There’s more:

Social Security benefits typically grow by approximately 2% a year—the overall rate of inflation. But medical costs in general tend to rise by more, 5% to 7% a year[.]

There’s this graph, too, that illustrate cost change trends since 1960:HealthCostTrends

Since Obamacare was enacted and has started to take effect (since 2010), the then-eight-year-old trend of decreasing costs has been completely stopped. That’s the effect of government intervention into a free market.

If we’re to correct this, if we’re actually to hold down, not just the rise in costs, but the actual costs themselves, we need to get government out of the way and use free market solutions: get rid of the health welfare that is Obamacare, allow insurance companies—which would sell true insurance policies—to charge premiums based on the actual risk transferred from customer to company, and allow insurance policies to be sold across state lines—that is nationwide.

All government intervention succeeds in doing is preventing competition and market forces from reducing and then holding down costs. Which hits hardest the very people these government programs are claimed to help.

The Democrats’…Budget

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The House Democrats are showing their disdain for the American people with this thing (you have to drill to see what they’re burying).

Congressman Chris Van Hollen (D, MD) published the House Democrats’ version of a budget, and it nearly doubles the Federal deficit over the next 10 years and increases the national debt by nearly a third over the same period to $25 trillion dollars. On purpose. Remember this as he gears up for his run for the Senate next year.

While buying into every penny of President Barack Obama’s call for $1.8 trillion in more taxes (because Democrats can’t get enough of your money), it raises spending even more (because they need your money to buy votes to keep their power).

This isn’t a serious budget effort; it’s just an in-your-face answer to the more conservative budgets already on the table in the House and Senate. As they’ve done the last several years over multiple administrations, these Democrats are determined to block Republican initiatives, not because of any real, principled differences with them, but solely because of their Republican provenance.

There’s More To It

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…than this, or so it seems.

A wave of cash is leaving the eurozone, where returns on safe assets are infinitesimal, if they are positive at all, and headed to the US and other refuges such as Denmark and Switzerland.

Europe’s common currency has fallen 22% against the dollar in less than a year, from $1.39 to $1.08. The euro touched a 12-year low of less than $1.05 this month.

Returns on safe assets are infinitesimal in the US, too, with the Fed still actively suppressing interest rates (to the detriment of those Americans dependent on fixed income assets, but that’s another story). Why, then, would money come to the US at the expense of the eurozone—at the expense of the EU?

For one thing, we’re absolutely politically stable, our problems with the present administration (and the Left’s with the previous one) notwithstanding. So, in fact, are the EU and the eurozone subset of it. Here, though, there’s a growing possibility of Greece leaving, and fear that that will spark a cascade; there’s no possibility of, say, Texas leaving the US.

For another, the currency flow tends to become a self-fulfilling prophecy. As money leaves the euro for the dollar, demand for euros falls and for dollars rises, causing the price for euros to drop and for dollars to rise. The increasing disparity in value spurs more movement from the falling value asset to the rising value asset.

The stronger reason comes from where the money is going when it arrives in the US (or Denmark—an EU member, but not part of the eurozone—or Switzerland). Tommy Stubbington, in his Wall Street Journal article at the link noted that much of the flow into the US is going to US Treasury debt instruments: the constituent nations of the eurozone aren’t issuing government bonds at any sort of rate, so their price is relatively high, with those infinitesimal yields. The central banks of euro recipient nations like Denmark, too, are busily lowering national interest rates in an attempt to discourage everyone else from “piling into the krone.”

But the money also is going into equities. The US stock market is the largest, most active in the world, and it’s the least regulated, especially compared with the EU. Given a desire to leave the euro, there’s just no place for the money value to go besides our stock market (another reason for the market’s ongoing rise despite our underlying economy’s ongoing doldrums) and our treasuries. The latter which also helps the Fed get away with suppressing interest rates.

So why Denmark and Switzerland at all? They’re safe places for Europeans to keep their money nearby.

Central Banks, Interest Rates, and Fear

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The Fed is looking to start raising its benchmark interest rates “real soon now.” This is expected to inject fear into investors used for so long to being coddled and protected from uncertainty by an interventionist central bank.

Christine Lagarde, head of the IMF,

warned Tuesday that markets could be heading for a repeat of the 2013 “taper tantrum,” in which stocks fell and interest rates rose around the world as the Fed considered winding down its “quantitative easing” bond-buying program.

She went on:

I am afraid this may not be a one-off episode. The timing of interest-rate liftoff and the pace of subsequent rate increase can still surprise markets.

This is just foolishness. In a free market environment, surprise not only is normal, it’s the stuff of profit-making. It’s also how enterprises steal a march on their competitors and how startups successfully break into a heretofore stable market. It’s how consumers benefit from the newly available additional choice, the better product, the new idea, ….

Even the “taper tantrum” concern is foolishness. The only ones hurt by that were the investors throwing their tantrum. The stock market quickly returned to its longer term trend, and the tantrum didn’t last long enough to hurt the actual economy.

Surprise in the markets is not a problem for us investors; it’s only a problem for government bureaucrats so dependent on their precious rules. And for crony capitalists fearful of competition.

Of Course He Will

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The National Labor Relations Board, the union arm of the Wagner Act, enacted a rule a few weeks ago that allows unions to hold organizing votes in non-union companies before company management has a chance to respond.

The Senate passed a resolution canceling the NLRB’s rule with a party line oriented vote. The House is taking up the bill and is expected to pass it as well, and with a party line oriented vote.

President Barack Obama, who succeeded in packing the NLRB for this sort of purpose, is expected to veto the resolution.

Of course he will. Remember this veto in 2016.