Irredeemable

Charles Krauthammer’s latest column cuts through all of the disinformation in the health care reform debate with laser accuracy:

http://article.nationalreview.com/?q=ODFkNjliY2FkMGNmNDU5NmNlZjE3YmE4MjQzOTI1NmQ=

He highlights a few of the irrational regulations written into the Senate bill:

• You’ll find mandates with financial penalties — the amounts picked out of a hat.

• You’ll find insurance companies (who live and die by their actuarial skills) told exactly what weight to give risk factors, such as age. Currently, insurance premiums for 20-somethings are about one-sixth the premiums for 60-somethings. The House bill dictates the young shall now pay at minimum one-half; the Senate bill, one-third — numbers picked out of a hat.

• You’ll find sliding scales for health-insurance subsidies — percentages picked out of a hat — that will radically raise marginal income tax rates for middle-class recipients, among other crazy unintended consequences.

His conclusion:

• The bill is irredeemable. It should not only be defeated. It should be immolated, its ashes scattered over the Senate swimming pool.

He then submits three recommendations for improving the efficiency of our existing health care system:

• First, tort reform. This is money — the low-end estimate is about half a trillion per decade — wasted in two ways. Part is simply hemorrhaged into the legal system to benefit a few jackpot lawsuit winners and an army of extravagantly rich malpractice lawyers such as John Edwards.

• Second, even more simple and simplifying, abolish the prohibition against buying health insurance across state lines.

• Third, tax employer-provided health insurance. This is an accrued inefficiency of 65 years, an accident of World War II wage controls. It creates a $250 billion annual loss of federal revenues — the largest tax break for individuals in the entire federal budget.

These three suggestions would repeal or correct inefficiencies in our health care system that exists today due to government policies. The results of these three suggestions would be as follows:

Tort reform will eliminate or reduce the use of unnecessary medical procedures undertaken to avoid future malpractice claims.

Allowing the purchase of health insurance across state lines will open a competitive marketplace for health insurance policies.

Repeal of the corporate tax loophole that allows employee health insurance to be tax deductable to corporations and also tax free to individuals will place health insurance on the same footing as all other employee benefits. Over time individuals will decide to purchase their own health care insurance just as they purchase their own auto insurance or homeowners insurance. When individuals own their health care insurance they will not fear loss of coverage due to changing jobs.

That's nothing new

The following article is from the Chicago Tribune:

http://www.chicagotribune.com/news/chi-aldermen-payroll19nov19,0,280697.story?page=1

For those of you unfamiliar with the history of Chicago’s hiring practices here is a brief summary:
In 1969 a lawsuit was filed against the Democratic Party of Cook County alleging that government hiring was unduly influenced by political operatives. A 1979 ruling led to a court order in 1983 that made it unlawful to take any political factor into account in hiring public employees. Those decisions along with companion consent judgments—collectively called the Shakman decrees—are binding on more than 40 city and statewide offices. Circumventing these decrees has become a routine way of life for politicians and government employees.

What we have learned from the Tribune article is that the City of Chicago has a payroll account that is used by City Alderman to hire friends and family. This payroll account is not listed in the City budget and until now was not know about by those who oversee the Shakman decrees.

Here are some of the highlights from the Tribune article:

• "All of us (aldermen) have family members on the payroll," said Ald. Isaac Carothers, 29th, who has paid a relative more than $30,000 since January 2008. "That's nothing new."

• Carothers refused to say if the William Carothers on his payroll was his father or brother, who have the same name. Carothers faces federal bribery charges, and his father, a former alderman, went to prison for public corruption.

• City officials said the employees paid through the fund are contract workers because they do not receive a city pension or other city benefits.

• But Shakman questioned that statement, because the city withholds the employees' taxes and sends each one a yearly W-2 tax form. "W-2s are a pretty good indication they are common-law employees," Shakman said.

• On paper, the only oversight of the obscure payroll appears to come from the veteran chairman of the Council's Finance Committee, Ald. Edward Burke, 14th. According to the city budget, payments must be approved in writing by Burke.

• Burke spent the largest chunk of the payroll -- $70,164 -- in 2008, according to city records. That total was higher than any other ward by more than $26,000.

• Nevertheless, Daley and city attorneys said last week the city is in "substantial compliance" with the federal court consent decree. They plan to ask a judge early next year to end the court's supervision of city hiring.

The public transportation money pit

Today’s Chicago Tribune contains the following article:

http://www.chicagotribune.com/news/chi-getting-around-16nov16,0,3657428.column

The following data tell the story:

• The average fare collected by the CTA is 98 cents, according to the transit agency. It takes into account full-priced fares, reduced fares, passes and free rides.
• The cost for the CTA to provide service averages $7 per ride, including some capital costs such as maintenance and some system improvements.
• The cost per ride jumps to $9.90 if major projects such as the ongoing Brown Line capacity-expansion project or the planned extensions of the Red, Orange and Yellow/Skokie Swift Lines are factored in, CTA officials said.

How is that for a business plan? Your cost is $9.90 but you only collect $0.98. Brilliant! The CTA is constantly in financial crisis and this explains why.

Note that the published full fare for a CTA ride is $2.25. So in addition to having a cost structure that is totally unjustified by revenues we find that the CTA is offering so many discounts that they are actually collecting less than 50% of the full fare for each ride provided.

This is an appropriate case study to be presented to local governments that are currently considering additional public transportation expansion. Public transit is always and everywhere a money losing proposition.

GM stands for Government Mendacity

In the following Reuters article GM describes its current financial performance:

http://www.reuters.com/article/businessNews/idUSTRE5AF0SO20091116?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28News+%2F+US+%2F+Business+News%29&utm_content=Google+Feedfetcher&pageNumber=1&virtualBrandChannel=0

Note the following paragraphs in this article:

• General Motors Co posted a quarterly loss on Monday but said stabilizing sales since its bankruptcy would allow it to begin paying down $8.1 billion in debt to the United States and Canada next month.
  
• Bolstered by its bailout, GM ended September with almost $43 billion in cash compared with $14 billion a year earlier.
  
• That included $17.4 billion in a special account created with bankruptcy financing provided by the U.S. government. GM said it had allocated $8.1 billion from that taxpayer-funded account to pay down its government debt.

Yes, you read that correctly. GM is bragging about its ability to pay back Federal Government loans using “debtor in possession” funds obtained from the Federal Government during its bankruptcy. Take the Federal Government’s money from your right pocket to pay off the Federal Government debt in your left pocket. This is truly hilarious; unfortunately America the joke is on us.

Kill off “too big to fail”

Kansas City Fed President Thomas Hoenig understands the root cause of our financial crisis. Read the following Reuters article:

http://www.reuters.com/article/topNews/idUSTRE5AF17U20091116?feedType=RSS&feedName=topNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FtopNews+%28News+%2F+US+%2F+Top+News%29&utm_content=Google+Feedfetcher

The following quotese from Hoenig cuts directly to the heart of the problem:

• "As we look at reform and the way forward I think the most important think we need to do is to make first of all an accurate assessment of fundamental weaknesses in our financial system and then begin to create better foundations," he said.
  
• "Our institutions must be allowed to fail no matter what their size or political influence," he said.
  
• "Our reluctance to deal with 'too big too fail' provides these largest institutions with important advantages over any competitors who are not seen as important," Hoenig said.

Blatantly contradictory objectives

In the following Washington Post article Robert J. Samuelson examines the contradictions in the health care reform bill:

http://www.washingtonpost.com/wp-dyn/content/article/2009/11/15/AR2009111502212.html

The following paragraph leads us to one of my favorite topics:

• The disconnect between what President Obama says and what he's doing is so glaring that most people could not abide it. The president, his advisers and allies have no trouble. But reconciling blatantly contradictory objectives requires them to engage in willful self-deception, public dishonesty, or both.
  

What Robert Samuelson is trying to tell us is that the health care debate and the Obama administration’s proposals are a classic example of George Orwell’s concept of doublethink from his novel 1984. Doublethink is defined as Reality Control. The power to hold two completely contradictory beliefs in one's mind simultaneously, and accept both of them.

The No. 1 earmarks guy

The following news article by Herbert A. Sample of the Associated Press ran in the 11/9/09 edition of the Honolulu Star Bulletin:

http://www.starbulletin.com/news/20091109_inouyes_earmarks_go_to_his_donors.html

The following quote is a very gentle attempt to describe our current political situation:

• "I think what that shows you is, at the very least, there's the appearance of a quid pro quo between campaign contributions and then how decisions are made to allocate taxpayer resources," said Mandy Smithberger, of the Project on Government Oversight, a nonpartisan watchdog group in Washington, D.C.
  

The blatant political corruption that was revealed by the investigation of former Illinois Governor Rod Blagojevich was a national news story. Most who followed that story reassured themselves by rationalizing that corruption on that scale was unusual and certainly not part of their state or local politics. Things like that only happen else ware.

The above news story explains “pay to play” on a national scale. Here you have an eight term US senator bragging that "I'm the No. 1 earmarks guy in the U.S. Congress."

Senator Inouye is not beholden to his constituents, only to his large campaign contributors. The root of this problem is the power of incumbency. 95% of federal officeholders are reelected. This removes any real need to represent the will of the citizens.

A better economic and social contract

The following article from Reuters provides insight concerning the origin of our recent worldwide financial crisis:

http://www.reuters.com/article/businessNews/idUSTRE5A60NF20091107?feedType=RSS&feedName=businessNews&pageNumber=1&virtualBrandChannel=11604

There is a lot of liberal doublethink quoted in this article. Doublethink is a process defined in George Orwell’s novel 1984. Doublethink is defined as: Reality Control, the power to hold two completely contradictory beliefs in one's mind simultaneously, and accept both of them.

We must be aware that all doublethink propaganda is intended to provide the casual reader with will only the rosy scenario portrayed by the speaker. This is of course the intent of the speaker.

Consider the content of the Reuters article:

• World governments should consider urgently a levy on banks to fund future bailouts, British Prime Minister Gordon Brown said on Saturday, departing from London's longstanding resistance to a global tax.
  
• "We should discuss whether we need a better economic and social contract to reflect the global responsibilities of financial institutions to society," Brown told a meeting of financial policymakers from the G20 nations in Scotland.
  
• "There have been proposals for an insurance fee to reflect systemic risk or a resolution fund or contingent capital arrangements or a global transaction levy," he said.
  

“A better economic and social contract” is a liberal doublethink slogan that in reality means increased government intervention that will result in worse economic and social outcomes.

The purpose of this meeting is to promote the concept of a worldwide tax on financial transactions. This is being promoted as a method to prevent future financial crisis. The rosy scenario is that if a financial crisis is looming then the taxes collected will be waiting in a “rainy day” fund and these funds will be used to offset the effects of the crisis.

The reality is that financial institutions will accept more risk if they have an explicit guarantee of bailout. The recent crisis has as its root cause this exact mechanism, the belief in the “too big to fail” myth.

I am surprise to read that U.S. Treasury Secretary Timothy Geithner (king of bailouts) is opposed to this idea for exactly the reason stated above:

• In recent Congressional testimony, U.S. Treasury Secretary Timothy Geithner was cool to an idea from a domestic regulator who called for big financial firms to pay risk-based assessments into a fund that would be available for use if they hit trouble. Geithner opposed pre-funding bank bailouts on the basis that it makes banks less wary of risk taking.
  

The real motive behind this new global tax is revealed in this paragraph:

• Officials at the G20 meeting said a levy and the funds raised could be used not only to pay for future bank bailouts but also to fund development and other areas.
  

I am sure that this was an unintended admission by the bureaucrats. The real purpose of this new tax is not for a financial backstop but is instead a redistribution of wealth. The taxes paid on financial transactions will be spent on “development and other areas”. If this tax is put into effect financial institutions will be encouraged to engage in excessively risky speculation under the pretext that an insurance fund is available to bail out any failing firms. In reality the fund will be empty as it will be looted for spending on pork barrel projects.