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Archive for June 9th, 2010

Obama and the Democrats are trying to enact a third so-called stimulus (a.k.a., jobs bill). I’d make a joke about three strikes and your out, but we should remember that this is actually the fourth attempt since we should count Bush’s lame faux stimulus in 2008. In any event, one would hope people would learn that borrowing money from the private sector and then squandering it on inefficient and counterproductive programs is not a recipe for economic growth. I was interviewed by Derek Thompson of The Atlantic. Here are a couple of excerpts:

The Keynesian theory is just completely wrong. It didn’t work for Hoover, for FDR, for Japan in the 1990s, for Bush in 2008 or for Obama. Taking money out of your right pocket and putting it in your left pocket doesn’t make sense. We’re wasting money on astoundingly bad ideas, especially by bailing out profligate state governments. It’s better to let the economy run its course than to shovel money at the problem. …recessions are the economy adjusting to previous bad policies. There’s not much you can do. Our economy got way out of whack because of bad policy, and that includes bad monetary policy like easy money from the Federal Reserve.  It’s like a hangover. And the best thing after a hangover position is to not compound the mistake with more drinking. I don’t believe in the hair of the dog theory for getting the economy back on track.

This leads to a rather obvious question. If deficit spending is not stimulus, why are politicians making the same mistake over and over again? The answer, of course, is that politicians will use any excuse to spend money. But there’s another reason for the current orgy of fiscal recklessness. As explained in this video, Obama and the Democrats want to take credit for the economic expansion that eventually will occur. And even if it is a weak recovery because of all the wasteful spending, they can claim the growth occurred because of the so-called stimulus. This makes about as much sense as a rooster crowing and taking credit for the sunrise, but politicians care about spin.

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I just gave a speech sponsored by the Chamber of Commerce about ideal fiscal policy. El Salvador, like many developing nations, has a small burden of government according to fiscal statistics. But that is largely because the government collects very little revenue thanks to pervasive tax evasion and a huge underground economy. I explained that there are two good ways to reduce tax evasion and one bad way to address the issue.

The bad way is to expand the size and power of the tax police. This approach may force people to be more honest about declaring their income, but it also will lead them to decide to earn less income. And since slavery is no longer legal, there’s no way for a government or its tax police to force people to produce.

The two good ways of reducing tax revenue, by contrast, are desirable even if there is no tax evasion.

The first option is lower tax rates. When tax rates are low, people have much less incentive to evade and avoid. But the best thing about low tax rates is that they encourage more national income. If El Salvador wants to become more prosperous, there is no shortcut. By definition, economic growth occurs when national income rises.

The second option is to reduce the size and scope of government so that it focuses on the provision of genuine public goods such as rule of law. There is good academic evidence that people are much more likely to pay tax when they perceive that they are getting something of value in exchange for their tax dollars. Income redistribution programs fail that test. The recipients feel they are getting something of value, of course, but they are not taxpayers. The people paying taxes to finance welfare, by contrast, correctly perceive that government is spending money improperly.

These lessons are very important for developing nations such as El Salvador, but they also apply in more developed nations. Greece shows what happens when a supposedly prosperous nation goes too far down the path of tax-and-spend. Unfortunately, the United States appears to be making the same mistakes.

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This article from the Weekly Standard almost makes me want to cry with frustration. It shows how the healthcare system generally would function in the absence of government-imposed distortions such as Medicare, Medicaid, and (especially!) the tax loophole for employer-provided insurance. Sadly, Obamacare will push the system even further in the wrong direction. And when those bad results become obvious, I can safely predict politicians will blame the free market and use the mess as an excuse for even more government intervention. This is “Mitchell’s Law”: Bad policy begets more bad policy.

On a wall inside Dr. Brian Forrest’s medical office in a suburb of Raleigh, North Carolina, is something you won’t find in most doctors’ offices, a price list… Forrest doesn’t take insurance. If he did, the prices would be far higher and not nearly as transparent. He says listing prices up front is about trying to do business in a straightforward way, “like a Jiffy Lube.” Forrest’s practice, Access Healthcare, was born out of his frustration with the bureaucratic system run by major health care providers and insurance companies. His epiphany came about 10 years ago, as he was completing his family medicine residency at Wake Forest University. “I was basically being told I needed to see 30 patients a day every day, and that’s what we had to do,” he recalls, speaking with a soft drawl. He didn’t care for that pace, preferring to spend 45 minutes to an hour with each patient. …Because he doesn’t have to file insurance forms, he only needs a single office assistant, and the low overhead allows him to charge less than other doctors. Occasionally, his charges wind up being less than just the co-pays for Medicare or private insurance. He’s negotiated deals with a lab company to reduce his patients’ costs for tests. The lab loves being paid on the spot for services rendered and allows Forrest to charge his patients $30, for example, for a prostate-cancer screening test that the company bills to an insurer at $184. “For specialists, cash in the hand is better than a bigger amount charged to insurance,” he says. He’s found other doctors happy to join in, such as a cardiologist who’s willing to give discounts of 80 to 90 percent to his patients if he’s paid cash up front. “The discovery I made was that by getting rid of administrative, bureaucratic hassles, I was able to do very well financially and at the same time have high patient satisfaction and good quality of care,” he says. Even more surprising, most of his patients are not wealthy. Half have no insurance, and another 15 percent are on Medicare. …in recent months, he’s been flooded with inquiries from fellow doctors. “Since the health care reform bill passed, you wouldn’t believe the number of doctors who have said they’ve had it and want to operate outside the system,” he says.

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