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Archive for April, 2011

George Soros participated in a forum on Hayek at the Cato Institute this past week, and the really fascinating part is watching him cross swords with University of Chicago Law Professor Richard Epstein.

The video is more than one-hour long, so if you just want to see Soros and Epstein, you can skip forward to about the 16:00 mark.

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I just read something that unleashed my inner teenager, because I want to respond with a combination of OMG, LMAO, and WTF.

Donald Berwick, the person appointed by Obama to be in charge of Medicare, has a column in the Wall Street Journal that makes a very good observation about how relative prices are falling for products bought and sold in the free market. But he then draws exactly the wrong conclusion by asserting that further crippling market forces for healthcare will yield similar cost savings for programs such as Medicare.

Here’s the relevant passage from his Wall Street Journal column.

The right way is to help bring costs down by making care better and improving our health-care system. Improving quality while reducing costs is a strategy that’s had major success in other fields. Computers, cars, TVs and telephones today do more than they ever have, and the cost of these products has consistently dropped. The companies that make computers and microwaves didn’t get there by cutting what they offer: They achieved success by making their products better and more efficient. …Under President Obama’s framework, we will hold down Medicare cost growth, improve the quality of care for seniors, and save an additional $340 billion for taxpayers in the next decade.

I have no idea whether Berwick realizes that he has inverted reality, so I can’t decide whether he is cynically dishonest or hopelessly clueless. All I can say with certainty is that what he wrote is sort of like asserting “gravity causes things to fall, so therefore this rock will rise when I let go of it.”

To explain, let’s start by looking at why relative prices are falling for computers, cars, TVs and telephones. This isn’t because the companies that make these products are motivated by selflessness. Like all producers, they would love to charge high prices and get enormous profits. But because they must compete for consumers who are very careful about getting the most value for their money, the only way companies can earn profits is to be more and more efficient so they can charge low prices.

So why isn’t this happening in health care? The answer, at least in part, is that consumers aren’t spending their own money so they don’t really care how much things cost. As this chart illustrates (click to enlarge), only 12 percent of every healthcare dollar is paid directly by consumers. The rest comes from third-party payers, mostly government but also insurance companies.

In other words, Berwick’s column accidentally teaches us an important lesson. When consumers are in charge and responsible for paying their own bills, markets are very efficient and costs come down. But when government policies cause third-party payer, consumers have little if any incentive to spend money wisely – leading to high costs and inefficiency.

Defenders of the status quo argue that the market for healthcare somehow is different than the market for things such as computers. But here’s a chart (click to enlarge) showing that relative prices are falling in one of the few areas of the healthcare system where consumers spend their own money. And I’ve previously noted that the same thing applies with abortion, where prices have been remarkably stable for decades. Regardless of one’s views on the procedure, it does show that costs don’t rise when people spend their own money.

That’s common sense and basic economics. But it’s not a good description of Obama’s healthcare plan, which is explicitly designed to increase the share of medical care financed by third-party payer.

The White House presumably would argue that price controls will help control costs. And the President’s Independent Payment Advisory Board (a.k.a., the death panel) will have enormous power to directly or indirectly restrict care, but that’s probably not too comforting for the elderly and others with high healthcare expenses.

The right approach, needless to say, would be to restore market forces to healthcare, which is the core message of this video narrated by Eline van den Broek of the Netherlands.

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Both President Reagan and President Obama had to deal with serious economic dislocation upon taking office.

But they used radically different approaches to deal with the problems they inherited. Reagan sought to reduce the burden of government, whereas Obama viewed government as an engine of growth.

So who had the right approach? This image, taken from an op-ed in today’s Wall Street Journal,  shows  quarterly economic growth (adjusted for inflation) for the seven quarters after the recession ended.

At the risk of sounding unscientific, Reagan mops the floor with Obama. Growth was much more robust under Reaganomics. The policy of Obamanomics, by contrast, is associated with sluggish economic performance. (Indeed, see this post, based on Minneapolis Fed data, for an even starker comparison.)

Most worrisome, the weak growth over the past seven quarters means the economy has not recovered the lost output caused by the recession. This is in contrast to past downturns, where a temporary fall in output was offset by a period of rapid growth when the recession ended. And since there’s no reason to expect a sudden boom now, this means a permanent loss of income for the American people.

To be sure, we have no idea what would have happened in the early 1980s without Reaganomics, just like we have no idea what would have happened the past few years if America had taken a different approach.

But when theory and evidence both point in a certain direction, perhaps it’s a good idea to at least consider the possibility that small government is better for prosperity than big government.

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Why do some people instinctively despise wealth and want to tear down those who are successful? This question has been percolating in my mind because I am in Monaco to speak to the IXth international conference of the Convention of Independent Financial Advisors.

This tiny principality is an amazingly prosperous place, easily the richest jurisdiction on the planet according to World Bank data. And it oozes glamor, with everything from the Grand Casino to the legacy of Princess Grace (who was breathtaking in Rear Window).

There is an incredibly high concentration of luxury cars in Monaco, and I can’t walk into my hotel without stumbling over a Rolls Royce or Ferrari. Not that this is a surprise. I’m staying at the Hermitage, a luxurious hotel where the cheap rooms cost more than $500 per night.

Thankfully, that doesn’t come out of my pocket since I’m a speaker. I did make the mistake, though, of getting a diet coke with my breakfast, not realizing that drinks weren’t included and that I would be responsible for the absurd extra charge of 7 euro (which is $10.40, so thank you, Ben Bernanke, for trashing the value of the dollar).

Anyhow, you get the picture. Let’s returns to the original question, dealing with perceptions of wealth. As I wander around Monaco, I don’t envy the wealth I see. I can imagine how nice it would be to have a lot of money, of course, but that doesn’t lead me to resent the rich people. Instead, I think about how they must have done something very productive to accumulate so much money.

Not everybody thinks this way. I was talking to a left-wing academic, who also is at the conference, and this person made a comment about all the “crooks” in Monaco. I asked for elaboration and this person asserted that the wealthy residents of Monaco were the beneficiaries of ill-gotten gains.

While I reject the blanket assertion, this person has a point. I’m sure any crowd of rich people includes some folks who got wealthy the wrong way. Maybe some of the people in Monaco were former government officials from other nations who figured out how to steal taxpayer funds. Maybe some of them benefited from special government favors such as exclusive licenses or protectionist barriers to monopolize a certain market and rip off consumers. And others may have been conventional crooks who obtained loot from things such as securities fraud.

As I pondered this issue, it got me thinking about the broader problem of left-wing hostility to wealth – a sentiment that you find even from statists who have a lot of money. Why do they feel this way?

I’m wondering whether part of the answer is that many rich leftists didn’t earn their money. Or, to be more precise, they got wealthy due to connections rather than achievement. And because of their personal experiences, they conclude that wealth in general isn’t really deserved. So why not subject rich people – including themselves – to high tax rates.

This is especially true for politicians. They tend to obtain money in ways that do not exactly fit the definition of entrepreneurship. Consider these examples:

o Barack Obama gets millions of dollars by cranking out a couple of books. Even if he wrote the books (many politicians let staffers do the work), he still must recognize that he didn’t really do anything but trade on his political status to pad his bank account. Moreover, his wife got big bucks representing Chicago hospitals, and it would require deliberate naiveté to believe her lucrative position had nothing to do with the couple’s political prominence.

o Bill Clinton’s perceptions of the free market were probably distorted by his participation in the Whitewater real estate project, which wound up being a bit of a scam. Also, Hillary Clinton raked in $100,000 as a young lawyer by trading cattle futures. Even assuming that money was legit, it would lead someone to think that wealth was a matter of luck.

I’m not trying to pick on prominent Democrats. Plenty of Republicans also cash in on their political connections. But GOPers generally don’t push for higher taxes on the “rich,” and the purpose of this post is to speculate on why rich leftists support class-warfare policies.

But let’s set aside personal stories and look at how left-wing politicians must see the world of wealth. They routinely meet with well-heeled interest groups that are looking to line their pockets because of government favoritism. One day, they hear from the fat cats from Archer Daniels Midland, who come into their office lobbying for more ethanol subsidies. The next day, they may get a visit from the executives from GM and Chrysler, who jet into town looking for more handouts. And the day after that, somebody from Wall Street may drop by seeking a bailout.

After enough exposure to such sleazeballs, we should not be too surprised that leftist politicians begin to assume that all wealth is unearned. And if it is not earned, that means the rich person does not have a moral claim on the money. So why not tax it at high rates?

So long as I am playing armchair psychologist, I will make two additional points.

First, rich people who got their money from connections and/or luck may feel a certain level of resentment toward those who got rich by producing something of value. So even if they recognize that some wealth is earned, that does not mean they will support good policy.

Second, my theory certainly does not explain everything. There are plenty of rich left wingers, such as Bill Gates and Warren Buffett, who genuinely earned their money. I have no idea how to explain their political views:

Perhaps the only thing we can safely conclude is that some rich people think the wrong way. Gee, what a brilliant insight!

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Here are several from Jay Leno. The one about Biden is the best.

  • The good news is, President Obama was born in America. The bad news is, so was Donald Trump.
  • It’s the 75th anniversary of the introduction of Social Security checks. For the younger viewers who don’t know what a Social Security check is, you’ll never see one in your lifetime, so don’t worry about it.
  • The man who invented the teleprompter has died at the age of 91. When President Obama heard the news, he was speechless.
  • A new poll shows that President Obama’s approval rating is down to 41 percent. A lot of people that voted for him now say they liked him a lot better when he was a Democrat.
  • The United States is sending its most powerful drone to Libya. That’s a long trip for Joe Biden.

Here’s a good one from Jimmy Fallon.

  • Donald Trump said he still wants to look more closely at Obama’s birth certificate to make sure that it’s real. Incidentally, President Obama said the same exact thing about Donald Trump’s hair.

Two funny quips from Jimmy Kimmel.

  • The White House Easter Egg Roll is an opportunity from kids all over the country to come to the White House and look for the president’s birth certificate.
  • Everyone knows that Santa Claus lives at the north pole, but no one cares where the Easter Bunny comes from.
  • St. Louis International Airport was hit directly by a tornado. They determined that tornadoes are no longer a danger, and now we can go back to being endangered by sleeping air traffic controllers.

And one final joke from Letterman.

  • Today was so beautiful that air traffic controllers were napping in the park.

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The first entry in this series was an Internet sensation. Now you can enjoy Part II.

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Like all sensible libertarian-minded people, I don’t think the government should be regulating pornography.

There are obvious exceptions for things like child porn, of course, and I’d even throw animal cruelty into the mix of things that can be banned.

But leave run-of-the-mill adult pornography alone. Yes, some people can take it too far and become obsessed. And I certainly can understand why a wife/girlfriend could see excessive fixation on porn as a deal-breaker in a relationship.

But those factors surely don’t require government involvement.

Now that I’ve burnished my libertarian bona fides, let me state that there is a giant difference between letting porn be legal, both for libertarian and constitutional reasons. and having the government subsidize it.

Yet that’s just what New York City is doing in its public libraries. Here’s an excerpt from a CBS report.

It’s the last thing you’d expect to find at New York City’s public libraries. But find it you will. Pornography. CBS 2’s Scott Rapoport has more on the A-B-Cs behind the XXX at the library. “It’s a little shocking,” one public library patron said. “Wow. I didn’t know that. I had no idea,” added another. Yep, electronic porn too graphic for CBS 2 to show on television is available on-line for adults — on publicly used computers at the city’s 200 library branches. …Richard Reyes-Gavilan of the Brooklyn Public Library said that’s the policy — that even pornography is protected by the first amendment and recognized as free speech.

The comment by Mr Reyes-Gavilan is a perfect example of the statist mindset. If they don’t like something, they want to ban it or heavily tax it. If they do like something, they want it to be subsidized.

Why is it so difficult for some people to accept a world where people can make their own decisions with their own money, so long as their not infringing on the life, liberty, and property of others?

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