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Posts Tagged ‘Bailout’

I periodically try to explain that there’s a big difference between being pro-market and pro-business.

Simply stated, policy makers shouldn’t try to penalize businesses with taxes, mandates, and regulations.

But neither should politicians seek to subsidize businesses. That’s why I’m against bailouts, subsidies, and other distortions that provide special favors for politically connected companies.

I have nothing against companies earning money, to be sure, but I want them to earn their profits in the marketplace rather than lining their pockets by using the coercive power of government to rig the rules of the game.

But I don’t just have disdain for companies that stick their snouts in the public trough. I also have little regard for the politicians that enable this sordid type of business by trading campaign cash for corporate welfare.

I realize that’s a strong assertion, but I can’t think of any legitimate reason to support handouts for big companies. And I get especially angry when giveaways are facilitated by politicians who claim to support free markets.

Let’s look at two examples, the Export-Import Bank and the Obamacare bailout for big insurance corporations.

I’ve previously argued that the Export-Import Bank is a squalid example of corruption and I’ve shared a video that explains why it’s economically foolish to subsidize a handful of big exporters.

To augment those arguments, here’s some of what Professor Jeffrey Dorfman of the University Georgia recently wrote in a column for Real Clear Markets. He correctly warns that certain GOP politicians are to blame if the Export-Import Bank stays alive.

The Export-Import Bank is everything that Republicans should stand against. It is crony capitalism at its worst. It is corporate welfare, taxing American families to boost corporate profits. It ever forces firms to potentially subsidize a competitor. There is simply no need for this government agency. Republicans in Congress should make a stand and show voters that Republicans believe in free markets and small government, even if some big businesses complain. The Ex-Im Bank should not be reauthorized. …Over the last decade or so, the Democrats have increasingly become the party of big business, stealing that crown away from Republicans because of the Democrats’ willingness to engage in crony capitalism and actively pick winners and losers in our economy. While Republicans are still thought of as the pro-business party, and other actions by the Democrats are clearly anti-business (Obamacare, environmental over-regulation), large multinational corporations like Boeing and GE have donated money to Democrats and generally profited from their political alliances with them. If Republicans want to make gains among (lower) middle-class voters, one of the things that could help is to convince voters that they are on the side of the people and not big corporations. The Ex-Im Bank reauthorization is a perfect opportunity to do just that. …Income redistribution is wrong especially when the money is going to big and profitable companies.

Ryan Ellis of Americans for Tax Reform agrees. Writing for Forbes, he looks at both the policy and politics of Export-Import Bank handouts.

The ExIm bank is an export subsidy program, giving money to certain companies…in the hopes that gives them a leg up in international trade.  It’s been criticized for decades by free traders and those who simply oppose corporate welfare spending out of Washington. …the ExIm bank will sunset on its own on September 30th.  All Congress has to do is let nature take its course, and this corporate welfare program simply goes away forever.

Sounds like we should have a guaranteed victory from free markets over intervention, right?

Don’t count your chickens before they hatch.  Ryan explains that Republicans may shoot themselves in the foot by trying to rescue this reprehensible example of cronyism.

Charging in at the last minute to save ExIm only makes the House GOP look beholden to K Street.  It also looks like they are flip-flopping from where they were back in the summer.  …ExIm reauthorization…is likely to take a GOP grassroots focused on President Obama’s failures and full of midterm election intensity, and turn them inward toward criticism of the House GOP leadership instead. If things go badly with this CR gambit, the House GOP will have given themselves a self inflicted wound just as they are trying to get out of town and not screw up what should be a good year for their candidates.

How nauseating.

I realize that the Export-Import Bank is a relatively minor issue and that I should mostly care about whether politicians do the right think on big topics such as entitlement reform. After all, that’s what really counts if we want to avoid fiscal catastrophe.

But I can’t stop myself from foaming at the mouth when self-proclaimed supporters of free markets undermine the argument for economic liberty with cronyist deals.

Obamacare is another example of big business being against free markets. We already know that the big pharmaceutical firms cut a special deal with the Obama White House.

The big insurance companies also had their snouts in the trough. Not only did they get legislation that mandated the purchase of their products, but they also got language that provides bailouts if they aren’t able to profit from Obamacare.

What’s really amazing, though, is that some Republicans are willing to go along with Obamacare bailouts for those major companies.

The good news is that Florida Senator Marco Rubio is in the right side. Here’s some of what he wrote about bailouts for health insurance companies for Fox News.

 …section 1342 of the ObamaCare law…established so-called “risk corridors”. According to this provision, taxpayers will make up the difference for health insurance companies whose plans lose money under ObamaCare. Last November, as it became clearer what this section of the law actually meant, I introduced legislation repealing it and protecting taxpayers from being forced to cover insurers’ ObamaCare losses. …In recent weeks, the public has learned that senior White House officials have been working closely with insurers behind the scenes to make sure that their earlier bailout deal, which helped assure ObamaCare’s passage in 2010, would stand and that a taxpayer-funded bailout was still, in fact, on the table. …On this ObamaCare bailout, as with so many issues, Washington politicians are misleading average Americans and planning to stick them with the bill. This is government favoritism and corporate cronyism at its worst. …It’s time to repeal and replace it, but at the very least, we should make it the law of the land that health insurers won’t be bailed out by taxpayers.

I’ll also add a moral argument.

As far as I’m concerned, I want the health insurance companies to suffer major losses. I want the business community to see that it’s a mistake to get in bed with big government.

Though I guess I’m actually making a practical argument. I may be motivated by morality, but the companies hopefully will do a cost-benefit analysis and decide that it’s too risky to strike deals with the political class.

By the way, Republicans often do the wrong thing because they’re afraid that voters favor the statist agenda of dependency.

But that’s not the case for Obamacare bailouts for health insurances companies. Here’s some polling data on the issue that showed up on my Twitter feed.

Let’s close by sharing some of what the editors at National Review wrote about both the Obamacare bailout and Export-Import Bank subsidies.

Congressional Republicans keep saying they oppose Obamacare. Yet they’re refusing to take the simplest and easiest action against it. …Some Republicans say that the insurance companies should not be penalized for the defects of the law. Why not? They have freely chosen to participate in the exchanges, and they should bear the risks of that decision — which include the risk that Congress might decide not to shovel tax dollars at them. The alternative, after all, is to punish taxpayers. …The debate over the Export-Import Bank is one test of Republican sincerity about ending corporate welfare. These taxpayer subsidies are another: If Republicans can’t take on corporate welfare when doing so advances one of their party’s most popular and basic commitments, when will they?

Amen. Both of these issues are tests for the GOP.

Actually, they should get added to a long list of issues that tell us whether Republicans have any sincerity (or brains) in the fight against statism.

o No tax increases, since more money for Washington will encourage a bigger burden of government and undermine prosperity.

o To stop bailouts for Europe’s decrepit welfare states, no more money for the International Monetary Fund.

o Reform the biased number-crunching methodology at the Congressional Budget Office and Joint Committee on Taxation.

o No more money from American taxpayers to subsidize the left-wing bureaucrats at the Paris-based Organization for Economic Cooperation and Development.

P.S. If you’re in the mood for some dark humor, here’s the federal government’s satirical bailout application form.

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I thought TARP was the sleaziest-ever example of cronyism and corruption in Washington.

The Wall Street bailout rewarded politically well-connected companies, encouraged moral hazard, and ripped off taxpayers. Heck, it was so bad that it makes the sleaze at the Export-Import Bank seem almost angelic by comparison.

But I may have to reassess my views.

One of the provisions of Obamacare allows the White House to give bailouts to big health insurance companies. You’re probably wondering why these big firms would need bailouts. After all, didn’t Obamacare coerce millions of people into becoming involuntary customers of these companies? That should give them lots of unearned profits, right?

But here’s the catch. The President wasn’t being honest when he repeatedly promised that Obamacare would reduce premiums for health insurance. And since the Democrats don’t want consumers to get angry about rising costs (particularly before the 2014 elections), they want health insurance companies to under-charge.

Avik Roy of Forbes explains in greater detail how the White House is coercing health insurance companies to limit premium increases before the mid-term elections. Here are some excerpts.

Hidden in the midst of a 436 page regulatory update, and written in pure bureaucratese, the Department of Health and Human Services asked that insurance companies limit the looming premium increases for 2015 health plans. But don’t worry, HHS hinted: we’ll bail you out on the taxpayer’s dime if you lose money. …The White House is playing politics with Americans’ health care—and they’re bribing health insurance companies to play along. The administration’s intention is clear: Salvage the 2014 midterm elections. …Technically, the regulations don’t force health insurance companies to tamp down their premium spikes. But the White House isn’t asking nicely. …Under Obamacare, insurers are so heavily regulated that they have to play nice with the bureaucrats who call the shots. …If insurance companies don’t give in, regulators have powerful ways to make life hard for them. A shrewd CEO doesn’t need to look far to see what might happen if his company opts out.

But before you feel sorry for Big Insurance, remember that these corrupt companies supported Obamacare and fully expect to get bailed out by taxpayers. Here are some blurbs from an article last month in the Weekly Standard.

Most Americans don’t think it’s their job to bail out insurance companies who lose money under Obamacare, but that’s exactly what’s poised to happen. Obamacare’s risk-corridor program — which President Obama has been using as a slush fund to placate his insurance allies and keep them quiet about his lawlessness — shifts financial risk from insurers to taxpayers. According to the House Oversight Committee, health insurers expect Obamacare’s risk corridors to net them nearly $1 billion, at taxpayer expense, this year alone. …It was a win-win that would boost Obamacare in its early days — to the benefit of those who’ve gained extraordinary power at the expense of Americans’ liberty, and of those whose product has become mandatory for Americans to purchase.

In other words, we have a stereotypical example of Mitchell’s Law. Government screws up something, and then uses that mess as an excuse to impose more bad policy!

This Lisa Benson cartoon is a perfect summary of what’s happening.

P.S. If you’re in the mood for some dark humor, here’s the federal government’s satirical bailout application form.

P.P.S. Switching to a different topic, it’s time for me to rectify a mistake. When I first created the Moocher Hall of Fame last year, I didn’t include the “Octo-moocher” as a charter member. After all, having 14 kids while living on the dole didn’t seem particularly noteworthy.

But now we’ve discovered that she could afford her kids. She just wanted other people to pick up the tab.

Octomom Nadya Suleman pleaded no contest Monday to a single count of misdemeanor welfare fraud for failing to disclose income she was receiving from videos and personal appearances while collecting more than $26,000 in public assistance funds to care for her 14 children.

This may not be as impressive as the deadbeat who got handouts while living on a $1.2 million yacht, but still worthy of membership.

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When you support limited government and individual freedom, you don’t enjoy many victories. Particularly if you’re relying on the U.S. Senate.

But it occasionally happens.

The Senate held firm and stopped Obama from getting a fiscal cliff tax hike at the end of 2010.

The Senate overwhelmingly voted against a VAT.

The Senate unanimously rejected a Greek bailout.

To be sure, some of these votes were merely window dressing, but it’s still better to have symbolic victories rather than symbolic defeats.

Today, however, I want to report on a real victory against statism. The Senate Majority Leader, Harry Reid, has been forced to give up on his effort to ram through an expansion of IMF bailout authority as part of legislation giving money to Ukraine.

This is the second time that this White House initiative has been blocked.

Here are some blurbs from a report in Politico.

Senate Majority Leader Harry Reid will drop a provision to reform the International Monetary Fund from a bill to help Ukraine… Reid acknowledged that while the Ukraine package would likely have passed the Senate, it was “headed to nowhere” in the GOP-led House. …the administration did not hide its disappointment Tuesday afternoon over the removal of the IMF language. “We are deeply disappointed by the news that Republican opposition has forced the Senate to remove the [IMF] reforms from the Ukraine assistance package,” said Treasury Department spokeswoman Holly Shulman. …Backers of including the IMF reforms in the Ukraine deal note that it will help boost the organization’s lending capacity. …The United States is the lone holdout country that has not ratified the IMF deal, which was struck more than three years ago. But many congressional Republicans have raised concerns about potential taxpayer risk with the IMF agreement.

It goes without saying that the IMF won’t give up, and the Obama Administration is still pushing to expand the international bureaucracy’s bailout authority.

The battle will continue. Lew and ObamaIn preparation for the next skirmish, Desmond Lachmann at AEI debunks the White House’s empty talking points.

Next week, Treasury Secretary Jack Lew will make his case before the House Financial Service Committee for linking IMF reform to U.S. bilateral aid for Ukraine. If the past is any guide, he will do so by putting forward a set of disingenuous arguments in favor of his case. …The principal argument that Secretary Lew must be expected to make is that IMF quota reform is essential for large-scale IMF Ukrainian financial support. This argument glosses over the fact that under the IMF’s lending policy under “exceptional circumstances”, which has been resorted to on many occasions since the 1994 Mexican tequila crisis, the amount that the IMF can lend a country bears little relation to the size of that country’s IMF quota.  …Ukraine is reportedly currently seeking around a U.S. $15 billion IMF economic adjustment loan. If Mr. Lew were to be candid, he would inform Congress that such an amount represents only around 800 percent of Ukraine’s present IMF quota or less than half the amount of quota that the IMF recently committed to several countries in the European economic periphery. He would also inform Congress that the IMF presently has more than U.S. $400 billion in uncommitted loanable resources. This would make the IMF’s prospective loan to Ukraine but a drop in the IMF’s large bucket of available resources even without IMF reform.

Lachmann goes on to make additional points, including the fact that IMF bailouts create very real financial risks for American taxpayers.

The U.S. Treasury never tires of assuring Congress that large-scale IMF lending poses no risk to the US taxpayer. It bases its argument on the fact that the IMF enjoys preferred creditor status and that to date no major country has defaulted on its IMF loans. However, the Treasury conveniently glosses over the fact that IMF loan repayment experience with past IMF lending on a small scale might not be a good guide to what might happen on IMF loans of an unprecedentedly large scale. To understand that there now might be a real risk to the US taxpayer from IMF lending, one only need reflect on the IMF’s current Greek lending experience. Greece’s public debt is now mainly officially owned and it amounts to over 175 percent of GDP. It is far from clear that the European Central Bank will go along with the idea that the IMF enjoys senior status over the ECB in terms of Greece’s loan repayments.

His point about risks to taxpayers is right on the mark. In effect, the IMF is like Fannie Mae and Freddie Mac. For years, defenders of intervention in the housing market argued those government-created entities didn’t cost a penny. Then they suddenly cost a lot.

The same will happen with the IMF.

Lachmann closes by asking the right question, which is whether there’s any reason to expand the IMF’s authority.

I think that’s the real issue. And to answers that question, let’s go to Mark Hendrickson’s column in Forbes.

He starts by noting that the IMF has “re-invented” itself to justify its existence, even though it supposedly was created for a world – which no longer exists – of fixed exchange rates.

Bureaucracies are masters of mission creep. They constantly reinvent themselves, cleverly finding ways to expand in size, scope, power, and budget. The IMF has perfected this art, having evolved from its original purpose of trying to facilitate orderly currency exchange rates as countries recovered from World War II to morphing into a global busybody that makes loans—with significant strings attached—to bankrupt governments.

And what do we get in exchange for being the biggest backer of IMF bailouts?

What has the American taxpayer received in return for billions of dollars siphoned through the IMF to deadbeat governments? Nothing but ill will from abroad. First, the IMF’s policy of lending millions, or billions, to fiscally mismanaged governments is counterproductive: Such bailouts help to prop up inept and/or corrupt governments. Second, bailouts create moral hazard, inducing private corporations and banks to lend funds to poor credit risks, confident that IMF funds will make them whole. Third, typical IMF rescue packages demand…higher taxes in the name of balancing the budget.

It would be far better, Professor Hendrickson explains, if reckless governments had to immediately accept the market’s judgement whenever they overspent.

…it doesn’t take expert economists to figure out when a government is overspending. Markets will discipline spendthrift governments by ceasing to make funds available to them until they institute needed reforms. Without a bailout fairy like the IMF, government leaders will quickly learn that if they wish the government to remain viable, they must spend within available means. By telling governments what they “have” to do when it’s obvious they need to make those reforms anyhow, the IMF gives the recipient government a convenient scapegoat. It blames the pain of austerity on meddlesome foreigners, and since the U.S. is perceived as the real power in the IMF, we get painted as the bad guys. The bottom line: IMF use of our tax dollars buys us a ton of resentment from abroad.

He also points out that the IMF makes a habit of suggesting bad policy – even for the United States.

the IMF has waged war against American taxpayers and workers. Last October, the IMF released a paper suggesting both higher tax rates (mentioning a “revenue-maximizing” top marginal tax rate of around 60 percent) and possibly the confiscation of a sizable percentage of private assets to restore fiscal balance to the federal government. The IMF also has been one of the leading forces discouraging “tax competition” between countries. …It is using American tax dollars to lobby the American government to increase the flow of tax dollars from our Treasury to the IMF. We shouldn’t be surprised, then, that the IMF released a report on March 13 warning of the perils of “income inequality,” and suggesting tax increases and wealth redistribution as ways by which Uncle Sam might address the problem.

So what’s the bottom line?

If the IMF really wanted to improve the economic prospects of the world’s people, it would recommend reductions in government spending and taxation. Indeed, the overwhelming evidence is that vigorous economic growth is highly correlated with a country’s government shrinking as a share of GDP. What are the chances that the IMF will ever advocate such policies? Not very, as we realize that the IMF’s very existence depends on government taxes. …In a better world, there wouldn’t be an IMF. For the present, though, the best we can hope for is for enough members of Congress to understand that the IMF’s interests are opposed to those of the American people and to refuse any requests that the IMF makes for increased funding.

The Wall Street Journal is more measured in its rhetoric, but it basically comes to the same conclusion.

Republicans are reluctant to grant more leverage to European countries, which they blame for relaxing rules on Greece’s bailout in order to rescue the continent’s banks. …An internal audit last week also found that the fund’s growth forecasts were “optimistic” for countries like Greece and Ukraine that were granted larger loans under its “exceptional access” framework. Republicans fear the IMF is becoming a discount borrowing window for spendthrift governments trying to postpone reforms. IMF economic advice is often lousy—raise taxes and devalue… Congress ought to debate whether the IMF has outlived its usefulness as it evolves from a tool for Western interests into a global check-writing bureaucracy.

Amen. Which is why the United States should shut the Treasury door to the IMF. If other nations want to subsidize bad policy and promote bigger government, they can do it with their own money.

P.S. Here’s a list of other IMF transgressions against good public policy (all partially backed by American taxpayers).

Endorsing government cartels to boost tax and regulatory burdens.

Trying to undermine flat tax systems in Albania and Latvia.

Encouraging a “collective response” to over-spending in welfare states.

Pushing for higher tax burdens in Greece.

Seeking the same destructive policy in Cyprus.

Advocating for more centralization and bureaucratic rule in Europe.

Urging higher taxes in El Salvador.

Supporting “eurobonds” so that taxpayers from other nations can subsidize the profligacy of welfare states such as Greece, Italy, and Spain.

Pushing an energy tax that would mean $5,500 of added expense for the average American household.

Reflexively endorsing every possible tax increase.

Aiding and abetting Obama’s “inequality” agenda with disingenuous research.

And remember, these pampered bureaucrats get lavishly compensated and don’t have to pay tax on their bloated salaries.

P.P.S. But let’s be fair to the IMF. The bureaucrats have given us – albeit unintentionally – some very good evidence against the value-added tax.

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Welcome Instapundit readers. To augment the depressing and worrisome message in this post, I suggest you read this article showing how we can restore market forces to our government-dictated healthcare system.

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I hate to dredge up bad memories so early in a new year, but we need to remind ourselves of the awful TARP bailout of 2008.

Our financial system had gone out of whack because of bad monetary policy from the Federal Reserve and unsustainable housing subsidies from Fannie Mae and Freddie Mac.

Some financial institutions gambled on the government’s misguided policies and got caught with their pants down when the bubble burst.

But rather than let those companies fail and use the sensible and non-corrupt “FDIC resolution” method to recapitalize the banking system, we got a taxpayer-to-Wall-Street bailout.

Or, from the perspective of the big banks, they got a very good return on their campaign contributions (read Kevin Williamson if you want to get upset about this disgusting form of cronyism).

Well, as Yogi Berra might say, it’s deja vu all over again.

Except now the fat cats lining up at the Treasury door are the big health insurance corporate titans. They got in bed with the White House to push Obamacare and now they’re worried about losing money now that it’s becoming more apparent that the American version of government-run healthcare doesn’t work any better than the British version.

Charles Krauthammer warns us about what may happen in his Washington Post column.

…there’s a Plan B. It’s a government bailout. Administration officials can’t say it for political reasons. And they don’t have to say it because it’s already in the Affordable Care Act, buried deep. First, Section 1341, the “reinsurance” fund collected from insurers and self-insuring employers at a nifty $63 a head. (Who do you think the cost is passed on to?) This yields about $20 billion over three years to cover losses. Then there is Section 1342, the “risk corridor” provision that mandates a major taxpayer payout covering up to 80 percent of insurance-company losses.

At this point, you may be wondering why there’s bailout language buried in the Obamacare legislation.

The simple answer is that politicians always love to accumulate power, and the insurance industry probably lobbied very hard to get this back-door access to our money.

But maybe the White House knew that Obamacare would be unstable and they needed a bailout option to keep the system from totally unraveling. Particularly when it seems that the Obama Administration is arbitrarily changing the system every other day.

First, it postponed the employer mandate. Then it exempted from the individual mandate people whose policies were canceled (by Obamacare). And for those who did join the exchanges, Health and Human Services Secretary Kathleen Sebeliusis “strongly encouraging” insurers — during the “transition” — to cover doctors and drugs not included in their clients’ plans. The insurers were stunned. Told to give free coverage. Deprived of their best customers. Forced to offer stripped-down “catastrophic” plans to people age 30 and over (contrary to the law). These dictates, complained an insurance industry spokesman, could“destabilize” the insurance market.

So what does all this mean? It’s not good news for Big Insurance.

Shrinking revenues and rising costs could bring on the “death spiral” — an unbalanced patient pool forcing huge premium increases (to restore revenue) that would further unbalance the patient pool as the young and healthy drop out. End result? Insolvency — before which the insurance companies will pull out of Obamacare. Solution? A huge government bailout. It’s Obamacare’s escape hatch. And — surprise, surprise — it’s already baked into the law.

This sounds depressing, but Krauthammer suggests that there could be a way of derailing a bailout before it begins.

…the GOP needs to act. Obamacare is a Rube Goldberg machine with hundreds of moving parts. Without viable insurance companies doing the work, it falls apart. No bailout, no Obamacare. Such a bill would be overwhelmingly popular because Americans hate fat-cat bailouts of any kind. Why should their tax dollars be spent not only saving giant insurers but also rescuing this unworkable, unbalanced, unstable, unpopular money-pit of a health-care scheme? …Do you really think vulnerable Democrats up for reelection will vote for a bailout? And who better to slay Obamacare than a Democratic Senate — liberalism repudiating its most important creation of the last 50 years. Want to be even bolder? Attach the anti-bailout bill to the debt ceiling. That and nothing else. Dare the president to stand up and say: “I’m willing to let the country default in order to preserve a massive bailout for insurance companies.” …Who can argue with no bailout? Let the Senate Democrats decide: Support the bailout and lose the Senate. Or oppose the bailout and bury Obamacare.

I hope his political judgement is correct, though I suspect the statists (and their echo chamber in the media) would portray any effort to amend the debt limit as a sore-loser attack on Obamacare.

But if it’s a simple no-bailout message, perhaps that would be sufficiently popular to overcome the political establishment. As Krauthammer points out, the legislation could be very simple: “Sections 1341 and 1342 of the Affordable Care Act are hereby repealed.”

Let’s close today’s post with some good Obamacare cartoons. We’ll start with Eric Allie’s amusing look at how the White House is measuring success.

Obamacare Cartoon Jan 2014 1

Nice gimmick, huh? You pass a law that destroys people’s existing insurance policies, then you claim victory when some of them sign up for more expensive Obamacare insurance.

Next we have Nate Beeler welcoming the new year.

Obamacare Cartoon Jan 2014 2

Chip Bok’s cartoon is somewhat optimistic in that he’s suggesting that Obamacare may unravel.

Obamacare Cartoon Jan 2014 3

And Gary Varvel mocks the moving goalposts of Obamacare.

Obamacare Cartoon Jan 2014 4

Lisa Benson congratulates the President for winning Politifact’s Lie of the Year Award.

Obamacare cartoon Jan 2014 5

Michael Ramirez hints that the President may not be in a position to enjoy his multi-million dollar Hawaiian vacation.

Obamacare Cartoon Jan 2014 6

Last but not least, Scott Stantis warns us that Obamacare violates the Hippocratic Oath about doing no harm.

Obamacare Cartoon Jan 2014 7

P.S. Under no circumstances should you feel sorry for the insurance companies. As I noted the other day, they endorsed Obamacare and actively lobbied for its passage. They deserve every bad thing that might happen to them.

P.P.S. It’s hard to find much humor in this situation, but perhaps this funny “bailout application” could be updated to make it easier for big insurance companies to rape and pillage taxpayers.

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At the beginning of the year, I was asked whether Europe’s fiscal crisis was over. Showing deep thought and characteristic maturity, my response was “HAHAHAHAHAHAHAHAHA, are you ;@($&^#’% kidding me?”

But I then shared specific reasons for pessimism, including the fact that many European nations had the wrong response to the fiscal crisis. With a few exceptions (such as the Baltic nations), European governments used the crisis to impose big tax hikes, including higher income tax rates and harsher VAT rates.

Combined with the fact that Europe’s demographic outlook is rather grim, you can understand why I’m not brimming with hope for the continent. And I’ve shared specific dismal data for nations such as Portugal, France, Greece, Italy, Poland, Spain, Ireland, and the United Kingdom.

But one thing I’ve largely overlooked is the degree to which the European Central Bank may be creating an unsustainable bubble in Europe’s financial markets. I warned about using bad monetary policy to subsidize bad fiscal policy, but only once in 2011 and once in 2012.

Check out this entertaining – but worrisome – video from David McWilliams and you’ll understand why this issue demands more attention.

I’ve openly argued that the euro is not the reason that many European nations got in trouble, but it appears that Europe’s political elite may be using the euro to make a bad situation even worse.

And to add insult to injury, the narrator is probably right that we’ll get the wrong outcome when this house of cards comes tumbling down. Instead of decentralization and smaller government, we’ll get an expanded layer of government at the European level.

Or, as I call it, Germany’s dark vision for Europe.

That’s Mitchell’s Law on steroids.

P.S. Here’s a video on the five lessons America should learn from the European crisis.

P.P.S. On a lighter note, the mess in Europe has generated some amusing videos (here, here, and here), as well as a very funny set of maps.

P.P.P.S. If all this sounds familiar, that may be because the Federal Reserve in the United States could be making the same mistakes as the European Central Bank. I don’t pretend to know when and how the Fed’s easy-money policy will turn out, but I’m not overly optimistic about the final outcome. As Thomas Sowell has sagely observed, “We all make mistakes. But we don’t all have the enormous and growing power of the Federal Reserve System… In the hundred years before there was a Federal Reserve System, inflation was less than half of what it became in the hundred years after the Fed was founded.”

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As illustrated by this chart, economists are lousy forecasters.

To be more specific, economists are no better than fortune tellers when trying to make short-run macroeconomic forecasts. Heck, if we actually knew what was going to happen over the next 12 months, we’d all be billionaires.

But we can (on occasion) make sensible predictions about the long-run impact of various government policies. All other things being equal, for instance, it’s safe to say that countries with bigger governments will grow slower than nations that don’t divert as many resources from the private sector. Even the World Bank and European Central Bank agree with that common-sense proposition.

Another can’t-fail prediction is that bailouts will reward bad behavior and lead to dependency. That’s why I’m not at all surprised by the news that Greece will get another bailout.Greek Bailout 1 Indeed, if there was a least-surprising-headline contest, it would go to the EU Observer for this headline.

A third bailout? You mean the first two didn’t work? I’m shocked! Which is why we need to change to a least-surprising-headlines contest, Greek Bailout 2because we also have this headline from City AM.

And this one from the UK-based Times. Which they may want to save for when it’s time for the fourth bailout. Greek Bailout 3And the fifth bailout. And…well, you get the idea.

Makes you wonder why the Germans (and the Dutch, Finns, Swedes, etc) keep subsidizing bad behavior elsewhere. Greek Bailout 4Yet these people apparently don’t care about moral hazard, so we see this headline from the Telegraph.

Last but not least, here’s what the BBC wrote. Greek Bailout 5

Given all these headlines from today, you can see why I felt safe in predicting a couple of days ago for Canadian TV that Europe was still in bad shape. Simply stated, government is far too big and costs far too much.

Yes, there are a few bright spots, such as Switzerland and the Baltic nations, but the fiscal debate in Europe is mostly between those who want higher taxes and those who want higher spending.

With that kind of contest, there are no winners other than politicians.

P.S. The ostensible purpose of the interview was to discuss Europe’s supposed recovery. I explained a few days ago why nobody should be impressed by the anemic growth on the other side of the Atlantic. But I think any changes in short-run economic performance – for better or worse – are far less important than the long-run projections of expanding government and growing dependency in Europe.

P.P.S. Americans shouldn’t feel cocky or superior. Long-run projections from the BIS, OECD, and IMF all show that the United States will be in deep trouble if we don’t engage in genuine entitlement reform.

P.P.P.S. Since I was talking to a Canadian audience, I mentioned that Europe should copy the spending restraint Canada enjoyed in the 1990s. You can click here to learn more about happened north of the border (and why the United States also should copy the same policy).

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In an interview last week about Detroit’s bankruptcy, I explained that the city got in trouble because of growing dependency and an ever-rising burden of government spending.

I also warned that the federal government faces the same challenge. Washington is in trouble mostly because of poorly designed entitlement programs rather than excessive compensation for a bloated bureaucracy, but the end result is the same. Or, to be more accurate, the end result will be the same in the absence of genuine entitlement reform.

As I said in the interview, fiscal crisis was “the most predictable crisis in the world for Detroit [and] it’s the most predictable crisis for America.”

The Washington Examiner has the same assessment. Here’s how they conclude a recent editorial.

More than anywhere else in America (with the possible exception of Chicago) Detroit has been a one-party union city. Democratic politicians backed by the United Auto Workers and public employees unions have ruled virtually as they pleased. Along the way, many of the politicians ended up in jail on corruption charges and the bureaucrats made out with sweetheart deals on pensions and health benefits. Those sweetheart deals now account for most of the $20 billion in debt that put the city into bankruptcy. There are too many disturbing parallels between Detroit and America. The national debt of $17 trillion gets a lot of attention, but the reality is the government’s actual debt, counting the unfunded liabilities of Social Security, Medicare and federal employee and retiree benefits, exceeds $86 trillion, according to former congressmen Chris Cox and Bill Archer. As they say, things that can’t go on forever, won’t.

I used to warn that America was on a path to becoming Greece, but maybe now I should use Detroit as an example.

Some of America’s best political cartoonists already are using this theme.

Here’s one from Glenn McCoy. Since I’m not overly optimist about either Illinois or California, I also think it’s just a matter of time before this happens.

Detroit Cartoon 1

Keep in mind, however, that there was plenty of wasteful spending in both Illinois and California under Republican governors, so this is a bipartisan problem.

Speaking of California, here’s a good cartoon by Lisa Benson.

Detroit Cartoon 2

Amazingly, some people think California’s no longer in trouble because a retroactive tax hike collected more tax revenue. Yeah, good luck with that.

Next we have a cartoon by Rob Rogers of the Pittsburgh Post-Gazette.

Detroit Cartoon 3

And last but not least, Eric Allie weighs in with a cartoon comparing Texas and Detroit.

Detroit Cartoon 4

On a serious note, it would be interesting to see how Detroit looks compared to cities in Texas, such as Dallas and Houston.

But let’s end with something that’s really hilarious, albeit by accident rather than on purpose.

A few people want to enable Detroit’s profligacy. Here are some excerpts from a story in The Hill about union bosses wanting a federal-state bailout of Detroit.

Union leaders are calling on Congress and President Obama to provide a federal bailout to the city of Detroit. The executive council of the AFL-CIO, the nation’s largest labor federation, called for an “immediate infusion of federal assistance for Detroit” to be matched by Michigan, which they say has not done enough to keep the city from going through bankruptcy. …“It appears that Governor [Rick] Snyder and [Emergency Financial Manager] Kevyn Orr are pushing Detroit into bankruptcy to gut the modest benefits received by Detroit’s retired public service employees,” the AFL-CIO’s statement reads.

I suppose I could make some snarky comments, but I’ll close with two vaguely sympathetic responses.

First, there’s no way a bailout of Detroit goes through the House of Representatives. Heck, I don’t even think it could make it through the Senate. So some folks on the left would be justified if they asked why the high rollers on Wall Street supposedly deserved a bailout a few years ago but they don’t get one today.

The answer, of course, is discrimination by color. But I’m not talking black vs white. The color that matters in politics is green. The financial industry dispenses huge campaign contributions to both sides of the aisle, and the bailout was their payoff. Public employee unions, by contrast, give almost every penny of their money to Democrats, so there’s no incentive for GOPers to do the wrong thing.

Second, I have no idea whether retired bureaucrats in Detroit get “modest benefits.” I’m skeptical for very obvious reasons, but the real problem is that the city screwed up by having too many people riding in the wagon without paying attention to whether there were enough people producing in the private sector to pull the wagon.

Is that the fault of the garbage men, clerks, secretaries, and other municipal employees? That’s a hard question to answer. They obviously weren’t calling the shots, but they were happy to go along for the ride.

At some point, they should have paid attention to the message in this Chuck Asay cartoon.

P.S. For readers in New Jersey (and also New York City), I’ll be speaking this Wednesday, July 31, at the Friedman Day luncheon sponsored by Americans for Prosperity.

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