The Affordable Care Act creates a new health insurance marketplace (the exchange). But because of the great uncertainty about what buyers will enter the market and who will buy what product, the law creates three vehicles to reduce insurance company risk.
Politicians and bureaucrats are notorious for manufacturing euphemisms -- clever but deceptive substitutes for what they really mean but don’t want to admit. That’s how the phrase “revenue enhancement” entered the vocabulary. Some of our courageous friends in government couldn’t bring themselves to say “tax hike.”
It’s easy to be negative about the U.S. economy these days. Find a glint of silver, and folks come running to point out all of the dark clouds looming about. This, of course, is what we got last week when the monthly jobs report was released from the U.S. Department of Labor (DOL). Folks pooh-poohed the number of jobs and whining that they’re not enough or that it’s less than a bunch of economists thought that it might be. But you know what? Stuff ’em.
Facts are easy. You can check facts. What supporters of the Affordable Care Act are doing, on the other hand, transcends factual bungling. It’s far more advanced: a warping of reality so debauched it looks like something out of a tale by H.P. Lovecraft.
The east coast and parts of the southern U.S. were to varying degrees paralyzed by blizzards a few weeks ago. The snow as expected rendered the roads treacherous, and in anticipation of slick streets, shoppers flocked to the grocery stores in advance.The rush into grocery stores, and its aftermath, offers worthwhile lessons in economics.First up, […]
The highest form of charity, argued the 12th-century Jewish philosopher Maimonides, is when the help given enables the receiver to become self-sufficient.But our systems of state charity — aka welfare — have too frequently had the opposite effect: They have actually created dependency. It is time to rethink the way we help people.I’m going to […]
Last year was quite the year for Bitcoin. We’ve seen exponential growth in Bitcoin’s exchange rate and extensive coverage in the media. Another phenomenon we have witnessed is the proliferation of alternative cryptocurrencies, five of which we’ve provided below.What all of these cryptocurrencies have in common is that they rely on a decentralized network to […]
President Obama crowed in his State of the Union speech about the economy, even mentioning “a rebounding housing market.” Maybe he was referring to friends in high places, like the seller of Penthouse One in New York, which just closed for $50.9 million, all cash. Millions of mere-mortal homeowners likely wanted to throw something at […]
The nonpartisan Congressional Budget Office is acting in a bipartisan way to cover up the biggest single threat to the bipartisan political alliance that is stripping America of its wealth: the United States Congress.There is no question that the following policy is bipartisan. Democrats and Republicans in Congress are completely agreed that the following information […]
Recent difficulties with implementing the Affordable Care Act have increased opposition to the program. A majority of Americans now oppose it. Problems with the HealthCare.gov website are in all likelihood temporary. However, there are serious long-term problems, particularly considering long-term finance and labor supply issues. Given the mounting difficulties with and growing concerns about the […]
The faces of the Detroit bankruptcy are the thousands of pensioners whose promised benefits are suddenly part of the restructure negotiation. When Motown filed for Chapter 9 last July, the city had $11.5 billion in unsecured liabilities. The vast majority of this was pension and health care benefits owed to retired city employees.The images of […]
“Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”As the inequality gap grows, there is an ideological battle unfolding in the West.On the one hand, there are those who think government can fix things. It must do more, tax more, […]
On Feb. 7 the United States will once again reach its statutory debt limit, meaning it cannot legally borrow any more money. Since the obvious option of cutting spending to match the amount of revenue that the government collects is off the table for some inexplicable reason, Congress will have to pass a new, higher […]
The New York Times published an interminable article on health care recently. Plenty of facts — how scrupulous are these journalists! — but the article displayed absolutely no comprehension of the basics of cause and effect. I was left wondering about the whole point.The article details how the health care system rewards specialists to an […]
The Largest Company in History:“The United States Corporation of Government (USCOG)”I follow global social and commercial networks, looking for entrepreneurial opportunities.Innovation surges when industry and government models change. Buggy whips. Landline phones. Railroads. The Soviet Union. Apartheid South Africa. All marked social and commercial innovation, both bad and good.We are witnessing a new form of […]
We’d like to give the banks in Australia some credit. They’ve finally gone and done it. They have caught up with 1960s technology. They’ve figured out how to use PIN numbers.How to only use PIN numbers, that is. They’re considering scrapping signatures on credit cards to cut down on fraud. Apparently, having to verify your […]
We put in a good-citizen call to the SEC the other day.“There’s a massive scheme to manipulate stock prices,” we told the friendly agent.“I have to tell you that your call is being monitored so that we can better serve the public,” he replied.“Oh, don’t worry about that. The NSA is tapping our call anyway.”“Are […]
Dr. William C. Padgett is a retired optometrist who has been trying to bring an elderly care facility to Beaufort County, North Carolina, for over a decade.“Our senior citizens,” he laments, “are finding that it is difficult and in many cases impossible to find an appropriate long-term care facility locally.” Though he has received several […]
If you don’t have the angst out of your system concerning Wall Street banksters, Government Sachs, and the Affordable Care Act, settle in with Matt Taibbi’s Griftopia to make your blood boil one more time.Investors should be reminded of 2008 as they shrug their shoulders and put their money back in the stock market. The […]
What do 8 of the 10 wealthiest people in the U.S. have in common?Aside from being able to fly in private jets, the common thread is that each of them has made their fortune thanks to a start-up.Let me explain…From tech titans like Bill Gates and Larry Ellison (founders of Microsoft and Oracle, respectively), to […]
“Inequality is the defining challenge of our time,” according to President Obama. It’s certainly the topic of the day for Paul Krugman, Joe Stiglitz and a whole raft of liberal pundits.But have you noticed that hardly anyone else is talking about it? When is the last time you heard a shoeshine person or a taxi […]
In December of last year, I left my career to travel the world for one year.My plan was to visit as many countries as possible on my Star Alliance Around-the-World ticket in the first nine months, then, for the remaining three months, return back to the country that most caught my eye and my curiosity.Nine […]
Economic history is primed to repeat in the nastiest of ways unless the government stops distorting the price of something we use every day.Every product, good, or service has a price, which is essential to rational decision-making. We use prices every day as vital data that guide us. Without true prices, prices not distorted by […]
A new survey from Harvard University found a large majority of young Americans do not believe the law will save them money, do not believe it will improve their health, and do not intend to sign up for insurance through the new exchanges.
Uh-oh!The new pope, Francis from the Pampas, has just warned us to beware the “tyranny” of capitalism.Each man worships his own gods. Some worship at the altar of Jesus of Nazareth. Some at the altar of the Almighty Dollar. The capitalists don’t bad-mouth Francis’ god. You’d think he would cut them the same slack.Bad-mouthing Catholicism […]
The market has selected different things as money throughout history. Some of these items have served as money in isolated places for specific periods of time — for instance, cigarettes in prisoner-of-war camps. Cigarettes continue to be a currency in prisons if allowed, but if not, according to Wikipedia, “postage stamps have become a more […]
A president stands disgraced. Congress is scattering. Bureaucrats are baffled. Pundits are reaching. Industry is scared. Politicians are scrambling to do something, anything, to make it better. One political party is in meltdown and the other loving every minute of it, hoping to ride the calamity to electoral gains.The so-called Patient Protection and Affordable Care […]
In announcing QE3, Ben Bernanke’s words betrayed not the slightest doubt that this is the right thing. More Fed bond purchases, combined with three more years of zero interest rates, he said, will quicken economic growth and cause unemployment to fall. And the punditry class all nodded in unison.
I know that this is government and such officials have to pretend to be infallible. It’s their way. The slightest indication of doubt can cause the whole propaganda apparatus to unravel. But for any thinking person, his arrogance alone raises questions about the credibility of his policy. It is all the more suspicious that the elites tell us that he should be believed unquestioningly.
Those of us who knew with certainty that QE1 and QE2 would not accomplish those goals — he’s been at this for nearly five years! — could only stare in amazement at his certitude. It is actually extremely alarming. Nothing could be more dangerous than a Fed chairman with a bad theory of economics that he is dedicated to pushing until the bitter end.
The truth is that he is wrong. Does he know this in his heart? Hard to say. He does know that this policy is good for the people and causes he really cares about. On paper, the Fed has a dual mandate to push maximum employment and stable prices, but this is only the intellectual gloss. In reality, the Fed has dual clients: the banking/financial sector and the government. His policies are good for both, for now. They are not good for the rest of us.
Bernanke is quick to cite the academic literature. But only of a special type: the studies that reinforce his views. His citations are cherry-picked in the extreme. He completely ignores and disdainfully dismisses anyone who has doubts that bond purchases by the Fed are going to cause the economy to get on track.
Following the announcement of QE3, I was invited to be on a panel on the live feed at The Huffington Post. I was there with a Washington Post reporter, along with some economics bloggers and writers. It was five against one. They were all confident, in various degrees, that the chairman was doing the right thing, and bristled at any suggestion that there was a downside or that the Fed chairman might not be the policy genius he thinks he is.
What will be the effects of QE3? This much we know: The economy is not suffering for lack of QE3. The economy is suffering because of a broken banking system caused by QE1 and QE2. The capital sector is laden down with artificiality, thanks to QE1 and QE2. Unemployment remains high, and nearly catastrophic for young people, thanks to the high costs of hiring due to regulations and mandates.
And actually, even the number of the QEs is wrong. This isn’t No. 3. This whole policy actually began after Sept. 11, back in 2001, pushed as a way to stabilize the system following the terrorist attacks in order to put U.S. national honor on display. The result was what is now commonly called the “lost decade,” in which middle-class household income was devastated and American standards of living slipped into a relentless fall.
There it is in blue and white. Look at this: Artificially low interest rates haven’t caused prosperity. They have caused the opposite. Even the graph itself looks eerily like a heart rate monitor.
Rather than admit error, Bernanke is like an arrogant old-world physician who is sure that bleeding is the only way forward. If it doesn’t seem to work, it can only be because it wasn’t done enough. Indeed, bloodletting itself was a common practice from the ancient world until the late 19th century — historical proof that a bad practice can continue for ages despite any evidence of its success. For centuries!
Loose monetary policy is the bloodletting of the 21st century, a policy that persists simply because so many people are intellectually invested in it and are unwilling to face the evidence of the failure of their own theory.
QE3 reverses none of what ails the economy. It doesn’t reduce hiring costs. It doesn’t contribute to liquidating bad investments and inspiring the development of solid new ones. It doesn’t reward the sacrifice of current consumption for future investment that is necessary for the building of future prosperity. All is does it drain economic energy. It only means more bleeding of the patient.
So let’s look at the actual effects of this policy:
1. QE3 kills the traditional institution of saving for a generation. It used to be that responsible people would save money, putting it in banks to earn interest. The interest earned was the reward for forestalling current consumption. It’s the parable of the talents all over again. Not everyone wants to be an investor. But everyone can put money in the bank.
What can we do now? You feel like a chump when you look at your bank statement. But don’t blame the banks. Blame the central banks. Bernanke is the one controlling this system, driving interest rates to zero precisely to punish your saving and cause you to splurge in the hopes that this will somehow fire up economic growth.
Remember how George Bush urged Americans to go out and spend money after Sept. 11? This, he said, was the best way for average Americans to show the terrorists a thing or two. All these years later, this anti-saving mentality has been the prevailing ideology. The results have been an abysmal failure.
2.QE3 will drive money to financial innovations that make money for insiders, but are forbidding to the rest of the public. New money has to go somewhere. It typically chases the most-fashionable investments, and traditional saving or dividends are certainly not fashionable. What is fashionable is high-speed programmed trading managed by large institutions.
Does no one remember that this is how the housing boom was created in the first place? Institutions bundled mortgages into marketable packages that glossed over critical questions of risk. It was as if risk didn’t exist. Everyone figured that the federal government would come to the rescue should anything happen. Mostly people assumed that nothing would happen.
Then the whole system blew up. Regrets were all around. For a while. Then the elites must have decided that the whole system wasn’t so bad after all, so they attempted to patch it up. QE3 represents an attempt to re-create the bubble economy in the financial sector. Rinse, repeat.
3. QE3 will keep borrowing costs of the federal government at artificially low levels. Ever wonder why Congress and the president act as if economic law doesn’t exist? They used to worry about the cost of borrowing. But now that is driven to zero. The Fed has provided mad-spending politicians the greatest subsidy they’ve ever had. They can run deficits and debts as high as Mars and not worry about the results. QE3 rewards this outlook yet again.
So don’t look for austerity here anytime soon. The chains have been loosed. They will continue their spending rampage. And the longer it continues, the higher the stakes. Interest rates must remain low forever, for even the slightest uptick will blow budget projections to smithereens. This is how the Fed gets the rest of the government invested in its moral corruptions.
4. QE3 will do nothing to reduce unemployment for those who are most affected by it. The new money will cause boomlets and some hiring, but not among the young, who are now at the point of despair. I just took what must have been my 20th phone call from a smart 20-something who is out of work, living at home, despairing for his future prospects, lost and confused, and thinking terrible thoughts. He wanted to know whether Bernanke’s action will help him. Tragically, the answer is no.
5. QE3 will bring inflation. Maybe it will bring hyperinflation. But that only happens if the banks start using their phonied-up balance sheets as the basis for new money expansion. But why would they do this? It is not in their interest so long as the payout rate is near zero. Another scenario that leads to hyperinflation is the global dumping of the dollar and its dethronement from its status as the world reserve currency.
Barring those scenarios, inflation is likely to take different forms. We’ve already seen this in commodities, health care, energy, and education. But what we don’t see is the glorious deflation that would be affecting all these sectors if market forces prevailed — deflation such as we’ve seen in technology that has been such a gift to humanity. It is the absence of a rise in the purchasing power of the dollar that is the real price we will pay.
Or maybe the laws of economics will be repealed by someone. Maybe alchemy will work this time. Maybe something that has never worked in all of human history will suddenly and inexplicably start to work. That’s seems to be what the Bernanke partisans are hoping for.
A main part of the problem here is purely intellectual. The government has socialized the money. It has taken total ownership of it, purporting to manage it in the same way the Soviets claimed they would manage wheat production and heavy industry. No surprise: We see the usual results of socialism in practice: overutilization of resources, diminishing value of the things socialized, and an inability to imagine that the world can work in any other way.
Ludwig von Mises wrote his book Socialism in 1922. It blew the whole idea out of the water. It seems crazy in retrospect, but Mises’ claim shocked a generation of intellectuals. Mostly, they rejected what he said. It took many decades for the faith in the idea of socialism to finally fail.
It’s a good idea to look back at this sweeping work and stand in awe of his argument. How could it have failed to convince? There can be only one reason. Bad theory is like a disease. Once a civilization catches it, it is hard to shake. It’s this way with the idea of monetary socialism. People find it inconceivable that the free market can manage money. We have to have central planners, don’t we, and shouldn’t we trust them all to do the right thing?
Mises’ book is a model, in my view. That’s why we are releasing it with a new introduction this week in the Laissez Faire Club. The introduction is breezy and brilliant, written by one of the world’s foremost experts in the field: Peter J. Boettke of George Mason University. He sets up the context and explains Mises’ position with utmost clarity and enthusiasm. You really must read this, and also Mises’ book itself. The best way is to join the Club. It will remind you just how long error can persist, and what must be done to combat it.