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 is difficult to make predictions, especially about the future,” says a proverb often attributed to Yogi Berra. Imagine the world of freedom, or lack of it. Who could foresee the technologies that make our lives so rewarding and convenient? The same technologies have us all under the government’s giant microscope. Thankfully, the brave have turned the microscope around.
In the months since Edward Snowden revealed the nature and extent of the spying that the National Security Agency (NSA) has been perpetrating upon Americans and foreigners, some of the NSA's most troublesome behavior has not been a part of the public debate.
National Treasury Union President Colleen M. Kelly recently described the 2014 IRS budget allocation as “woefully inadequate.” But the agency has not proven itself to be an efficient steward of taxpayer dollars. Here are ten ways the IRS lost the trust of the American people.
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.
Given how poorly states like California and Illinois have funded the pension funds for their own employees, one would think that this would stop dead in its tracks any plan to have the government assist in managing private sector funds too. The spate of recent activity, however, suggests otherwise.
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 problem for NSA apologist is that when guys like Snowden disclose that the government conducts comprehensive surveillance in ways that would have made 1984’s O’Brien drool, it puts the entire progressive agenda in jeopardy.
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 financial world is plodding along like a drunken sailor avoiding debt collectors by keeping no cash in his wallet. It’s not the kind of calm that’s going to last or end well. But the storm will have to wait until after the Olympics.What a game! We’ve never watched ice hockey closely before. But watching […]
“When they come for my gun, they will have to pry it out of my cold, dead hands,” is a common refrain I often hear from the Neo-Cons when there is a threat, credible or otherwise, that the U.S. government is going to take their firearms.And, when I hear this crazy talk, I agree with […]
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 […]
In times of war and national emergency, it’s sometimes necessary to sacrifice civil liberties to secure vital gains in public safety. In those cases, we may have to accept a loss of privacy or freedom rather than invite mass slaughter of Americans.The National Security Agency’s domestic phone records collection is not one of those.Never have […]
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 […]
Amidst all the revelations about how the American people, many of whom are absolutely convinced they live in a free society, have their telephone calls, emails, website visits, and who knows what else under surveillance by their own government, let’s not forget the massive infringements on financial privacy that have gone on for decades.Consider, for […]
Image: ShutterstockBitInstant CEO Charlie Shrem, along with alleged co-conspirator Robert Faiella, was arrested by federal authorities last week for allegedly laundering more than $1 million worth of Bitcoins. This is a tiny amount compared to the largest drug-and-terrorism money laundering case ever. Yet when British bank HSBC was found guilty in 2012 of laundering billions, […]
Do you trust your doctor? Most patients assume their doctor is working in their best medical interests whenever he or she orders a diagnostic test or recommends a particular treatment. Customers might wonder whether an unscrupulous auto mechanic is being truthful when he recommends a brake job or a new transmission. But most patients trust […]
The exercise had an awesome name, inspired by the movies: “Quantum Dawn 2.”On July 18, scads of U.S. banks, stock exchanges and government agencies took part in a digital fire drill — a practice run in the event all of Wall Street came under massive cyberattack.This isn’t the first time banks have come under an […]
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 […]
So you’ve maneuvered the Obamacare website, plugged in your top-secret information and found out how much you are forced to pay to avoid a fine.And for some of you, it turns out you qualify for a government subsidy — making the premium sound like a bargain. But signing on that line to accept the government’s […]
“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 […]
For critics of the surveillance state, it is tempting to see President Obama’s speech a few weeks ago as a partial victory: Prompted by Edward Snowden’s leaks and the public pressure for National Security Agency reforms, he announced significant changes to the program that collects and stores information about all telephone calls. And he promised […]
After the bust of 2008, well-connected corporations and banks lobbied for and received many billions in bailouts from the government. The public was outraged. The term “crony capitalism” came into new prominence as a designation for capitalists who live off the taxpayer.
But how far do we want to take this language? In a mixed economy, no one is untainted by some association with government. And in a paper-money economy, every existing enterprise is compelled to ride the waves of economic cycles.
Does getting rich in the boom make you a crony? If you are good at playing the markets, does that make you corrupt, because the system itself is distorted by central bank intervention and a million other impositions? If you buy low and sell high, do you deserved to be demonized?
The critics of Bain Capital, Mitt Romney’s one-time employer, seem to think so. Let’s examine the claim.
The Federal Reserve has flooded the world with money since the last ties to the gold standard were snipped back in 1971, by Richard Nixon, of all people. Interest rates are lower in the unrestricted Fed printing world than they would be in a laissez-faire Shangri-La. In the 2000s, low interest rates and the oceans of liquidity sloshing around in Greenspan’s bathtub led to speculation.
Every old Austrian economist figured this out. And the proprietors at Bain Capital figured it out as well. Buy companies on the cheap with cheap money, make them more efficient, and sell them as quickly as possible for a higher price. Sounds like good work if you can find it, except for one thing: It’s not easy to turn a failing company around. It takes expertise, and when you are dealing with high leverage, timing is everything.
Let’s look at David Stockman’s The Great Deformation: How Crony Capitalism Corrupts Free Markets and Democracy. The book is the cause celebre of the supporters of Obama for president because it labels Romney a deformer and a crony in the attempt to strip him of his main private-sector claim to fame. This book excerpt matters not only because it is now top fodder in the political war, but also because it ramps up the attacks on anyone who makes it big in the markets, and thereby opens up a new front against private wealth.
Mr. Stockman’s had some great things to say in the past couple years, and crony capitalism is rampant for sure, but taking the private equity business to task as if it were the nation’s greatest threat is painting with too broad a brush.
He writes that “the waxing and waning of the artificially swollen LBO business has been perfectly correlated with the bubbles and busts emanating from the Fed.” Well, sure it has. The same goes for the homebuilding business and a number of other business-cycle dependent industries.
Easy money distorts the economy and makes average businessmen look like geniuses. The social value of crashes, recessions, and depressions is to let capital providers know who, in Warren Buffett’s words, “has been swimming without a suit.” As for Romney, he left the party on time. Good for him. We should all be so lucky.
Is this crony capitalism? No. Compare with Citicorp and Goldman Sachs lining up for TARP money and dozens of other government giveaways that saved them from the clutches of capitalism’s death grip. Crony capitalism is creating money out of nowhere to pay 100 cents on the dollar for AIG’s obligations, saving not only the insurance giant, but dozens of other financial firms foreign and domestic.
Bain Capital did not receive a bailout. Bain continually bought low and sold high. Most of the time, the firm earned a return lower than a passive investor in the S&P 500. But there were 10 deals that amounted to 75% of the firm’s earnings during Romney’s tenure.
Stockman offers this up as proof that some sort of skullduggery went on, but anyone who has invested in private partnerships knows that all successful investors strike out occasionally, hit mainly singles and doubles, and a small percentage of the time hit home runs. It’s the home runs that make the money managers worth their money.
Stockman further kvetches that “four of the 10 Bain Capital home runs ended up in bankruptcy.” The company had the bad form to sell out before the companies became victim to the 2000-02 downturn. Was Romney really so clairvoyant as to do this using sheer business acumen? If so, he probably should be president. Hardly anyone predicted that 2000-02 recession.
(By the way, the other guy under consideration on Nov. 6 has displayed the bad timing of funneling taxpayer money to companies like Solyndra and A123 Systems just before each firm filed for bankruptcy. If we must fill the Oval Office, I’ll take the guy with good timing any day.)
Stockman further takes Romney to task for rebranding Stage Stores Inc. to make it appealing to investors. The company’s stock price doubled, and again, Bain had the good sense to sell out, for an 1,800% gain. Bain was able to put little money down toward these purchases and occasionally had big winners. But the key point here is that Bain was investing its own money. The other guy on the ballot has been “investing” taxpayer money.
And as distressed as Stockman is about LBO debt, it’s nothing compared with the $16 trillion that Uncle Sam has racked up. Borrowing money at low interest rates to turn businesses around and turn quick profits can only be considered good business.
What Bain did was no different than the person who buys a fixer-upper, does the repairs, obtains a cash-out refi based on the appreciated value, and then sells the house at the top of the market. Would that seller be vilified if the buyer of the house lost it to foreclosure because they paid and borrowed too much? Stockman’s piece seems to indict anyone who has refinanced their home or business at a lower rate and eventually sold out for a profit.
LBOs “are dangerous because when they fail, they leave needless economic disruption and job losses in their wake,” writes Stockman. But these businesses were failing to begin with. Some were using poor business plans, others outmoded technology, some had bloated managements. Either way, what’s the disruption? The bankruptcies redistributed the assets (including labor) to more efficient uses, unlike, say, the GM or Wall Street bailouts.
Stockman claims that LBOs “would be rare in an honest free market — it’s only cheap debt, interest deductions, and ludicrously low capital gains taxes that artificially fuel them.” In an honest free market, the debt would be cheap because the money would be stable like gold or silver. There would be no capital gains taxes at all, so interest deductions wouldn’t matter.
(And what is this about low capital gains taxes? Fact: “U.S. corporations face long-term capital gains tax rates almost 80% higher than those of their competitors in other countries. The U.S. tax rate on long-term corporate capital gains is higher than that of all but two of the other countries surveyed.”)
One 50-1 home run for Bain was due to “massive leverage, fancy accounting, and bubble finance, not entrepreneurial prowess,” Stockman sniffs. Wait just a minute. Buying a company that’s undervalued, using every tax loophole the government allows, and marketing and selling the stock at the market price is the definition of entrepreneurship: whether it’s the Hayekian processes of discovery, Kirznerian alertness, Schumpeterian innovation, Schultzian adaptation, or Misesian foresight of consumer wants.
The U.S. economy is anything but a free market. It’s absurd to judge the Republican candidate’s entrepreneurial acumen in a mythical free-market world that doesn’t exist. Mitt Romney and Bain Capital played the hand they were dealt, and they played it spectacularly well. Election or not, it’s deeply dangerous to blame entrepreneurs for the statist environment they must operate in.