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Redistributing Your Money: James Madison’s Message to Mr. Obama

Thousands stood in line outside a Detroit hall as the cursing, fighting, chaotic throng of applicants lined up for some of the “free” Stimulus money, the line including two female Obama supporters expressing their love for the President, although unable to guess where the “free” money came from during a sidewalk interview, asserting that the money came from O-b-a-m-a, subsequently speculating that the President had his own stash.

And despite a hint of disapproval from Rush Limbaugh, on his radio show on Thursday, October 8, 2009, as he played a clip of the interview with the two ladies singing a song of love to our President for his generosity, stash is actually a pretty accurate term for the “urgent” dollars fleeced from other Americans or their grandchildren in the name of the President’s emergency Stimulus Bill. And in a related report, Rush even spoke approvingly of the “two entrepreneurs” outside Cobo Hall, described by news reports as scam artists, offering to sell readymade applications for $20, Rush expressing a touch of relief and pleasure knowing that the entrepreneurial spark is not dead, even in Detroit.

Apparently, there were no shovel ready jobs for the able bodied in line so they could retain their self respect and earn their checks. Nor was there likely any thought by the White House of tackling the 50% inter-city teen unemployment by lowering the minimum wage for teens and those taking their first job, creating a way for teens to work and contribute rather than take a hand out, opening up opportunities for local businesses to hire an untrained worker at a salary that better reflects the workers lack of skill, and training, and education, and preparedness to comply with the social requirements of a first job.  

Of course the whole idea of our President and the federal government playing Robin Hood was alien to the founders, Mr. Madison remarking: "I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents."

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Mr. Obama’s Stimulus and Cash for Clunkers Bills: Not Exactly a Dynamic Duo

Two economic reports last week confirm the worst fears of many Americans about the economic acumen of the Obama administration: the Thursday, October 2, declining auto sales report, auto sales plunging by 23%, sales for General Motors crashing 45%, sales for Chrysler collapsing 42%, the report corroborating the concern of critics that the billions spent for clunkers was as bad as any junkyard sale, stealing future sales, exacerbating conditions in an already weak economy reeling from trillions of dollars of spending by the Obama administration, and the Friday, October 3, 2009, Unemployment Numbers, rising to 9.8 percent in September, as employers cut 263,000 jobs, a 26 year high, setting the worst record since 1983, further persuading many Americans that the President’s Stimulus Bill is as ineffective as a committee of Washington politicians trying to write a piece of legislation in plain English.

And as the trillions of dollars of debt pile up, debt as wide as the prairie and as high as the heavens, both the Stimulus Bill and the Cash for Clunkers Bill add to a growing awareness that the President and his team are drifting aimlessly without a Captain at the helm, without a navigator, without anyone who knows the water or can chart a course to a sound economy, or as Vice President Biden aptly put it—we guessed wrong.

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“The Cheese Stands Alone”— Is Obama Ready for the Challenge?

What should President Obama say next week to a joint session of Congress about health care reform? Should he push ahead with more of his stump speech assurances, more guarantees of cost cutting without any impact on quality of care, or should he “reset” the playing field?

Judging by his declining approval numbers during August, a reset should certainly be considered. In fact, in a recent column, It’s Time for Obama to Change Course, blogger Jay Cost at Real Clear Politics argued that the declining poll numbers threaten the President’s “power to persuade.” And if he wants to advance new health care reforms through Congress, then he needs a course correction. His first recommendation for the President is for him to recognize that “the Cheese stands alone,” alone on the mountain top he stands, and he must act accordingly. Even if it is unpopular with those around him; the call is his alone to make. He has to take charge. He has to chart a course.

 If we just focus on this idea for now that the President has to lead even if advisors or supporters are not completely happy, then how might the President change course? What might the President do if he wanted to recapture the center? What would a fundamental shakeup look like?

One suggestion, by Cost, would be for the President to adopt some of his campaign rhetoric. Following up on that suggestion, the President argued as a candidate that sacrifices—yes, sacrifices—would be asked of everyone. Why not reverse the current assumption that Congress, the unions, and trial lawyers are off limits in the health care debate?

Why not begin by asking the political class to lead by example—a time honored tradition in our military—by announcing that there will not be a two-tiered system? That any reform will apply equally to Congress and the President—and if Congress likes its current health care system and wants to keep it, then they must pass similar coverage for all Medicare recipients. 

The unions were among the President’s biggest supporters. If they won’t sacrifice to help him, why should anyone else agree to inferior care or less care than they currently receive? If our private health spending is “too high because our tax rules lead to the wrong kind of insurance,” the President should urge Congress to close the current health-insurance exclusion even if the unions “are particularly vehement in their opposition to any reduction in the tax subsidy.”

Trial lawyers were big supporters of the President. But needless medical procedures ordered merely to inoculate physicians from litigation are a large part of our health care costs. Why can’t punitive damages, designed to punish a plaintiff for misconduct, be awarded to a government owned trust fund to pay for Medicaid rather than being distributed as a windfall to a plaintiff? Congress could set a 20% compensations rate for lawyers pursuing punitive damages in egregious cases, recognizing their contribution to the public interest.

A fundamental shake-up that shows real leadership might help the President gain the confidence of voters, restoring his credibility and “power to persuade,” garnering him a second chance to see health care reform succeed.

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An Open Letter about Health Care Reform

Dear Congressman    _____________ ,

Thank you for your email regarding your work on Health Care Reform. I have a few thoughts, comments, and questions for you.

1.      I hope your Health Care Reform Bill extends the same medical coverage to our veterans that it does to members of Congress. After all, despite the attacks you sustain from the press corps, our troops overseas are dying or returning with real injuries.  I am sure you would agree that it would be unconscionable for any Congressman to vote for coverage for himself and then to vote to treat veterans differently.

2.      a. In “The Deep Pockets Mirage,” a WA Post editorial dated July 15, 2009, the Post dismissed a tax on the wealthy to fund health care reform as an improbable solution.

[T]here is no case to be made for the House Democratic majority’s proposal to fund health-care legislation through an ad hoc income tax surcharge for top-earning households. . . . There is simply no way to close the gap by taxing a handful of high earners. . . . Pretending that “the rich” alone can fund government, let alone the kind of activist government that the president and Congress envision, is bad policy any way you look at it. 

b. Apparently your bill also doesn’t cover the cost of medical care for un-documented aliens, a cost expected to be significant. Where will the money come from to pay for your reform bill let alone the additional expense for the undocumented? Before passing any health care reform, shouldn’t you know—especially in light of CBO testimony—the total cost for comprehensive reform? 

3.      Please remember that medical care delayed, rationed, or below even minimum standards of health sanitation is care denied. According to a recent report, for example, in Quebec province there is a two to three year wait merely to be assigned a family doctor. Nor is rationed care a viable option. Rationed care that delays treatment until the patient dies is a cruel hoax. Also, high rates of hospital induced infections (as reported throughout Canada) are terrifying. Health Care Reform will be a failure, a dark and dismal failure, if it means Canadian style delays, rationed care, or rampant cases of hospital-induced infections.

4.      Furthermore, where will our doctors come from in the future, since Government run programs historically discourage prospective applicants from entering the field? With government run health care, would you ever consider encouraging a young college graduate to pursue a career in medicine knowing he must spend seven years or more completing medical school, an internship, and a residency only to face a government controlled compensation commission? As noted by the Houston Chronicle, Medicare and Medicaid present less than an encouraging model:

A study last year in the Houston Chronicle found that "only 58 percent of Texas physicians are taking new Medicare cases, and only 38 percent of primary care physicians are doing so." In addition, the study found, "[across] the country, only 600,000 of 1.5 million total physicians are currently willing to treat Medicare patients." If doctors are already reluctant to participate in existing government run plans like Medicare and Medicaid, adding an additional public plan could discourage them even further.

Where are the incentives in your bill to attract young students into the medical profession?

5.      Our friends all agree—we pray your focus is on quality of care, meaning timely and effective treatment, and not access to care, meaning big government commissions restricting care based on artificial tables relating to age, cost, or other bureaucratic vagaries.

Thank you for your service.

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Unprincipled Obamacare Double Standards

Congressional plans to allow union members an exemption from any tax on employee health care benefits and to exempt members of Congress from many of the provisions in the Kennedy health care plan (per a John Fund article in the Wall Street Journal, “Beware Obamacare’s Fine Print, Congress’s Health Care Double Standard) are disgraceful. Unscrupulous, unprincipled—are both strong words; regrettably both seem appropriate to describe contemplated Congressional action.
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When the Creditors demand Washington Pony Up, What Will They Do?

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery." -  Wilkins Micawber in David Copperfield by Charles Dickens

Micawber understood the basic rule of finance: if you spend less than you earn, then you are a happy man; if you spend more than you have, then you end up in debtors’ prison. Unfortunately, our Washington politicians disdain Micawber’s advice, appearing more disconnected than ever from the rules of finance. They are expanding our debt, increasing our debt service, unnerving our creditors; they are spending as if the rules of finance for individuals have no relevance for a country; they are borrowing $.46 for every dollar they spend. 

Tony Blankley’s Death by Deficits is typical of the commentary. He summarizes the approaching financial landscape—a potential wreckage of disastrously devastated dreams—if Washington doesn’t make a course correction: federal debt will be more than $15 trillion in 2012, and annual interest probably will be between $1 trillion and $1.7 trillion, and deficits will average about $1 trillion a year -- $22 trillion by 2019 with yearly interest payments more than $2 trillion. And how much is a trillion dollars, you ask? Well, try to visual a trillion dollars this way: “A trillion dollar bills laid end to end would reach the sun or you spend a dollar per second for 32,000 years.”              

A Shawn Tully, June 2009, Fortune article, echoes Blankley’s concern, focusing on the future individual taxpayer share of the debt load at $155,000 in a decade, and discussing how chronic deficits are putting the country on a glide path to fiscal collapse. And Arthur Laffer explains that the unfunded liabilities of federal programs are over the $100 trillion mark; that U.S. GDP and federal tax receipts are at about $14 trillion and $2.4 trillion respectively; that such a debt all but guarantees higher interest rates, massive tax increases, and partial default on government promises.

There is incoherence—even otherworldliness— between our undisciplined spending and our ability to pay. A Heritage Foundation chart in March 2009 visually captures (like the teeth of a bear trap embedded into your foot) the current runaway spending, plotting also the almost Scrooge-like budgets of President Bush for comparison.  However, some countries are taking a different path. John Key, for example, the New Zealand Prime Minister is trying to lower taxes, save capital, and make NZ a more business friendly country for the recovery, when it comes. Regrettably our politicians rejected the disciplined approach, the path of fiscal restraint. 

Kevin Hassett focuses on the underlying difference between what is essentially the New Zealand approach and our own:  

There are the so-called Ricardian governments, which wisely plan their taxes and spending so that they balance over time. Then there are the Nonricardian governments, which spend and borrow until they collapse. Ricardian governments borrow in bad times and lend in good. Nonricardian governments look like a Madoff investment pool and borrow themselves into oblivion. 

He explains that the real danger is the Nonricardian governments, like ours, destroy themselves with capital markets getting drier than the Sahara desert, as lenders bail due to their recklessness. And his eye-catching conclusion hits you like a right cross to the solar plexus: “If capital markets lose faith in a government’s long-run commitment to fiscal discipline, it’s the economic equivalent of a meteor strike.

Speaking of lost faith, an ominous dark cloud of faith lost is the response by Chinese college students at Peking University, when Treasury Secretary Tim Geithner assured them that China’s investments in the U.S. were safe; he drew a reverberating echo of laughter; a level of derision—reported around the world—reminiscent of the Columbia students response to the Iranian President Mahmoud Ahmadinejad’s answer to students that they don’t have homosexuals in Iran.

The Chinese, as a matter of fact, have been raising almost weekly concerns—and they are not alone—about the safety of their U.S. holdings for some time now, even warning the U.S. Fed, not to print money to inflate our way out of debt. The Chinese (and others) have loaned us more money than Croesus, but will they keep lending?   

As Micawber knew, if creditors lose confidence—the federal debt was equivalent to 41 per cent of GDP at the end of 2008; the Congressional Budget Office projects it will increase to 82 per cent of GDP in 10 years; with no change in policy, it could hit 100 per cent of GDP in just another five yearsthen for each additional cash advance, creditors demand more and debtors commit more. And how much more would they demand to restore their confidence if lenders refuse to accept our dollars, or if our credit worthiness is downgraded and we lose our triple-A rating for sovereign debt?                                                                                                        

And when the inevitable demands are placed on the table, if we are to get the breathtaking piles and piles of money we need to service our debt, to pay retirements, to deliver welfare payments, to fund our various unfunded liabilities, to distribute salaries to more federal employees than the population of a small country, then what will we have to pony up? Perhaps creditors demand the government’s TARP holdings in AIG, General Motors, banks and financial institutions; or they insist upon transfers or pledges of title to federal lands including park lands as security; or they insist we sell oil rights beyond 20 miles of the West coast if we are to receive capital critical for survival.

And so dear reader, will Washington and President Obama step back from the fiscal abyss with a course correction or do they keep spending and borrowing until there is financial collapse?


 
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Telling What Tomorrow Will Bring

The picture of our economic future and fortune under the next President slowly begins to emerge, becoming a little clearer, as the differences between the candidates are spelled out, for me at least, after reading three recent articles; one considering our states as laboratories where the competing visions of our candidates have played out at the State level (by Phil Graham and Mike Solon); another looking at the real spending behind the imaginary tax cuts of one candidate and the current, disparate payment of taxes (by Newt Gingrich and Peter Ferrara); and a third digging into the economics of the Obama plan, and his effort to characterize increased taxation through government confiscation as “civility” and “neighborliness” (by Jeff Jacoby).

Using the states as a laboratory, applying a competitive index to examine 16 variables for ranking the states, Graham and Solon concluded - growth in jobs, income and population were critical elements if a state were to prosper. They learned that the top three states were Texas, Florida and Arizona; noting, remarkably, “a third of all new jobs created in the last ten years were in these three states.” On the other hand, Illinois, Michigan, and Ohio were the three least successful states, demonstrating that governance, taxes, and regulatory policy matter. Their conclusion is evident; the title of the article is “If You Like Michigan’s Economy, You’ll Love Obama’s.”

Repeated calls for tax cuts for the middle class are unmasked as unreal and imaginary in “Tax Cuts, Real and Imaginary, Obama's spending programs in disguise.” Gingrich and Ferrara  noting the Obama tax cut for 95% of American’s is a false promise, a deceptive ploy to transfer income from those who pay taxes to the 40% who no longer pay any share of the income tax; the top 10 percent paying 71 percent of the federal income tax though earning just 39 percent of the nation's pretax income; the bottom 60 percent of income earners together, on net, paying less than 1 percent of all federal income taxes while these workers earn 26 percent of national income.

In a third article, “Seeing through Obamanomics,” Jeff Jacoby argues that the declining number of Americans who have confidence that Barack Obama can do a better job handling the economy suggest that more Americans are beginning to understand the confiscatory, compulsory, and corroding effects of an Obama income re-distribution scheme. 

Borrowing from Winston Churchill’s insight - “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries” - we can see a future economic landscape under a President McCain with an equal sharing of opportunity and risk, success with joy and education with failure, higher highs and lower lows; whereas, on the other hand, we can see a future economic landscape under a President Obama with an unequal sharing of risk and a reduction of opportunities, upside-down incentives with rewards of government bailouts for failure and penalties for success, higher lows and lower highs; life will be like the traveler on a trip through flat and monotonous terrain, travelling on an almost endless road that goes on and on, a road with no half-way point and no end in sight, travelling through a dry and desolate desert, a desert terrain with no foliage and no color, fewer opportunities for success with no hope of achievement rewarded – yes, an equal sharing for all, a sharing of dullness, misery; and, at every turn  - government.



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Is Third World Status In Our Future?

 Are Americans ready for a descent into Third World status? Analysts report that with declining oil-production in Alaska, the pipeline will soon become too expensive to run. Further, with diminishing authorized domestic sources of oil, an increasing population, and rising future gas prices, our production will fall from 42% of our current demands to a lower number – could we see oil production that only equals 15% of our needs?

How long before our current overseas oil expenditure of $700 to $800 billion a year seems like a bargain alongside a future expense of $2 or $3 trillion. Congressional demands for more spending seem limitless. Demagogues’ rail against business thereby suppressing growth and a galaxy of future decisions accumulate. No one seems willing to tackle the highest priorities such as social security and Medicare reform.

If gas is $10 a gallon, what happens to all those boomers ready to enjoy their retirement years? They never expected to spend their declining years living in a Third World country. Oh, won’t it be fun riding the down escalator!

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Dear Senator, Can We Just Drill?

Dear Senator,

Thank you for your service to our country.

There has been a great deal of news about oil prices since January 2007 when both houses of Congress came under the control of one party. I think gas was around $2.33 a gallon at the time and today it is over $4.00.

 I have just one question about oil prices.

Please tell me it isn’t true that China is drilling on behalf of Cuba and the Castro government just sixty (60) miles from our coastline? 

If China is drilling for Cuba 60 miles off our shore, why can’t we pass legislation immediately to expedite drilling and exploration off our coasts and the Gulf of Mexico beyond 60 miles?

I look forward to an explanation.

Sincerely,

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