US Controversies and Big Ideas 2008 and Beyond

Individual Mandate for healthcare: the flawed comparison with auto-insurance

In the make-belief world of the current administration, supercilious comparisons are made to justify its proposed programs which have no basis whatsoever in reality. Fallacies abound and seem logical to the unsuspecting. One clear example is the justification for an individual mandate for health care. “Just like compulsory auto-insurance is mandatory, so also for health care”. Yeah, that seems like a straightforward and reasonable justification.

It goes a step further. An auto accident could cause damage to another person who probably does not bear any responsibility for it. Such a person needs compensation for the harm caused to him. The person who caused the accident will be able to pay only if he or she has an insurance plan. Similarly, the administration argues, everyone needs to have a health insurance plan to pay for their care rather than end up in an emergency room where they cannot be denied care. That society would otherwise pay for their care.

First, the individual mandate for auto-insurance does not require drivers to pay for comprehensive insurance. They only need to pay for the minimum level of liability coverage. The individual mandate for health insurance, proposed in the conceptual plans, are required to meet the standards of coverage that the Government requires each person to have which would now include pre-existing conditions. The comparable auto-insurance would include not only comprehensive coverage but also costs of repair and maintenance including oil change!

Just like a person whose auto-liability insurance includes only the minimum coverage will have to pay out-of-pocket for any amount in excess of it, the individual mandate can at the most require a minimum level of health coverage.

A more efficient alternative to individual mandate is   health savings plans. For those with very low incomes, the government could provide vouchers to fund the accounts. This would be akin to earned income credits. For emergency care, the expense could be paid over an extended period of time to cover the deductibles. The rest would be covered from the insurance plan.  

The Sophistry on Medicare: The case against Government takeover

What the Democrats lack in governance, they make up in sophistry. The issue of Medicare and Government takeover is just one example. They sneer at the apparent hypocrisy of Republicans who have taken on the role of opposing cuts in Medicare. “If you are against Government takeover, why are you supporting a government program like Medicare or even Medicaid? Similarly, the Democrats chide the elderly for opposing government takeover while insisting on retaining their own government health program.

Given an option, the Republicans are inclined to offer choice and private services to the elderly. The Medicare Advantage program was launched for precisely that reason. And the Democrats are viscerally opposed to Medicare Advantage. Better still, the Republicans would be inclined to simply offer vouchers to low income or retired folks which they can use to pay for privately delivered services.

The Medicare program has already been paid for by the elderly—it is now their turn to benefit from the investments they have already committed. That the Democrats are now considering the reallocation of funds from Medicare to their universal care experiments is only confirmation that the government cannot be trusted to comply with social contracts. When public finances are mismanaged, governments will be inclined to raid cash hordes.

The rationale for Medicare and Medicaid or for children’s programs for healthcare was not that Government provision of health is generally better than private delivery. Instead, the premise was that private markets fail to function when the elderly, the low income folks and children don’t have the purchasing power to buy health care.

With advances in knowledge about the health care business, its time to look at alternatives. The elderly can take care of their health needs if they are able to save money in their health care accounts over their working life. The poor and children of low-income households can pay for their health care with vouchers.

The Democrats are looking to make cuts somewhere to pay for universal access because they refuse to institute incentives which will help to cut costs. Resources are scarce and increasing demand for health care can only be fulfilled by supply side reforms including competition in the health care industry. The Democratic program cannot possibly increase access so they will only redistribute resources from one group to another without improving the overall system.   

 

Trade Credit: The low hanging fruit for restoring economic growth

An incipient economic recovery, colorfully described as green shoots, is said to be a precursor  of better times for the US and the World Economy. This notion has been countered by an equally colorful skeptical riposte “yellow weeds”. In an environment of risk aversion, skyrocketing fiscal deficits, stalled negotiations over the Doha Round, the imminent prospect of increasing tax rates, massive unfunded liabilities of health care and retirement acting as a drag on the economy aggravated by a log jam over the future policy for health and social security, the chances of growth recovering to its trend rate of 3% in the USA are near zero. The more likely prospect is that of of a double-digit recession. A temporary boost from Government spending will be followed by another recession as the economy is weighed down by higher debt service payments.

The one reason for optimism is the recovery in emerging markets. Till September 2008, the recession in the USA was relatively mild. A devalued dollar helped to drive exports overseas especially to emerging markets. The torrid growth in exports was brought to an abrupt halt following the collapse of Lehman Brothers. While the banks were saved from a domino effect, the financial crisis spiraled out of control as trade credit to emerging markets shrank. Concurrently, capital overseas sought refuge in the USA which raised the value of the dollar and rendered exports non-competitive.   

As credit markets stabilize, the cost of credit is steadily falling from its astronomical levels and its availability is increasing. Concurrently, overseas investors are increasingly skeptical of USA as a safe haven and want to diversify their currency portfolio. As growth prospects in emerging markets improve, capital is beginning to flow out of the USA. The dollar’s value is steadily falling.

A survey by the International Chamber of Commerce in March 2009 revealed the extent of the damage to the trade credit market. 47% of the 122 banks in 59 countries surveyed by ICC reported lower volume of letters of trade credit and 43% in the value of the letter of credit transactions in the last quarter of 2008. Over 40% of the respondents reported higher fees they have to pay for Commercial Letters of Credit, Standbys and Guarantees. At the same time, the cost of trade credit increased dramatically. According to a survey by the IMF, the cost of export credit insurance was 19 basis points more than cost in the last quarter of 2008 compared to 8 basis points increase over the year ending October 2008. Similarly, the cost of stand-by Letter of Credit increased by 25 to 300 basis points over LIBOR and in some cases 600 basis points. The higher costs of credit squeeze the tiny margins that Asian exporters earn on the goods they supply in developed markets.

A correction in the abnormal situation in credit markets could well restore export activity from Asian countries to levels correlated with the current levels of economic activity even if it has been lowered by the recession. While economic activity in the USA declined by about 5% in the first quarter of 2009, the corresponding reduction in export growth was 22%. In emerging countries like India, the growth was a positive 6% while exports declined by 24%. The World Bank estimated that 85% of the decline in trade was due to fall in international demand and the rest due to shortage of credit of the order of $300 billion. In the case of USA, there is an additional impact of an almost 40% increase in the value of the dollar as overseas investors sought a safe haven.

The trade credit market is showing some early signs of recovery. Central Banks in India, Russia, Brazil and China have stepped in to improve supply as have multilateral institutions like the IFC and Asian Development Bank. The cost of trade credit is still high with a 400 basis points spread over LIBOR. However, the LIBOR spread itself is down 400 basis points from its peak. Concurrently, the value of the dollar has declined 10% against the Euro, 23% against the Australian dollar and 20% against the Brazilian real.

US economic recovery will be driven by growth in the rest of the world till structural problems in the domestic economy are resolved. Lower costs of trade credit and devaluation of the dollar will arrest the dramatic decline in growth but the US economy will continue to sputter at around zero growth.

 

California State's Bankruptcy and its Economic Future: A report from a conference

Liberty on the Mind (an offshoot of Liberty on the Rocks for conferences) organized a conference on the subject of the fiscal crisis of the state of California at Santa Clara University on 27th April 2009. As a grassroots organization, LOTR attracts members who are capable of animated public policy discussions in bars, the background noise notwithstanding. They agitate for a freer and more prosperous world and they like to be well-informed citizens rather than partisans.

The topic of the conference generated some controversy. A member of one of the think-tanks, close to the state’s establishment, felt that bankruptcy does not accurately describe the current state of finances in the state. According to him, the current crisis is an administrative issue created by the two-thirds majority rule for passing a budget which an unnecessarily high bar.  He added that there has never been a bankruptcy in any of the Union’s states anytime in history. We checked with an economic historian and confirmed that some states did experience bankruptcy in the early nineteenth century. A deficit of $40 billion clearly reflects a deep-rooted economic malaise especially when consider the fact that the credit rating of California is the lowest of any state, the tax rates are the highest and cost of doing business in the state is 20% higher than the average cost of doing business in USA. Also, there has been an out-migration of 1.2 million from California over the last four years. We concluded that his comments about the two-thirds majority rule are a not-well-disguised rationale for an unhindered spending binge.

We, therefore, sought speakers who had done research on the state’s expenditure policies as well as the business environment for growth. Seven speakers from think tanks and universities around California agreed to come and speak. Michael Shires of Pepperdine Public Policy Institute was eventually called for jury duty and could not make it.

Professor Fred Foldvary, Director of Civic Society Institute, displayed data on persistent deficits in the state which are accounted largely by soaring expenditures on education, health and prisons. One striking slide showed that expenditures on prisons are rising at the same rate as education. Liberalization of drug sales and their regulated use is one way of relieving the pressure on prisons and for increasing the revenue base for the state.

Expenditures keep rising despite the constitutional provisions for citizens to vote against them on the ballot.  A wide variety of checks and balances exist in the state, such as the use of two-thirds majority rule for raising taxes, Proposition 13 which caps property taxes, provisions for recalls of elected representatives, term limits on legislators and voter approvals for major initiatives, to guard against political intransigence. The voices of ordinary citizens, nevertheless, are overwhelmed by sophisticated advertising campaigns by organized groups such as teachers unions, firefighters and law enforcement officers unions. Vallejo had to recently go into bankruptcy because it was unable to honor its pension liabilities to 17 of its firefighters. Professor Foldvary recommends a cellular democracy, widely discussed by public economics expert and Noble Prize winner James M. Buchanan, where politicians are elected at the micro-local level. At this level, the actions of politicians to be visible to each citizen and they can be easily recalled when voters don’t approve of them. A constitutional convention will clear the way for a new set of rules to govern the state.

Lisa Snell, an expert in school reform at the Reason Foundation, pointed out that nearly 20% of expenditures on education are incurred on retirement and health liabilities of teachers. Teacher layoffs are usually a chimera. Typically, teacher layoffs are widely reported in the press. However, the reversals of layoff decisions are ignored by the press. Altogether, only 31 teachers have been laid-off mostly for cause.  Other egregious wasteful use of resources is the $20 billion bonds on new schools building while enrollment in older schools drops.

Innovative school education methods account for only about one-percent of the students but they have been able to provide better quality education at lower costs. Charter schools are initiated at the local level and are spared a backlash from teachers’ unions.  The state has refused to call even a meeting to consider school vouchers but a small program, sponsored by private foundations, has been successful. She was particularly enthusiastic about virtual academies similar to the free learning materials provided by MIT. These are internet based learning options that aggregate teaching materials from a wide range of sources.

Health spending accounts is the next highest budget item. John R Graham, Director of Health Care Studies at the Pacific Research Institute spoke on the built-in incentives to increase health expenditures regardless of the outcomes.  Between 1997-1998 and 2006-2007, Medi-Cal (the state version of Medicaid) spending nearly doubled. The 2009-10 budgets of $135 billion for the California state allocates $38 billion of state funds for health & human services. In addition, the U.S. government throws in $40 billion for Medicaid & SCHIP: almost three quarters of the total budget. At the end of the day, physicians have to be prepared to serve patients if any of this spending is to help at all. One survey, quoted by Dr. Graham, found that there are only 46 primary care physicians per 100,000 Medi-Cal beneficiaries, versus 75 per 100,000 for users of other health insurance plans in California. This is not hard to explain given that Medi-Cal pays less; in 2003, Medi-Cal paid physicians only 59 percent of what Medicare paid. According to a study by Professor Daniel Kessler, the premiums paid by private individuals would fall by 11 percentage points if Medicare and Medi-Cal were to pay the full costs of their patients’ hospital care. Next time anyone buys insurance, remember you are subsidizing someone else.

Health Savings Accounts (HSA) have already proved to be a means to lower costs. In 2007, CIGNA HealthCare conducted a two-year study to compare cost management by consumer-directed and more traditional HMO/PPO plans among its membership of 430,000. It found that the costs of subscribers of consumer plans were lower by 12% even though they spent more on preventive care and maintenance medications. Despite the proven benefits of HSAs, the California Government chooses not to provide tax benefits for money invested in these funds. Consequently, only 4% of Californians have invested in HSAs compared to 8% nationwide.

David Zetland, a Wantrup Fellow at UC@Berkeley spoke on the mismanagement of natural resources, especially water, in California.  The state still treats water as a free good and farmers don’t have to pay for it. The state’s investments in water infrastructure are hard to recoup. Farmers resist paying prices by drawing on underground water. The effects are especially devastating in times of drought when crops are left to wither.

Dr. Robert W Fairlie, Professor of Economics at the University of California, Santa Cruz, spoke about trends in entrepreneurship and its effects on California’s economy. New businesses rely a great deal on their personal savings, such as second mortgages on their homes, financial investments and savings, to bootstrap their businesses before financiers are willing to risk their money. The decline in personal wealth, as a result of fall in home and stock prices, has affected financing of new businesses. Immigrants, especially Asian entrepreneurs, are important sources of human and start-up capital. They are able to raise capital from additional sources such as their ethnic networks.  A slowdown in immigration will have an affect on growth.

Jim Atkins from the law offices of James E. Atkins P.C. is a specialist in bankruptcy law and provided a window into the experience of businesses in recent months. While business cycles are a common experience and most owners learn to rough it out till growth starts again, this time the mood is less optimistic and entrepreneurs dread a worse turn of events.

The Logjam on Immigration: False assumptions and lost opportunities

American immigration seems immune to reform. False assumptions have been deeply ingrained over many decades and blithely parroted by the large majority of citizens. Employers protest before Congress but have not invested in research and communication with the purpose of presenting the facts which would help to verify the assumptions. Their strategy for dealing with immigration is just so inept. This despite the fact that the urban legends about immigration are just plain silly.

The refrain is that H1 employees displace locals. This is a half-truth. More often than not, H1 employees do technical work that Americans prefer not to do and choose management and marketing jobs. I have heard terms like programming monkey widely used to belittle such functions.

The other story is that as immigrants H1 employees are more likely to turn into entrepreneurs. Their chances of upward mobility are lower in the American corporate world due to cultural barriers. As entrepreneurs, they create jobs for Americans.

The current legal system in the USA is horribly dysfunctional. If companies need technical talent and don't get in the USA, they have the option of setting up an office in Vancouver where immigrants are easily available. The Canadian system is a transparent system which lowers the uncertainty and the costs of hiring foreign labor both for the employer and the employee. I made an application for the Canadian permanent card and had to do nothing after the initial application was filed. Also, the attorney was expected to return my fee if my application was not accepted. By contrast, the American application cost a huge amount, I had to make two attempts and all the time there was no way of knowing whether I would be accepted. The Canadian system takes an economic approach and matches the country's needs for workers with supply by using a point system. The system clearly works as indicated by the fact that you don't have intense controversies as in the USA.

I have worked previously on an H1 visa and always found that employers took this option as a last resort. Employers don't like the hassle of the legal process involved in H1 or the harassment of explaining to immigration officials why they chose a foreigner over a local American. Also, foreigners take a more than a while to adapt to the culture and the processes which is an added cost. The only time H1 candidates are employed are when the economy is in a midst of a boom and immigration is more relaxed.

I have heard a lot of people say that foreign labor is hired because it is cheap. Never have seen a single piece of evidence cited to support the assertion. The only thing that stops H1 visa holders from rising is the lack of mobility that comes with the byzantine immigration processes. Really, Americans with conscience will not support this banana Republic variety capricious legislation.

I might add and ask why the detractors don't ever mention the jobs that are created when foreigners turn into entrepreneurs or facilitate the global expansion of American multinationals. The tax rules for Americans overseas are just not attractive for them to go work abroad. American companies have to rely on local workers and American trained employees help in bridging the cultural gap.

BAILOUT OF THE AUTOMOTIVE COMPANIES: THE ALTERNATIVE MARKET BASED AMERICAN SOLUTION

While our loony politicians are hell-bent on bailing-out Detroit’s automotive dinosaurs, entrepreneurship is alive and kicking in the specialized automotive aftermarket. The industry for customized automotive accessories notched sales of $38 billion in 2007. The revenue earned from accessories has grown at an average rate of 7.4% over the last decade compared to an anemic 1.07% for new car sales. While the sales of accessories have slowed down to 4% in 2008, they are still out-performing many other industries.

Consumers are bored with the drab cars churned out by large automotive companies. The recession was really the last nail on their coffin. Cheap credit had for years propped up the Big 3 and the house of cards crumbled as the credit crisis hit.

Younger customers crave for fun vehicles personalized for them. They like cars like Scion, Cooper and Mustang. Market research by Deloitte indicates that two-thirds of Gen Y customers see vehicles as a reflection of their tastes and status and they consider these factors in their purchase decision. As many as 67% of them consider how well a vehicle reflects their personality.

Dealers, with a focus on customization, are reporting strong performance despite the recession. Galpin Auto Sports, with seven dealerships in Los Angeles area, earns $500,000 a month in revenue from innovative customization. Half of Ciener-Woods Ford in Kernersville, N.C customers are loading up their Mustangs, Fusions and F-150 pickups with as much as $20,000 worth of accessories. MWW Automotive, a global automotive design company, which supplies customized accessories to the Big 3, reported 11.4% rise in sales and 7.4% rise in gross profits at the end of the third quarter of 2008. The company attributed improved profitability to higher sales of spoilers--customized and popular accessories which provide a sporty look.  
 
Skilled mechanics in the automotive after-market have been driving the growth of the accessories markets while the Original Equipment manufacturers have been much slower in adapting to this trend. While vendors in the after-market are responsive to consumer need for personalization, factory made accessories tend to be more reliable and OEM warranties trustworthy. An expanded market for personalized vehicles will develop with the growth of the role of OEMs in this segment of the industry.

Large automotive companies are hobbled by state franchise laws which protect their dealers. Manufacturing companies incur enormous costs when they want to change their products and brands. General Motors was mired in 19 lawsuits in 17 states when it decided to discontinue its Oldsmobile car in the early 2000s. For this reason, OEMS prefer to payoff dealers when they want to end their relationship. Customization can hardly be successful if OEMs cannot change their products without losing money on the way out.

State franchise laws vary between states and provide different levels of protection. The most problematic aspect of it is the inability of manufacturers to communicate directly with consumers which is critical for product differentiation and direct marketing to the most desired consumer segment.  They prohibit internet sales which have been instrumental in personalization in other industries. When consumers search web sites for car information, the manufacturers are not allowed to direct the leads to dealers best able to fulfill the demand.  Digital signage increasingly provides opportunities for engaging customers with motion video. Automotive manufacturers are unable to take advantage of this medium.
 
In addition, state franchise laws inflict costs that would be saved in a more competitive environment. Inventory and distribution costs, financing and insurance costs and excess margins add about $1,500 dollars to the cost of a vehicle according to studies conducted by the Consumer Federation of America.
 
The American genius for innovation and customer service is the best bet to save the domestic automobile industry. No other country has a comparable vibrant class of entrepreneurs reinventing the automotive industry focused on providing personalized vehicles. By abandoning the archaic franchise laws, the American government will pave the way for a new phase of growth in the industry.

When will the US Economy Recover?

The US recession is getting longer and the end is not in sight. The future is muddied by political and economic mismanagement that borders on the burlesque. In recent months, one seat of the government has proposed a plan and the other disposed it. The bail-out or the rescue bill was first proposed by the White House and then disposed by the House. On the second attempt, the House acquiesced as the economic crisis deepened. The very fact the Lehman Brothers bankruptcy precipitated the meltdown suggests that the Treasury Secretary, Mr. Henry Paulson, did not anticipate the consequences of letting it go under.  The freeze in the commercial paper market was not an accident, Lehman Brothers played a role of a market-maker in the commercial paper market. Before letting Lehman Brothers go, the Treasury Secretary ought to have set up alternative mechanisms for keeping the commercial paper market liquid. A secondary effect of the credit freeze was its effect on trade credit for exporters in emerging markets. Their exports plummetted as trade credit dried up.

Now the wrangling over the auto bail-out is showing similar confusion. The Senate sees clearly that a hand-out to the automotive companies is not going to help. The one thing that stands out is the difference in the attitude of auto companies in the South and in the North. None of the Southern auto companies are looking for assistance from the Government. The unions in Detroit are not budging over wage cuts. A Chapter 11 will work the magic to bring them to their senses. Clearly, they are hoping that the new administration will prop them up. Yet the White House is now suggesting that some funds should be used from TARP to keep the auto companies solvent till they end of January next year. 

The poverty of ideas is pervasive. A massive stimulus package has been initiated by Nancy Pelosi. During the lost decade of Japan, close to ten stimulus plans with a total expenditure of one trillion dollars were implemented in the 1990s and they did not help. Japan's world competitiveness score went from number one to twenty two today. You have to wonder why nothing was learned from the long period of stagnation. Japan had a brief period of growth during Prime Minister Koizumi's term when he implemented reforms in the financial sector of the economy.

Leadership in the USA is showing the same signs of an intellectual impasse as in the lost decade of Japan in the 1990s. This is bizarre given that the USA has the world's best economists with a reputation for finding pratical solutions for policy problems.

Simply put, the way to kick-start economic growth is to lower the cost of doing business. This can be done by lowering costs of risk-management, lowering the cost of providing social services, regulatory and legal compliance and improved infrastructure. In all of these areas, the USA could make huge improvements.

A great deal of money is lost on farm subsidies. The Doha Round of negotiations, focussed on freeing international trade could be a major boost to business confidence as it will lower the cost of producing agricultural commodities and increase incomes in poor countries of Africa.  Western farmers resist the discontinuation of subsidies because they fear the impact of sharp swings in commodity prices and weather related disasters. The reality is that a switch to leisure activities, such as hunting, will compensate for lost revenues and lower risks. Catastrophic insurance for the farm sector will help as well.

The health sector is a huge drag on the American economy. A  single payer system will only aggravate the problem as it will have no in-built mechanism to lower costs. The alternative of consumers buying is a possibility although chances are that many individuals will not be able to shoulder the additional risk. In all likelihood, a freer market in health services will encourage intermediaries to strike deals with insurance companies and provide advice to individual customers.

American public schools are a disaster. Too many graduate without the minimal skills to do their jobs and businesses have to incur costs to train them. The school reform in Washington DC is uncovering the challenges of switching public schools to something that resembles private schools. Teachers are reluctant to trade the security of unionized schools for higher wages.  

American economic recovery will not be quick this time as the latent pathologies in the society stand in the way. Change, the much bandied buzzword, will run into conflicting perceptions of reform. Worse, we have bumbling idiots for leadership.

  

Election 2008 and its aftermath

Ths issues raised in the Election of 2008 will linger well beyond the voting process. As the current recession persists, the underlying structural weaknesses of the US economy will come into relief. The economy will not respond to the routine monetary and fiscal policy interventions. The Reagan economic revival was driven by tax cuts, declining barriers to trade worldwide and deregulation of business. This paradigm is beginning to run is course. Increasingly, there will be a need for new programs for lowering the costs of business such as by reducing health care costs, opening new opportunities for growth such as by deregulating the energy sector and by increasing the efficiency in the delivery of social services such as retirement entitlements.

Tired minds on the Left see the problem simply a result of extreme deregulation of especially the financial sector that the Republicans encouraged. They have initiated several rounds of Keynesian fiscal stimulus and now they are suggesting public works programs for building the infrastructure. More on the nutty side, they are suggesting nationalization of 401K accounts. Overall, they hark back the the New Deal which was a failure and would be seen so if it was not associated with Franklin D Roosevelt and the aura surrounding him. It is possible that better sense will prevail and the most recent pronouncements from Nancy Pelosi and Barack Obama suggest a move to the center. Pelosi went so far as to suggest tax cuts whatever that means.

However, the Democratic frame of mind is unlikely to give up on socialized medicine or embrace private owned retirement accounts. They are also unlikely to soften their stand on renewable energy. Between now and the 2010 elections for Congress, we are going to see these issues take centerstage as the economy continues to stagnate just like the Japanese economy has been doing for the last twenty years. Aside from occassional spurts of growth, the Japanese economy has crawled despite numerous stimulus programs.

The onus of demonstrating the viability of an entirely private sector health care system lies with the USA. With the exception of Singapore, it is hard to point to any country which does not have a significant government role. To be sure, governments will still need to provide for the very poor in society. The needs of low income patients is best taken care of by providing an equivalent of a health stamps which can be used in any private hospital just as food stamps are used by the poor to buy grocery in any retail store.  

Barack Abomination

Barack Obama, when he began his campaign, seemed like a naive liberal with a beguiling smile. When I heard his opinions, he came out clearly like a left populist very familiar to people born in former third world countries. As I looked more closely, I saw increasingly alarming signs. His oratory sounded more and more like demagogy. The cheering crowds in the background  hinted a growing personality cult building up. Then, when he started accumulating votes in the primary in caucus states, I suspected a person working on underhanded deals while he was preaching change. 

Then came the flimsy lies. He had not heard the inflammatory speeches in all the twenty years he attended Rev Jeremiah Wright's church. Anyone with any degree of familiarity with the liberal left in the USA could have recognized the familiar anti-American rage that is the sum total of the world view of this creed. Obama with his record as a left wing community organizer was in his church to be with his political brethern.

Then he dressed up his redistribution program as a tax cut. The definition of the rich has started to decline from $250,000 to $120,000 as Governor Richardson announced today. What is more alarming is that he is willing to raise taxes on capital gains even if the revenues decline. Just to be fair!

Now it is getting creepy. Punish those who dare to question him. An anchor asked Joe Biden a question about the similarity between Karl Marx's famous quote "from each according to his ability and to each according to his need" and his redistributive program and was slammed with a ban on any appearances. The trade unions will lose their right to a secret ballot and will be lorded over by the union bosses.

The chilling finale is Obama's willingness to even change the constitution to bring about redistributive justice. He is not just the pinko left in democratic countries but a communist in the closet. We have heard the lies and now the outlines of a diabolic plan are emerging. This is the way communists always worked. They collaborated with proponents of liberal democracy to oust monarchies and then stabbed their former partners in the back to launch a coup d'état. Americans will make a big mistake to vote for this stealth mode abomination.

Alternative to the $700 billion bail-out plan--a costless way to build confidence

The probability of a policy error in an emergency is high and once again the $700 billion bail-out plan is likely to leave behind a legacy of poor judgment and government folly much like the "New Deal" did. Clearly, the distrust that people had of financial institutions and the possibility of running out of cash was keeping banks away from lending. Surely, this cannot be solved by either monetary expansion or measures such as cash infusion by the Government. A much more direct way is suggested by the Levy Economics Institute of Bard College. In one of their papers, they recommend that the Fed could be temporarily turned into a clearinghouse and use its financial clout to support it. Banks then deal with a counterparty which is credible.

The commercial paper market froze after the demise of Lehman Brothers which had in the past acted as the market-maker in short-term borrowing and lending. In addition, the inter-bank lending market froze because it raised the specter of other banks being allowed to fail. Before letting Lehman go, the Fed could have announced that it will be a make-shift clearinghouse for ensuring the flow of commercial paper. The cisis had been underway for a year so the Fed had enough time to prepare for it. If it had, the $700 billion bail-out plan would not have been necessary.

Several possibilities are conceivable to directly address the confidence issues. Some people such as Warren Buffett continue to enjoy the confidence of the public. It should be possible to set-up a non-profit organization, headed by Warren Buffett, which administers funds from the public and other non-profits to extend loans to banks and businesses during the course of the emergency. One simple way could be to have individual banks park their funds with the non-profit and borrowing banks could be in touch with the non-profit. The Government could have simply provided a temporary gaurantee to support the non-profit.  

The $700 rescue plan may well recover the costs incurred to buy bad debts when the markets recover. They do have housing assets backing them. The one thing that the taxpayer is not going to be able to recover are all the goodies, amounting to another $150 billion, that were attached to the bill or simply put the spoils of office. The alternatives would have saved these extra costs and the attendant corruption.

Nobama: The Economic Rip Van Winkle

Barack Obama is best decribed as a Rip Van Winkle who appeared years after a free market across the world, with an extensive framework of rules, was established in 1995 along with the World Trade Organization. He has dusted off some old cliches of socialist redistribution and changed the language with worlds like "fairness", neighborliness, etc. As he enters the modern world, he encounters a familiar bewildered population. The old communists knew how to manipulate people in times of crisis. It was in 1917 that Russia, after a period of 50 years of solid economic growth, had fallen on bad times. The old monarchy had lost control of a country torn apart by the stresses of a long war. The Bolsheviks, with their demogogy, knew how to fire up the soldiers returning from the battlefield. Where calm minds would have focussed their attention on solving problems, they set about their agenda of grabbing power.

The confidence that Americans suddenly have in Obama's ability to be an able steward of the economy is completly inexplicable. He has neither the expertise nor a belief in the ability of free markets to ensure prosperity. Market economies have always gone through their ups and downs. Not so far back, cataclysmic downturns such as the Asian meltdown, the Mexican crisis and the Internet bubble have come and gone not to mention the Savings and Loan crisis. The one difference between this and the previous crisis is the absence of the confidence Americans have always had in their ability to cope with bad times. 

It is ironical that the very people who brought about this disruption are the ones who are posing as saviors.  Freddie Mac and Fannie Mae liberally bought housing related securities and ignored warnings about the dangers to the rest of the financial system. The Chris Dodds and Barney Franks of the world shielded them from any scrutiny while helping themselves to sweetheart deals from the Countrywide and others. Now they want regulation of the private financial world! Barack Obama received generous contributions from Fannie Mae and Freddie Mac.

There is something about the social psychology of the people influenced by Barack Obama that is hard to understand. I suspect people are soon going to get a rude awakening if they do elect Obama.