Perhaps you also caught CNBC’s Erin Burnett and Mark Haines interviewing AFL-CIO President Richard Trumka last Thursday morning in front of the New York Stock Exchange, prior to a labor union rally near Wall Street later in the day.  Talk about shock and awe!

Shock at the blatant hypocrisy.   Awe at the depth and breadth of economic illiteracy.   This was populist demagoguery at it’s finest, and one could write a book on the distortions, fallacies and misinformation in just this one seven minute interview.    Let’s take a look at some highlights:

Haines:   What do you want?  What are you trying to prove or point out today?

Trumka:  Well there’s three things that we want to say.   These guys destroyed eleven million jobs.  They wrecked the economy.   They got bailout money.   And they haven’t learned a lesson.   So we want them to do three things.   We want them to pay their fair share, to create the jobs that they destroyed.   Two, we want them to stop fighting Wall Street reform, because they send a legion of lobbyists to D.C. to stop it from happening.   Three, we want them to start lending to small and mid-size banks so they can create jobs.

Have we entered the Twilight Zone? Continue reading »

It seems like whenever a particular market has hurt a bunch of people, and we all know that’s happened lately with a lot of markets and a lot of people, the chorus rises up against that group that surely must have made things worse: speculators.    But amidst the hysteria and hand-wringing, it’s instructive to calmly walk through the scenarios that speculators and their trading counterparties find themselves in as they go about their business.

Merriam-Webster defines “speculate” as:

1 a : to meditate on or ponder a subject : reflect b : to review something idly or casually and often inconclusively
2 : to assume a business risk in hope of gain; especially : to buy or sell in expectation of profiting from market fluctuations

So it seems that to be a speculator, you need to have a view on something.   That’s generally the easy part, in that most people will express a view on just about anything.  Whether it is “correct” is another matter entirely, as is the issue of who decides what “correct” is.   But acting on those meditations and reflections results in the market itself:  two people having different views on the value of some tradable thing, each being willing to swap ownership.

Continue reading »

As I’ve written before, “Nothing is more dangerous than the combination of bad ideas and great communication”.    I want to add to that, by including voter apathy.

Witness the birth of ObamaCare, and the justifiable rage that has ensued as a result of the state taking one sixth of our private economy into its control.   In the days before the historic vote, note that not even the New York Times could produce a poll saying that a majority of Americans wanted this bill to become law.  Most remarkably, as of March 29th, a stunning 54% of likely voters would see it repealed.   In morphing their supposed mandate for “change” as pertaining to healthcare and health insurance policy into a supposed mandate for this bill, Obama’s operatives reached their peak (thus far) in disingenuousness.

The rage exists simply because our representatives did not represent.   Instead, they blatantly misrepresented.   Continue reading »

The irony should be lost on no one:  While the country waits to see exactly how brazenly its Congress can behave with regards to health care, the government waits to see how compliant the citizenry will be in revealing various statistics via its once-every-ten-year census.   A massive advertising campaign, kicking off during the Super Bowl no less at $2.5 million dollars for a 30-second spot, implores people to participate:

“The census helps us know exactly what we need, so everyone can get their fair share of funding.”

– 2010 Census TV Ad

A river runs through it? Nope.

I don’t recall reading in the Constitution about the government needing to know what we need.  I do recall reading that a census must be taken to ensure the proper distribution of congressional members.   However, even that has gone beyond the ridiculous, with state-sponsored gerrymandering that produces districts with geographical footprints that look like some kind of meandering wetlands mapping.

Continue reading »

The Wall Street Journal ran an editorial last week by Bret Stephens describing the human cost of policies that produce and maintain poverty, as opposed to those that promote wealth creation. It describes the two recent earthquakes in Haiti and Chile and notes that Chile’s earthquake was physically much stronger than Haiti’s and yet the human and physical damage was dramatically lower.   Capitalism, introduced to Chile by Milton Friedman and the University of Chicago’s economics department, wound up turning the economic fortunes of the country around in less than a generation and can plausibly be held responsible for saving countless thousands of lives in their recent earthquake.

Last week I also finished reading a remarkable new book by Jay Richards entitled “Money, Greed and God”, which I discovered via the Cato Institute’s  “Cato Audio” series.  As we continue to debate the causes of the recent financial crisis and what to do about it, Richards’ book arrives on the scene just in time.  Suffice it to say, Richards thoroughly substantiates the message of his subtitle “Why Capitalism Is The Solution And Not The Problem.”   But the applicability of “Money, Greed and God” goes far behind the recent events of the financial crisis.   What makes it stand out is that Richards addresses many of today’s hottest public policy issues from a theological perspective, skillfully navigating the terrain where few dare to tread, that is, mixing politics with religion.  Why is this so important?  I can offer my views as a Christian, although I believe they apply fairly universally to the major religions of the world.

The Bible offers no explicit blueprint for how to set up a government.  Indeed, governments are entirely man-made creations.  Yet there are at least two other areas that Bible talks a lot about: love and sin.  We are charged to do well by our fellow man, to care, to love.  Yet at the same time, we are sinners, so we are bound to make mistakes even as we try to care and to love.   It would follow, therefore, that our man-made institutions are bound to make mistakes.    If we truly care about helping our fellow man, to the extent that we attempt to implement more and more of our “care giving” and compassion through our government, do we have the responsibility as followers of God to monitor the progress?  Do we also have the responsibility to change course if our original goals are not being met?

We can read in Genesis that man was created by God, in His own image.  Richards expands on that in a way that struck me as particularly novel.  If God is the Creator with a capital ‘C’, then being created in His image, mankind has been endowed with the ability to create as well — we are creators with a little ‘c’.   And mankind’s progress through history, with all of our worldly creations, should demonstrate that.     But what have we “created” via our government, in the name of compassion?   Is it working?

At the end of the day, most of the programs and policies of government initiated in the name of helping people amount to rounding up resources from the private sector and redistributing them to others.   And there are plenty of people who argue we need to do more of that.  But if these programs and policies are in fact not working, or perhaps even making things worse, and yet we continue to do them, I would suggest that we are ignoring the original goal of helping others and instead focusing on how these programs make us feel instead.

My guess is that it is a very rare sermon that gets into these areas.   That is a shame, because it flies in the face of what believers in God are taught.   As Saint James wrote (James 2:14-26 NRSV), “faith without works is dead.”  But is faith though repeatedly failing works alive?

In a truly Faustian bargain, churches retain their tax-free status by staying out of politics.   What has the cost of that been?   Consider the fact that over 40% of the population does not pay income tax, and thus has no incentive to monitor the cost of government.  Would it be so bad some of these people were exposed to the cost of government via the Sunday collection plate?   Or to hear evidence of how some particular law is thwarting social justice?  I’m not sure one has to follow this all the way through to particular churches endorsing particular candidates.   But with liberty’s proven track record of helping the human condition, I would think that the Church would want to be its most visibly vocal proponent, and clearly it is not.   As Frederic Bastiat so eloquently wrote in The Law, “liberty is an acknowledgment of faith in God and His works.”

Many people say that discussions of government, politics and economics have no place in and amongst religion.  But consider this:   It is within the collective of man-made public policy that people of faith must attempt to implement their ideas and beliefs. Some systems provide more fertile ground for implementation than others.   And in fact, the policies and programs of government might very well be working at cross-purposes to the social goals frequently promoted by various churches and religions.   In short, people of faith have every reason in the world to be concerned and involved with the workings of government.

To whatever extent we ignore the efficacy of the government-led “solutions” to our society’s ills, all done with the best intentions in the name of compassion, I would suggest that we are engaging in a false compassion.   Getting back to Haiti and Chile, it is very clear what economic framework saved lives, and what framework did not.   I wouldn’t dare suggest that traditional missionary work is not vitally important.  But when the earthquake struck, Haiti suffered as much from a lack of better construction materials and techniques, that is, better capital, as they did from the lack any particular religious teaching.   As Christians and other people of faith seek Truth with a capital ‘T’, so we should seek truth with a lowercase ‘t’ when implementing our “solutions”.

Examples of “false compassion” are legion and some obvious ones will make the point:   Where is the compassion in minimum wage laws that produce outrageous teenage unemployment? Where is the compassion in high tax rates that are a proven disincentive to job creation?   Where is the compassion in government run health care that is bankrupting our country?   It is high time that our religious leaders take a hard look at the man-made systems through which they are attempting to spread and implement God’s word.  We can not change God’s plans for our world, but we can organize our societies in ways that give His instructions the best chance of success.

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With this week’s “health care summit” between President Obama and the Republicans, one hopes that the GOP will do a better job than they have done thus far in promoting the benefits of Health Savings Accounts.   If they had done so in the past, ObamaCare would likely never have come into consideration.   While structured differently than traditional health insurance plans, it is precisely this structural difference that holds the key to reigning in runaway health care inflation.   Health Savings Accounts should also have a nearly universal appeal to a particularly vital population in this debate, namely, doctors.

Our present system of medical spending and reimbursement is an unholy “mashup” of two concepts that need to remain separate:  health care and health insurance.    Health care is a product that seeks to meet our want and need to remain healthy.  Health insurance is also a product, but is focused on risk management.  All but the most die-hard socialists generally agree that free markets, when allowed to work, will best deliver solutions to meet human wants and needs.  Yet for some reason our government has decided that the product called “health care” cannot be delivered via free markets.   Thus, we now have 50% of health care expenditures being spent by government.    And where insurance should kick in for unpredictable events whose low probability allows for the pooling of risk, we are instead using it as a general financing mechanism for events that take place with near certainty, such as annual physicals.  One wonders why we are not being clothed and fed by similar “insurance” schemes.   The more we finance routine expenditures with “insurance”, the more we fight the consequences.

It is this fundamental distortion of the proper role of insurance that lies at the root of our unsustainable medical cost inflation. If a majority of people instead used HSA’s, inflation of medical care costs would likely be no greater than the inflation seen in any other sector of our economy.   Indeed, looking at the sub-specialties of laser eye surgery and cosmetic surgery, where insurance has played a dramatically smaller roll, there is a demonstrable trend of consumers getting better care for less money.  Perhaps Obama can order a Presidential Commission to report back on that.

The Road to HSA’s

It is not uncommon for a company to pay $10,000 a year or more to provide family coverage for an employee.  The employee gets the “benefit” of the insurance coverage, as opposed to a higher salary or wage, and the company gets a tax deduction for the cost of the insurance.   Of course, if the employee loses their job, they and their family lose their insurance coverage, too.

Rather than spending $10,000 on a “traditional” family insurance plan, the company could instead do the following:  First, they spend $5,000 on a high-deductible insurance plan that would cover 100% of the above-deductible costs of any potentially financially devastating event that isn’t likely to happen, such as a heart attack.   Second, to cover this deductible, the employer deposits $4,000 (2010’s limit is actually $6,150) into an account for the insured to spend on any medical expense, such as annual physicals, or a random trip to the doctor to be told they have the flu.   The employee and family are free to choose any medical service providers they want, no questions asked.    There’s $1,000 left over, which can be returned to the employee in the form of a higher wage, re-invested by the company to grow the business, used to increase a corporate dividend, or any combination thereof.

The wonders of the HSA stem from the fact that of the $4,000 placed into the account, the employee rolls over whatever they don’t spend into the following year, at which point they get another $4,000.   Voila!  The employee now has a strong incentive to watch how the money is spent.  For the first time, as is typical with nearly any other purchase, the consumer will now likely ask “What does that cost?” It is precisely this “skin in the game” that is key to re-introducing market forces to health care delivery.

If President Obama is truly looking for new solutions to our health care and insurance issues, in a plan that won’t bankrupt the country, Health Savings Accounts are just what the doctor ordered:

Better medical care, through restoration of the primacy of the doctor-patient relationship. Under our current system, the bogeyman of “the insurance company” enters into countless aspects of the doctor’s decision-making.   Doctors very often have to worry about pleasing “the insurance company” as much as they do the patient.  Indeed, in many respects, their ability to freely exercise their accumulated knowledge is challenged at every step of the way by faceless staff workers having absolutely no knowledge of any particular patient’s medical needs.  With widespread HSA’s, doctors would largely be free from the prying eyes of an insurance company and would instead be able to focus on delivering value to their customer, knowing full well that other providers in the marketplace were competing to do the same.    Without insurance companies being involved for routine care, doctors would be free to innovate into modern-day delivery systems, such as direct patient communication via phone and e-mail (two procedures that currently don’t have CPT codes).

Perhaps some doctors wouldn’t like replacing the insurance company with a more competitive marketplace.   But then again, like any competent service provider who is attentive to their customers’ needs and fashions solutions to them, competition is not to be feared.   Consumers would instead rightfully fear service providers who fear competition.

Reduced utilization leading to lower costs. True story:  A couple of months ago, in a horrendously stupid gardening episode involving a suddenly motionless wheelbarrow, I managed to break my own rib (feel free to both wince and laugh).  After several weeks of ongoing pain, I went back to my doctor and succeeded without too much pleading to get authorization for a CT-scan, as much to put my mind at ease that I hadn’t done anything other than crack my rib.   My cost: Ten bucks. Had my cash outlay been significantly more than that, (say, full-freight?) would I have skipped the CT-scan and carried on with the pain, just as the doctor predicted I would have for some time?  Probably.   But similarly, if the doctor had strongly urged the CT-scan, even knowing I would pay for it in full, perhaps I would have done so after getting a second opinion. The point is, my involvement in the decision-making processes concerning my medical care and the financing of that care would have skyrocketed.

Why are we surprised that virtually unlimited demand, made possible by virtually free services like my CT-scan, produces unusually high price inflation?   To slow the rate of growth in health care costs, we simply have to keep utilization in check, and to do that, there is simply no match for the aforementioned “skin in the game”.   At ten dollars for a CT-scan, I have essentially none.  Yours truly, part of today’s problem?   Guilty as charged.

However, once consumers knew exactly what procedures like a CT-scan cost, because they’d be more directly paying for them, the only way service providers would maintain their sales would be to either lower the price, increase the quality, or both. The free market’s magic of “price discovery” would signal service providers to enter the market with higher-value alternatives under the hopes of capturing market share.   So, paying “full freight” for my CT-scan would cost me less under a system of full price transparency.    This is a critical point that many people miss:  they assume that if we suddenly had to pay “full freight” for non-emergency medical care, we’d be paying today’s artificially inflated prices.

Increased efficiency for doctors’ offices. Under the dynamics of traditional insurance, a doctor’s practice must often employ an army of office workers that handle all of the insurance-related issues, many of which are not stemming from low-probability, catastrophic events.   With HSA’s many of these costs can disappear, as the doctor is paid in full at the time of service from the patient’s HSA account.  The patient in turn receives regular statements detailing their expenditures and balances.   With reduced operational costs for their offices, the doctor would be in a better position to lower the costs of their services.   There’s even a “green” angle in all of this:  think of the reduction in paper usage!

True portability.   As stated earlier, typically health insurance for an employee and perhaps their family disappears with the loss of the job.   It is common to hear of people staying with jobs they don’t like, “just to have the health insurance”.   What does the employer gain from that?   What do the employer’s customers gain from that?   Note that the savings account of the HSA is owned by the employee, not the company.   So over time, this pool of money can grow and provide financing for medical expenditures regardless of employment. Furthermore, since the accompanying catastrophic policy would be dramatically cheaper than a “traditional” plan, it would be inherently more affordable during an period of unemployment.

Ideally though, the catastrophic policy would be owned by the employee as well.   This could be achieved by migrating our compensation practices towards taking the money that is earmarked towards an employee’s insurance benefit and paying it directly to the employee instead, with the expectation that the employee would shop on their own for insurance, just the way they shop for any other product.    Remember that employer-provided health insurance came about only as a response to wage controls during World War II, specifically the 1942 Stabilization Act. (Can we talk sometime about unintended consequences?)

Now consumers would be truly liberated to seek the best policies for themselves.   No longer would they be forced to pick from a limited menu of choices provided by their employer’s human resources department.   Combining this aspect with the ability of consumers to seamlessly purchase any insurance product from any insurance provider in the world, and the proven value-creation capabilities of free markets would restored to 16% of our economy.

Pre-existing conditions. Under a long-standing existence of a system of privately owned HSA’s, the current problem of “pre-existing conditions” would be greatly diminished.   From “womb to tomb”, a person should be covered by a catastrophic policy that would provide coverage for high-expense, low-probability events.    These events would be priced into the insurance product, as this is precisely the role of insurance. So to be clear, if suddenly a person receives a diagnosis that results in large ongoing medical bills, but the person already has insurance, the insurance company should fully honor their contract and pay all claims.

By strong contrast, to force a service provider to provide new coverage for a condition that will guarantee that the service provider pay more than they receive in return violates every aspect of free trade ever recorded.  It should be no surprise that the “free market” hesitates in providing such a product!    This is not a “failure” of the market.  It is a consequence of a lack of financial planning and responsibility on the part of the consumer.   Harsh words perhaps, but this is not a foreign concept to responsible market participants.   Who seeks collision insurance for their car only upon wrecking it, or fire insurance only upon watching their house burn down?    With such insurance in place before the catastrophic event, the concept of “pre-existing condition” disappears entirely and is rightfully replaced with peace of mind.

Would the increased “threat” of suffering the financial consequences of expensive medical conditions resulting from largely voluntary behavior, like smoking, eating and drinking too much, or not exercising be an incentive to taking better care of ourselves?    Should it be?

To whatever extent we’re asking an insurance provider to suddenly provide financing for a medical calamity that was not previously insured against, we’re entering the realm of charity.    The only way the math works, the only way the insurance company does not go bankrupt, thus jeopardizing everyone’s coverage, is to charge all customers more, all the time, to be able to suddenly provide the coverage to the large new claimant.  There is clearly room for emotional and passionate debate here, and for that reason, it is exactly the realm in which the government should not be involved.

Innovation in insurance products. With insurance returned to its proper role, there would be incentives for insurance companies to lower the costs of their catastrophic coverage if the policy holder could prove on a regular basis that they are doing their part to reduce risk.    This would be a natural response to the Darwinian-sounding dynamic described above and would properly reward risk-reducing behavior.   It is exactly the kind of thing that issuers of auto and fire insurance do already.

Tax benefits. Current legislation allows for tax-free growth of the funds in the HSA account, which adds additional appeal to consumers, but probably adds to legislators’ lack of enthusiasm.  It makes for a great excuse to dismiss HSA’s as a tax-avoidance scheme, gift to the rich, or some other anti-big-government slur.   We shouldn’t confuse the two issues.   With reduced government spending in general, taxes can come down naturally.   Tax policy and health care policy need not have much to do with each other, mainly because the government need not have much to do with health care.

Sounds Interesting, But Do They Work?

Ironically, we can look to the experiences of a government for proof that they do.   In 1995, Mayor Bret Schundler of New Jersey’s Jersey City oversaw the introduction of HSA’s for government employees.   Costs went down and participants were happy.   It is documented by Schundler here.    Likewise, in the private sector, Whole Foods chairman John Mackey has described his company’s positive experiences with HSA’s.    Steve Forbes has done similarly about the experiences at Forbes, Inc.   But more generally, HSA’s will work because the free market, with all of its aspects of informed consumers being satisfied by motivated producers, works.   We don’t have a free market in health care today, so it should be no surprise that the system is not working.

Unfortunately, there is a big loser in this entire approach, and that is the armies of government bureaucrats who want to retain control over our health care and the associated sectors of our economy.    Perhaps that is the sole reason HSA’s have not yet taken off.   It is time for someone, perhaps a newly emboldened GOP, to call the bluff.

I’ve completed your assignment, Professor Reich.   I’m not a “Republican running for office next November” and regarding “thinking hard about things”, well, unless I’m missing something, I just don’t see where this is so hard.   Perhaps I need some after-class help.

Robert Reich

I read and re-read this part of the assignment:  “You don’t have to be an orthodox Keynesian to understand that as long as the private sector is deleveraging the public sector has to borrow and spend in order to keep the economy moving forward.”

You seem to share Paul Krugman’s never-ending chorus that government must step in and make up the difference when private sector spending undergoes a contraction.   Here’s a good example of that.

I also caught your appearance on CNBC with Larry Kudlow and the Cato Institute’s Dan Mitchell on January 26th as well, where you said:

“At a time when the private sector, consumers and businesses, are massively deleveraging, government has got to come in there to fill the gap.  I mean, I don’t care whether you are a Keynesian, or a Neo-Keynesian, or a Neo-Conservative, or a Neo-Classical economist you’ve got to understand that there is not enough demand in the economy to keep the economy going when the private sector is deleveraging and pulling back.  And therefore, there’s got to be a government spending, regardless of your ideology.”

I admire your consistency.   And you said that on live TV, to boot!

I suspect that you have fond memories of your time on the playground, creating wonderful towers of sand with a sand digger,  standing back and announcing “Look, everyone, at what I’ve made!   Isn’t it grand?”   But I also suspect that you ignored all of the cries of the other kids in the sandbox:  “Hey, Bobby’s taking all the sand again!  Jimmy just broke his ankle in a hole that Bobby made!  Bobby’s hitting dirt and wrecking all the sand!”    How did you get all this past the playgound aides?

I’ll stay after class for extra help if you can provide an explanation of how increasing government spending, massive deficit spending no-less, which must be funded with the resources taken from the private sector, ultimately helps the private sector.   I mean, on one hand, there seems to be nearly uniform agreement that we want the private sector to create jobs.  But on the other hand, aren’t you advocating taking the resources with which, at the margin, the private sector will create those jobs?

I’ve heard something about a “Keynesian Multiplier”, but what about what I’ll call a “Government Subtractor”?   (and can I get extra credit for that term?)  It seems to me that if the federal government decides to spend a bunch of money, it needs to first spend some of that money deciding how it’s going to be spent, and then if it passes it on to the states, the state governments are going to do the same.  Maybe even a local government will get involved, too.   So how much of each original dollar, taken from the private sector in the first place, actually returns to some recipient in the private sector?   In addition to that, how do you feel about everyone arguing via politics on how to spend all that money?    Are the playground aides still involved here somewhere?

For another twist on that theme, you must be familiar with organizations like Charity Navigator that rate various charities at their efficiency.   No one likes to give to a charity that wastes tons of money on administrative overhead.   I suspect the government would not rate very highly if judged this way.

Again, I’m no Keynesian, but if we just did an across the board tax cut, one that could be largely achieved just by changing a few variables in some software here and there (I learned that in my programming class), wouldn’t that basically pin the charity evaluator’s efficiency meter?   It would put more money in everyone’s pockets overnight, where they could do whatever they thought was best with it.   Yes, admittedly, it might not make for many great photo ops, like you sitting on the digger next to your nifty sand castle.

But what really has me stumped is how you are smart enough to decide that the private sector is not spending enough, and can decide (even approximately) how much the government should spend instead.   In other words, you not only feel confident in identifying a gap between the actual and the ideal, you’re prepared to use the force of government to do something about it.  It must be the leverage of that sand digger you that remember.  The power in those two handles really is pretty cool, I confess.

Also after class, perhaps you can explain this chart to me:

I know that a lot of people used to bemoan the United States’ very low saving rate.   But it sure seems to me that they got the message recently!  Looks like they’re saving again!   Have you decided that this huge collective behavior of our society is actually wrong? Are you pitting your singular professorial prowess against the collective brainpower of all of these new-found savers?  It seems to me that the only way you’d feel comfortable saying that the government should spend more is if you believe that the government will spend the money more effectively.  I thought we were in Econ 101 here… is this some preview of a graduate-level course or something?   Do you teach that course, too?

I will hand it to you though, all these different spending programs over the years have certainly created a very impressive tower of laws and regulations, along with an army of individuals trying to figure them all out.   It seems a lot of politicians loved their sand diggers, too.   But they must have mixed mortar into the sand they used for those towers, because no matter how hard people jump up and down on them, they never seem to collapse.

On August 30, 2005, the world lost a great mind, that of Jude Wanniski.

Jude Wanniski

As one of the earliest and most passionate promoters of what would be called “supply-side economics”, Jude would speak to anyone who would listen.  Indeed, in the lead up to the Iraq war, where he was beating the drums about former weapons inspector Scott Ritter’s reports that we would not find any weapons of mass destruction, his unorthodox views cost him friendships.    Jude was ignored, and the Bush presidency became tarred with the events of the Iraq War.  This  served to greatly knock Bush’s focus off of what should have been the nail in the coffin for big government.   It set the stage for a wordsmith like Obama to sweep into power, promising utopia on earth, created by government.   It seemed like the limited-government movement would be back by a generation or more.   Or so we thought…

The first chapter of Wanniski’s 1978 masterwork, “The Way The World Works”, describes Wanniski’s “Political Model” and opens with this summary:

“The political model holds that the electorate is wiser than any of its component parts.

Civilization progresses in a political dimension through the ability of politicians to read the desires of the electorate.  Neither the press corps nor other “opinion leaders” influence the electorate, except in the sense of broadcasting the political menu.  Their influence instead bears on the politicians, who look to opinion leaders for help in ascertaining the wishes of the electorate.  The decline of a nation state or political unit is a sign of repeated failure of the political class to read the wishes of the electorate.  Emigration is a sure sign of relative political failure.  At the extreme, the electorate resorts to revolution, thereby adjusting the political framework and raising to power a new political class better able to read the desires of the electorate.  Modern nation states have built into their political frameworks various safety values that can bring about urgent corrections in the avoidance of violent revolution or war.”

Barack Obama, as he continues to provoke and escalate what could virtually be called a cold Civil War, ignores Wanniski’s sage observations to his steady demise.  Rather than stepping back and acknowledging that Scott Brown’s recent win in Massachusetts’ special election for the late Ted Kennedy’s senate seat is but the latest attempt of the voters to say “No!” to his overreaching agenda, he instead doubles down and promises an even stronger fight.

When Wanniski talks of emigration, it is easy to think of places like Mexico, from which thousands of citizens try to flee each month.   But it should be just as easy to think of California, or New York, or Michigan, all laboratories of big government and all reaping the failures of the policies they have sown.   To now have the voters of Massachusetts emigrate en masse from their tradition of sending a Democrat to the Senate, a seat held by over fifty years by a Kennedy, is nothing short of cataclysmic from a Democratic pollster’s vantage point.   The volume of this message to Obama should cause more hearing damage than Spinal Tap’s amps cranked up to eleven.

As for Wanniski’s talk of revolution, one only needs to look to the followers of Ron Paul and the morphing of that into the Tea Party movement.   Now referred to as “astro-turf” at the peril of the accuser’s reputation, after shocking swings of the voting pendulum in Virginia, New Jersey, Westchester County New York and now Massachusetts, it should be clear that this is one Party that is going to give a wicked hangover to resolute defenders of Big Government.

Come November, we’ll learn whether or not Congress has swung far enough to override a Presidential veto on a Wanniski-style supply-side tax cut.   Simply allowing the Bush supply-side tax cuts to become permanent, rather than expire at year’s end, would substitute nicely.    In the meantime, Obama would do well to head Wanniski’s even larger message:   that no matter how smart of an administrative team he tries to assemble and maintain, it is no match for the collective wisdom of the electorate.    If he realized the latter, he would drop his populist class-warfare and instead pursue an agenda of individual empowerment, rooted in personal liberty.   Doing so might be his only hope for winning a second term, possibly against Scott Brown.

As someone who spent fifteen years at various major Wall Street firms, and nearly my entire twenty-four career to date having a discretionary bonus as a major (and often predominant) form of my compensation, I thought I’d chime in on the recent commentary.

Let me start of by saying that as I’ve written before, failing firms need to be allowed to fail.   Poor management needs to be separated from capital so that capital can find a better steward, and the genuine threat of failure is vital to ensure that proper risk management and operational caution is exercised at every step.   Likewise, I’d agree that for a company to be on the public dole and pay non-contractual, discretionary “bonuses” to any employee would be reprehensible.   That said…

In the fall of 2008, a group of supposedly very smart people decided that our financial system was on the brink of “collapse”.   Never mind for a moment that the long term demand for banking, capital raising and investment management would exist regardless of what particular firms were around to provide those services.  Hundreds of billions of dollars were assembled and in foie-gras style, crammed down the throats of companies that didn’t ask for it (just like the geese).

Firms like Goldman Sachs and JP Morgan have since been pretty clear that although they were sweating it, word of their demise had been greatly exaggerated.   At last Wednesday’s assembly of the Financial Crisis Inquiry Commission, Lloyd Blankfein of Goldman reminded his inquisitors that they had raised substantial amounts of fresh capital, and could have raised more,  prior to having the TARP money put to them, and JP Morgan’s Jamie Dimon stated in a CNBC interview shortly thereafter that they did not need TARP funds to ensure their survival.

It should be no surprise that in the volatile markets of 2009, containing one of the most ferocious upside moves in stocks ever recorded, Wall Street firms were fantastically profitable.    Most of the major Wall Street TARP recipients have paid back their cramdowns with interest, and yet there’s a lot of money left over.  But in an age of record-breaking deficits and politically-stoked class warfare, a demagoguing President Obama eying the money pot has the courage to say “We want our money back, and we’re going to get it”.    Why does he think it’s his money? I’ll also take the bet that you will never hear Obama utter those words to General Motors.   But I digress.

There are sorry parallels between what’s happening with employees of Wall Street firms and the minority communities that are the supposed beneficiaries of affirmative action, another quasi-bailout program with terrible unintended consequences.   Although filled with the best intentions for helping any particular needy minority individual, every person in these groups created solely by skin-color (thus perpetuating the need to categorize ourselves as such — take note of your upcoming census) must now face the occasional (or not occasional) silent wondering of their fellow students or co-workers:  “I wonder if he’s here only because of his skin color”.   That any member of such a targeted group might possibly endure that kind of unspoken criticism is disgusting.

Isn’t the same now possible towards employees in the banking industry?   “Yeah, the new neighbors both work on Wall Street.   I wonder if they’d be buying that house if it wasn’t for TARP?  We so bailed them out, and look at them now.” And a possible response:  “But we didn’t ask to be bailed out, and our departments made money.  We’re not investment bankers — we’re computer programmers.   Not to worry, with our 80 minute commutes and 50-70+ hour work weeks, we won’t see you too often.” I’m not sure it’s equally disgusting, but it is artificially divisive nonetheless.

I like to say that “honest achievement is the root of self-esteem”.   By stuffing money into the Wall Street firms, by having a Federal Reserve that can keep rates so low for so long that it’s hard for banks to not make money, but then railing about it when they do, our government has once again used its power to fracture civil society that much further.   It has now sown the seeds of doubt about that achievement, and with it, the self-esteem.

But what would Obama do with the money anyway?   It would get thrown into the vortex that is our Congress and spent on grand designs that can not work. By contrast, the voluntary spending and investing of Wall Street bonuses is for many regions of the country one of the primary economic engines, with ripple effects literally worldwide.  Ask the waiters at the Manhattan steak houses what they think of Wall Street bonuses, or the car dealers, or the home improvement contractors, or the real estate agents.    Ask them if they’d rather have some derivative scrap of a nanny-state program, fought for by political gamesmanship, or a bunch more customers fueled by Wall Street bonuses.

Obama’s problem is that he can not get away from the Wall Street vs. Main Street rhetoric.   When will he and his disciples own up to the fact that it’s all the same street? Something tells me that Obama and his staff, let alone much of Congress, have never read Leonard E. Read’s short but brilliant classic, “I, Pencil”. It’s never too late.

The more Obama and his ilk pursue the sort of vindictive, utterly unpredictable legislative and public-relation campaigns against Wall Street’s top earners, the more these earners will simply pull a John Galt and say, that’s it, it’s not worth it.   They won’t retire.  They’ll simply form or join private organizations that will do everything the public organizations do, but with the exception of not playing in the public arena.   And if we can assume that there is at least some correlation between compensation and talent, then by extension, returns in which the general public can participate will go down, while a separate caste of privately-accessible returns will increase in scope.   Civil society’s splintering will be furthered once again.

One of my most lasting lessons from college was an ex-Westinghouse executive-turned-professor describing the concept of a big company holding up a “price umbrella” for other smaller, more aggressive companies to get under.   Here we have our government calling out a supposed price umbrella.  So by extension, there would seem to exist an opportunity for one or more companies to swoop in and steal all of the customers being over-charged by these overpaid Wall Street types.   It isn’t happening.

In a recent column, John Tamny wrote the following:

So far, however, “discount” investment-banking firms and traders have yet to reveal themselves in a substantial way. That said, if what Wall Street’s myriad critics say is true about its employees being overpaid, it seems there’s a very real and enriching opportunity for these same critics to put up or shut up. If investment banking and trading are really as easy as they suggest, here’s their chance to prove it.

To those critics:  Please “put up” and prove your case.   Then spend the profits any which way you’d like, if they haven’t been confiscated first.

There’s no telling what legislative debacles await our country over the next year, until the new class of 2010 is sworn in and Obama’s ability to implement his remake of America comes to a screeching halt.   In the meantime, we can suggest a few resolutions for Congress and our President, or at least aspiring candidates, to consider:

We will not give away that which we do not own. As we come out of the Christmas season, we must realize that while Congress loves its adopted role of Santa Claus, it is not a role that is found in the Constitution.    Adopting this resolution would nearly single-handedly restore the government to its original limited purposes, as prior to “giving” something to anyone, Congress must first take it from someone else.   And in one fell swoop, government would become dramatically cheaper as well.

Alas, there are not nearly enough elves in Washington or anywhere else to create all of the “toys” that society has lobbied for.  But even if somehow there were, why have we tolerated a bunch of politicians and bureaucrats determining who is naughty and nice, delivering stimuli, redistribution and favors to the latter, and coal (not even “clean coal” at that) into the stockings of the former?

We will not “triangulate” our national security. Ah, imagine the calculus that screamed in the backroom meetings about Afghanistan…. How many votes do we lose if we stay? Who do we gain if we appear tough?   How blatantly can I ignore my field generals?  Osama bin Laden is on record that 10 million dead infidels, which includes both conservatives and liberals — the enemy does not care — would be an acceptable goal for their cause.  Meanwhile, we offer full Constitutional courtroom rights to self-admitted wartime terrorists.   Just what are we thinking?

We will make the “death tax” permanent. Could there be a more blatant act of class warfare and demonstration of the Politics Of Envy?   Wealth accumulated through a lifetime of work and saving, wealth on which taxes have already been paid, is taxed again because supposedly the government can redistribute the wealth more efficiently that those that created it.   How is it that we tolerate the transfer of wealth from those with the best track record of creating it, to the entity with the best track record of squandering it?

We will repeal Obamacare. Or whatever it’s ultimately called.    In a spectacularly stupid tactical maneuver, the Democrats have both a) followed a path of ramming through legislation that no poll can describe as being wanted by the American people, and b) structured the financial pain of the plan to come before the supposed gain.   This sets up a massive opportunity for those running in the 2010 elections (and probably 2012 as well) to run on a campaign cleanly targeted against the Democrats and tapping into the public’s disgust for government waste and overspending by selling the repeal of Obamacare as a cost-cutting measure.

Furthermore, if they have the spine not displayed for the last several elections, they’ll aggressively market a health insurance reform plan centered around Health Savings Accounts, true nationwide competition between insurance companies, malpractice reform, and directly addressing the uninsured.  In other words, a plan that will cost a tiny fraction of Obamacare, but more importantly, will actually be successful in driving down the rate of inflation in medical spending.     Why?  Because where HSA’s are being adopted, that’s exactly what’s happening.

The bottom line on Obamacare is that it simply can not work, because there are no elements in the plan that give any incentives to individuals to seek less medical services.  Indeed to the contrary, it will dramatically increase those demanding medical care without correspondingly increasing the supply of service providers.    The existing on-the-road-to-bankruptcy plan that is Medicare is being held up as a model to emulate, which would simply be laughable if it weren’t so outright dangerous.    But hey, this is consistent with the rest of the Obama administration’s thinking:  Identify the cause of a major sociological problem and then do more of it.

We will not sit idly by as a politically active minority transforms the character of our country. In other words, the giant that is a nation that still leans conservative will not stay asleep any longer.   It is obvious what happens when that takes place:  It sets up the stage for a demagogue like Obama to tap into a fawning national press corps and sweet-talk himself into office, promising the world (or “change”) to any and all supporters/worshipers along the way.

Instead, we will vote in record numbers and shut down the attempts to overturn the defining characteristics of our society, namely, limited government centered around freedom in all forms.    We will no longer watch the irony of formerly communist countries like Estonia racing towards freedom while we race away from it.   We will return to our global role as a country that leads by example, one that recognizes God-given liberty as the most effective way to improve the condition of mankind.

Lastly, we will actively encourage and support politicians who support the above. We will donate our time and resources to ensure that they are elected to office and hold them accountable for promoting true change in the form of reducing the size and role of government in our lives.    Likewise, we will have the courage to tell those who promote the opposite, in no uncertain terms:  You are wrong.