Healthcare - The Myth of Neutrality

Now that the Healthcare bill has become law, we are finally getting some of the transparency we had hoped for during the debates. Unfortunately, this transparency came too late to be of any use during the legislative process and the news is devastating. Despite the promises of budget neutrality made by the President and the Congressional Democrats, this neutrality is turning out to be a shameless and cruel hoax. While the President points to the Congressional Budget Office (CBO) report that claims the bill will provide deficit reduction of just over $100 billion dollars in the first ten years and $1.2 trillion dollars in the second ten years, those numbers were intentionally manipulated by the Democratic leadership.

The CBO can only score what it is before them. It can not extrapolate based on intent and it cannot adjust even when it knows key provisions have been left out of the materials they have been given. The $500 billion that this bill cuts from Medicare was factored in as a savings measure to provide solvency for Medicare through 2019. One would think that if it were a savings measure, that the money would remain in Medicare to restore balance to the program considering the projected rate of expansion. No; instead that $500 billion was also scored as part of the funding for a new entitlement program in the healthcare bill to provide subsidies for the purchase of healthcare insurance for low income families. Counting the same money twice in a business plan or as a proposal to investors would be a crime unless that plan or proposal is being submitted by Congress to the CBO for analysis.

The CBO must also score the bill based upon the language contained in the bill and must assume the cuts proposed in the bill will be law and will take place. Historically, the Congress has already passed cuts to Medicare in many previous years and to date, none of those cuts have ever been enacted. The CBO would love to say “Are you kidding? You guys have never made Medicare cuts before so why should we believe you will now?” The sad truth is they are prohibited from adding anything to their analysis that isn’t part of the actual language before them; including the intent and historical spinelessness of Congress.

Since the $278 billion dollar “doctor fix” was also removed from the legislation and will be considered as part of a spending package separate and apart from the Healthcare Bill, the CBO was prohibited from considering the budget implications from that as well. So far, a cursory look at the fiscal manipulation Democrats used to conceal the true cost of this bill adds up to three-quarters of a trillion dollars and that is just the beginning. It doesn’t sound like that $100 billion dollar savings in the first year is all it’s cracked up to be. As far as the $1.2 trillion dollar savings the CBO estimated for the second ten years is concerned, that is equally as fictional. What the President left out in his speech to the nation was the side note the CBO gave him on their estimates for year eleven through twenty of the program. The CBO made sure they cautioned that the estimates they provided are unreliable beyond ten years and that the projected savings can only be realized if the assumptions made by Congress in the legislation remain valid.

This is only the tip of the iceberg. Large portions of the uninsured are going to be driven into the expanded Medicaid program; a program that bears little consequence for the Federal government but can spell disaster for the individual States. It is very easy for Congressional Democrats to claim budget neutrality when they can shift 70% of this new burden onto the States and let them worry about how to deal with it. Many of these States are already struggling with budget problems of their own because of the recession and loss of tax revenue. In short, while Congressional Democrats try to sell the illusion of budget neutrality and the benefits of the healthcare bill before the November election, the States are going to have to raise your taxes, cut your services or both just to avoid bankruptcy because of the new unfunded mandates in the bill.

Many of the States realize they are already at the tax saturation point and will find it exceedingly difficult to raise taxes to offset the increased Medicaid liability without driving their real tax payers out. States like New York, New Jersey and California have already seen an exodus of the highest earners in recent years and when the affluent in these areas have finally had enough, they aren’t moving to neighboring States for a measly one or two percent decrease in taxes; they are moving to one of the seven US States that have no personal income tax which should be a lesson for us all. As world markets decline, investors are going to look for the safest place to put their money and many would prefer the security and stability of the United States. Unfortunately, the wild spending and outrageous taxes have taken us out of the running and nervous investors would rather take a chance on China’s experiment with limited Capitalism than America’s incredibly stupid experiment with Socialism.

As Federal policy drives the States closer to the brink of disaster, many are beginning to fight back. Several have passed legislation negating the individual mandate that would force citizens to purchase healthcare insurance under the new Healthcare bill and more than twenty more have identical legislation pending. Of course that legislation does not exempt the citizens and businesses in those States from the new tax liabilities so it in fact, allows people the privilege of paying more for absolutely nothing in return.

Congressional Democrats are already kicking back stating that the Supremacy Clause in the Constitution invalidates those measures reminding those States that Federal law supersedes State law. Of course the Supremacy Clause only applies to Federal law that is actually constitutional and that is where several States are applying their attention. Within minutes of the signing of the Healthcare Bill into law, a number of States filed suits challenging the constitutionality of the mandates that force individuals to purchase healthcare insurance and the unfunded mandates the States will face as the number of people enrolled in Medicaid climbs as a result of the bill.

Tomorrow, we will discuss the constitutional questions surrounding the Healthcare Bill and why Congress and the President are secretly concerned about those challenges.

Paul

What Is Reconciliation and Why Are We Using It?

I guess the President still hasn’t explained his healthcare plan adequately because there continues to be massive opposition where it counts most; the opinion of the American people. The healthcare summit was supposed to garner support for the Healthcare Reform Bill but curiously, the American people still reject it by a margin of 2 to 1 with most saying that the President should scrap the bill and start over in a truly non-partisan and transparent process. Most polls show that using reconciliation to pass the current bill would be disastrous for Democrats and should that occur, the 2010 mid-term election would be a referendum on the public’s disenchantment with the underhanded processes used by Democrats to force legislation through not just around the opposition of Republicans but moderate Democrats as well.

Main Street America may not have studied political science at Harvard but they do know when something smells bad. Senator John McCain raised a good point at the healthcare summit and rather than answer that point, the President chose to remind McCain that the campaign was over and the election results were in. The point McCain brought up was that if this bill is so good, then why did Congressional leadership have to buy the votes of so many Democrats? With the Democrats holding a majority in the house and a filibuster proof majority in the Senate for all of 2009, any good bill would have passed easily without a single Republican vote. Truthfully, if it were a good bill, there are an awful lot of moderate Republicans that would have voted for it too. It didn’t pass because it is a lousy bill and everyone knows it.

Now that public rejection of the healthcare bill swept Republican Scott Brown into the Senate seat once held by Ted Kennedy of Massachusetts, Progressive Democrats are once again planning to use reconciliation to pass the bill with a simple majority; thwarting the appropriate process that requires a sixty vote majority. On Tuesday, the President sent a perfunctory letter to Republican Congressional leaders stating that he planned to incorporate four Republican ideas into the healthcare bill to gain their support. Of course the President knew his offer would be rejected because the four ideas he said he would include would not change the offensive nature of the bill. Honestly, it was never his intention to gain Republican support; it was merely his intention to be able to say that he tried to at his next photo op.

Republicans remain opposed to the bill because it is an issue of fundamental values. How could a Republican support a bill that would in fact, endanger the Republic? Adding forty pages of low priority Republican ideas to a twenty-seven hundred page tax and spend debacle does not make it less of a debacle. Let’s face it, you can’t add forty pounds of sugar to a ton and a half of salt and call it candy. Truthfully, the talk of reconciliation is being blamed on Republican opposition to the legislation but is that really the issue? I’m sure with some arm twisting, threats of base closures and other funding tricks they could have convinced at least one Republican to vote for this mess. The truth is that if Scott Brown had not won the election they would probably have had to use reconciliation anyway. Even now, there are questions as to whether or not they will have the votes they need because of defections within their own party. Despite the rants of Nancy Pelosi and Harry Reid, moderate Democrats still have to answer to their constituents and their constituents are telling them to vote no or else.

Harry Reid and Barrack Obama have both said that use of reconciliation to forward the Healthcare Bill was perfectly acceptable and that Republican had used this measure numerous times in the past. What Harry Reid didn’t tell you was that every time reconciliation was used by a Republican administration that there were vociferous cries of tyranny from the minority Party which happened to be the same Democrats that are now considering the measure appropriate and correct. What they also failed to mention was that reconciliation had only been used as intended by the act that formed it, The Congressional Budget and Impoundment Control Act of 1974 which can be read in text form at - http://uscode.house.gov/download/pls/02C17B.txt .

So what is reconciliation? During the 1972 election campaign, President Nixon asked Congress for authority to cut Federal spending at his own discretion to remain under the proposed $250 billion ceiling for fiscal year 1973. Congress refused to grant such an open-ended grant of authority. Congress and the White House ultimately clashed sharply over President Nixon's aggressive impoundment of (refusal to spend) funds appropriated by Congress. In 1972, as a result of the battle between the Congress and the President, Congress created a Joint Study Committee on Budget Control, composed of members from the House and Senate appropriations and tax committees as well as two members from each Chamber. Included in the committee’s recommendations was a means of improving “the opportunity for the Congress to examine the budget from an overall point of view, together with a congressional system of deciding priorities.'' The report went on to state that it was "important to recognize that the budget deficit be no larger (or the surplus no smaller) than the Congress considers appropriate for economic or other reasons.''

In response to both the frustration generated by the fractured congressional budget process and the perceived encroachment of the executive branch into the budgetary turf of Congress, Congress passed the Congressional Budget and Impoundment Control Act of 1974. The major purposes of this Act were to reassert the congressional role in budgeting, to add some centralizing influence to the Federal budget process, and to constrain the use of impoundments.

One of the most important developments to emerge from the 1974 Act has been reconciliation, a process that allows Congress to change existing laws to conform with the tax and spending levels established in a proposed budget. This developed into an important procedure for implementing the policy decisions and assumptions as enunciated in a budget resolution; a policy that was not envisioned when the Budget Act was written. Under the original design of the 1974 Budget Act, reconciliation had a fairly narrow purpose. It was expected to be used in conjunction with a second resolution, was to apply to a single fiscal year and be directed primarily at spending and revenue legislation acted on between the adoption of the first and second budget resolutions.

Regardless of the rants of Harry Reid, reconciliation has never before used by either Party to pass legislation that hasn’t already been presented to the President. It was meant to move important legislation beyond the roadblock of a reluctant President and the subservient members of his Party in Congress. This is clearly a violation of ethical behavior on the part of Reid, Pelosi and Obama to mutate a clearly defined budgetary process to enact unpopular legislation.

Again, the use of this legislative “trick” to move the bill forward is not being used to bypass the Republican Party. It is being used to bypass moderate Democrats that realize what this bill means and are as reluctant to vote for it as the Republicans are. Unfortunately for those moderates, the openly tyrannical antics of the Democratic leadership and Progressive Democrats will damage their prospects for reelection as well. The damage this legislation will bring cannot remain hidden once it is past and that is when those that refused to believe the warnings will be aghast at what has been done. It is nothing less than the creation of a government agency that will have all the authority it needs to unilaterally control ever aspect of healthcare in this country.

Paul

What is the Crisis with Healthcare?

Years ago, when I lived in Ozone Park, New York, there was a local auto glass company that did fairly well in that area. There was always an element of vandalism one could expect in New York City and there were always kids playing ball in the streets which would invariably lead to a stray home-run breaking a windshield or two. Rarely did a day go by when there wasn’t a window broken here and there in the neighborhood and a local auto glass installer was a convenient fix for people on the go. Quite suddenly, the incidence of vandalism rose sharply and for a period of months, someone would target two or three blocks during the night with a BB gun and knock out 10 or twelve car windows per block.

Ozone Park was semi-famous back then as the location of the “Bergen Hunt and Fish Club”, one of the popular hang-outs of the notorious mobster, John Gotti. Someone overheard an employee of the local auto glass company bragging about how much business they had gotten from all the broken windows in the neighborhood and a few of the local tough guys put two and two together. Mysteriously one evening, the auto glass company burned to the ground in what was called a “suspicious fire”. Just as mysteriously, the crime wave of auto glass vandalism vanished for good.

Ok Paul, that was an interesting, if not amusing story but what does that have to do with the Healthcare Reform bill that has been making headlines for the past year? What if I told you that the current spike in healthcare insurance premiums were not caused by evil profiteering insurance companies? What if I told you that despite government claims of windfall profits that health insurers, as an industry, have a profit margin of less than three and a half percent (3.5%)? What if I told you that Medicare, Medicaid and government regulations are actually to blame for the spiraling costs of healthcare in this nation? Would that story have a little more relevance then?

Medicare and Medicaid were enacted in 1965 under the Johnson Administration as part of his “Great Society” initiative. The rationale for Medicare was that senior citizens were finding it difficult to afford private healthcare premiums on a fixed retirement income. Medicaid was similarly included to give the poor access to healthcare that would have ordinarily been out of reach for them. The fixed income argument for senior citizens was valid but not the whole story. Since America passed the Social Security Act in 1935 under FDR, a growing number of citizens failed to invest in private retirement programs because of a false sense of “security” this national safety net had given them.

In recently disclosed documents it was found that FDR only included the individual contribution mandate in Social Security so that future politicians could not dismantle the program later. After all, if people paid into it, then you cannot lawfully take it away from them without compensating them first. What he unwittingly did was create a thought process among the citizenry that these same individual contributions had taken the place of any contributions they could make into private retirement accounts. “Why pay twice?” became the general mindset of the public. We now know that because of numerous amendments to the Social Security Act as part of the “great society”, that a great many program expenses were added such as survivor’s benefits and disability benefits; expenses the system was never designed to incur.

Social Security was designed to provide a safety net for those Americans whose incomes would not support retirement savings and lived beyond an age that they could reasonably be expected to work. It was insurance but unlike life insurance, it was insurance that the government gambled that you would never collect. The age at which benefits could be collected had been arranged so that the age of retirement was nearly ten years older than the average life expectancy in the United States. The few that beat the odds would have a rich pool from which to draw a subsistence level of income if they had been unable to save for retirement in their youth. Well, the average life expectancy rose and while there were some adjustments in the age of retirement, they simply did not keep pace with the outlays of the program.

So now we have a large group of seniors drawing on Social Security as their only means of income and of course, by 1965, were unable to live on that and pay for healthcare insurance. Progressives like Lyndon Johnson could only see the solution in another large government program. Rather than offer assistance to seniors to help those that could not afford insurance to purchase it, he devised an enormous single payer healthcare system that would provide all seniors with medical care at affordable rates. He also enacted the single payer counterpart to Medicare for the poor but of course, the government couldn’t foot the whole bill for that so it became a shared responsibility between the Federal government and the individual States.

In 1965, the projected government costs for these programs were a measly nine billion dollars over ten years but by 1968; they were both over budget and in danger of collapse. In response the government would do something that only governments do. They raided the Social Security trust fund and placed Social Security on the Federal budget and into a massive new program that included Social Security, Medicare and Medicaid. The best minds knew that this was little more than a temporary fix and as the baby-boomers reached retirement age, there was no way the government could afford to repay all of the IOU’s they just stuffed into FDR’s “sacred trust” and meet the obligations of Johnson’s Great Society. So what…right? They would all be out of office and possibly dead before it all fell apart but for now, they were heroes.

Today, Social Security, Medicare and Medicaid represent nearly forty percent (40%) of the entire Federal budget. As the Federal government struggled to meet its other financial obligations and keep these social programs afloat they turned to massive deficits and have incurred an enormous National Debt in the process. In the creation of Medicare/Medicaid, the government failed to adequately forecast the innovation in medicine that is synonymous with vibrant economic conditions in a free society. In 1964, there were no advanced diagnostic procedures and no such things as MRI’s or Cat Scans; there were no transplant surgeries and there certainly was no definitive studies on nutrition or well care that would keep people and healthier for far longer periods of time. Costs for medical care climbed because the care was better and the outcomes were healthier so people lived longer.

Through Medicare and Medicaid, the Federal government now pays more than fifty percent (50%) of all the medical related expenses in the United States. In an effort to reduce their own costs they have systematically capped payments to doctors and hospitals and have reduced their reimbursements to the States for their portion of the shared burden of Medicaid. They passed legislation for indigent care which makes it unlawful for hospitals to refuse emergency treatment solely on the ability to pay and have ignored most of the financial burden associated with that mandate; leaving up to the hospitals and the States to absorb the impact.

Of course hospitals and doctors can only absorb so much and what they have had to do is recalculate their fee structure to offset the losses. The reduction of Federal reimbursements and the imposed caps of the costs of services for Medicare and Medicaid patients have forced care providers to pass those shortages on to someone that will pay….private insurance companies. Does anyone hear glass breaking yet? With an average profit margin of 3.5%, insurance companies had to raise their premium rates in response to the increased cost of care or go out of business. That has made insurance nearly impossible to obtain and yes, even led to the draconian practice of lifetime benefit caps and the denial of pre-existent conditions.

So what came first; the chicken or the egg? While it may not be intentional “vandalism”, it is clear that the meddling of the Federal government through their nearly fifty year experiment of socialized medicine bears the lion share of the blame. Of course, since we have become a society that relies on insurance or government to pay for our healthcare costs, we stopped asking questions like “How much does that cost?” or “Do I really need this?” We need to ask what we expect from insurance. Do we want insurance to cover every aspect of healthcare and if so, we need to realize that it is no longer insurance but pre-paid medical care and that is going to be extraordinarily expensive no matter who provides it. If we want catastrophic insurance that would keep us from going bankrupt should the worst happen, that will cost far less but we will have to pay for our own doctor visits, examinations and yes, even our own medications.

Tomorrow we will examine why the Federal government is so insistent that you need this massive 2,700 page healthcare bill and why it looks like they are not going to take no for an answer.

Paul

Obama's Recession

Any discussion about who is ultimately responsible for the recession would not be complete without a clear definition what a recession is. In economics, a recession is a business cycle featuring a general slowdown in economic activity over a period of time; usually two fiscal quarters or longer. The other criterion for identifying a recession is an increase in unemployment of greater than 1.5%. It is clear based on the generally accepted criteria that the recession began under George Bush with the third quarter of 2008 showing a 2.7% decrease in GDP and the decline jumping to 5.7% in the forth quarter of 2008 and a corresponding increase in unemployment from 5.8% to 7.2% over the same period.

Except for the last two quarters of 2008, unemployment during the Bush administration had cyclically fluctuated between four and six percent just as it had during most of the Clinton administration. Clinton stepped into office with unemployment at 7.3%; remaining at or near that level until October of 1993. Of course the banking system was still generally believed to be in good shape then and since we found out that most of the deregulation that nearly collapsed the system had not occurred yet, it probably was. I find in curious that the real reduction in unemployment during the Clinton years did not take place until he abandoned his plans for healthcare reform. Apparently, the business community had the same reservations about the future of their profitability with Clinton-care as they do with Obama-care. While Clinton did not lower taxes, his advisors did convince him to reduce the capital gains tax and that made the risk of investment more palatable.

Obama has not enjoyed a reprieve from high unemployment because the threat of his agenda has kept the business community from investing in labor or expansion. The measly incentives he proposed to help small business during his State of the Union Address lost weight and credibility when juxtaposed against his assertions in the same speech that he intended to follow through with healthcare, cap and trade and the hair-brained scheme of debt forgiveness for student loans for anyone that could avoid paying them for twenty years (ten, if you were employed in the service of the government).

There is nothing in the President’s agenda that does not take from those that earn wealth only to be given to those that don’t and that is what is killing new job creation. In fact, it took all eight years of the Bush administration for unemployment to rise 3%; Obama nearly achieved that in his first year in office. The President may have inherited a large national debt, high unemployment and a sagging economy; but he did not inherit the agenda proposals that have made all of these indexes far worse. That agenda is all his (or at least, it belongs to whoever is pulling his strings).

For all the damage that his proposals have wrought on the economy and no matter how many people tell him that this is what has stalled business, he still intends to follow through. I haven’t decided if that is just stubbornness on his part or if these are the marching orders from his number one White House visitor, Andy Stern. I think it is fair to question his motives and when you follow the money and the intent of the people that are pressing heavily for these socialist programs like Andy Stern, some interesting things happen.

Obama has recently made some very impassioned speeches where he says that he promised healthcare would pass and that is exactly what he is going to do. Well, he promised to close Guantanamo Bay in the first year and it is still open. He promised transparency in his administration; that healthcare debates and meetings would take place on C-Span. Not only have the meetings on healthcare barred C-Span coverage but congressional Republicans have been barred as well. He said there would be no more back room deals and then offered $300 million to Mary Landrieu for her vote and only God knows how much for Ben Nelson. Bernie Sanders got billions for community health services but in all fairness, that was to expand national programs and not just those in Vermont. All of that money and more had been handed out in closed door, back room deals.

Obama also said there would be no middle class tax increases. Those of us that watch this nonsense knew that was a lie of semantics from the start. His plans and programs, not to mention the FY2011 budget, call for a whole host of new taxes on goods and services; taxes that will be passed on to you by the businesses they affect. He could stand firm on his promise of not taxing you directly while taking it from business knowing they were taking it from you. Now apparently he is going to make the same mistake George H.W. Bush made. Remember “Read my lips – no new taxes”? Bush reneged on that and Clinton never let you forget it during the campaign.

Now that Obama has blown through four years worth of Bush deficit spending in his first year in office, the nation is crying for fiscal conservatism. Fiscal conservatism for most of us in this country means cutting spending to live within our means. For a tax and spend Progressive, fiscal conservatism means making sure you have enough tax revenue to cover your planned spending. It was announced this week that the President is considering a middle class tax increase now that the Congress has passed “Paygo”. Paygo simply means Pay as you go; a mandate that Federal spending increases have to be offset by a decrease in spending elsewhere or an increase in taxes. So now, in a recession, the President wants to tax the middle class twice; once directly and then again by turning overtaxed businesses into tax collection middlemen. That is why they are trying to sell us on the notion that the recession is finally easing.

There was a modest gain in GDP and a slight easing of unemployment last month. Both of which are easily explained by the billions spent in stimulus money and the increase in government employment as they ramp up for the 2010 census. Neither of these small increases are the result of real economic growth and neither will be lasting. So now that he is planning to raise taxes to show his fiscal conservatism, where are the corresponding spending cuts? Well, the President of semantics has the answer to that too. He increased discretionary spending 25% in 2009 and will add another 20% in 2010 but he promises to freeze discretionary spending in FY2011. Mr. President that is not a spending cut; that is freezing your insane increases so they can’t be cut.

Early in the Twentieth Century, America had a similar crisis. After World War I, America was faced with a deep recession brought on mostly by huge increases in the personal income taxes imposed to pay for the war. By 1920 we had slipped into depression and unemployment had topped 12% but unlike this President, the drastic steps that were needed were actually taken. Congress halved government expenditures and slashed taxes to nurture the economy. The result was a period of unprecedented growth not seen since the creation of America and that brought the country out of depression within two years when unemployment had dropped to just over 3%.

Until there is a recognition that government is the problem and not the solution there will be no meaningful progress in spending cuts, debt reduction or economic development. If there is ever going to be an epiphany in Washington on this, it certainly will not begin with this President. If America can elect a Congress this November that can put an end to Obama’s agenda that will be a good start. They might even be coerced by an active and involved electorate to propose legislation to finally restrain the wasteful ways of Washington. The bad news is that unless those daring individuals are elected in numbers sufficient to override a Presidential Veto; that new legislation will have to wait until a responsible President can be elected in 2012.

None of this would be needed if Washington actually obeyed the Constitution and had not ignored the Tenth Amendment for the past hundred years. Tomorrow, we will discuss what our government would look like if we had a Federal Government that actually resembled the intentions of the founding fathers.

Paul

Obama Didn't Inherit the Recession - He Hired It

In continuation of Friday’s article, we were discussing whether or not the Obama administration could continue to call this recession the “Bush” recession. The answer is no and the Obama administration has to face the fact that the statute of limitations for blaming Bush has run out and he now owns the economy; especially since his administration has already used all of their “Ivy League” experimental theories to correct it. As much as they would like to enter the 2010 campaign cycle with as much emphasis as possible on the “mess” that Obama inherited, there are several of those pesky little facts out there that all of Obama’s rhetoric will not change. As it turns out, Obama didn’t just inherit the recession, he hired it.

#1- President Obama has retained people within his administration that were previously key policy makers whose actions contributed to the current recession.

#2- Much of the small business community has sited major parts of Obama’s agenda that have shaken the confidence of business in the health of the economy under Obama’s leadership and in their ability to remain profitable should those agenda items become law.

#3- The actions taken by this administration to correct the faltering economy were, and continue to be, centered on government control, government spending, and the monetization of debt complicated by the dangerous misreporting of economic indicators.

We already discussed Tim “Turbo-Tax” Geithner, Obama’s current Treasury Director; specifically how his actions while he was Chairman of the New York Federal Reserve and a member of the Washington “Group of Thirty” have been considered by many economists as directly impacting the economy in ways that have severely damaged the banking industry. We also discussed that Rahm Emmanuel, Obama’s current Chief of Staff was on the board of Freddie Mac during the period that Freddie Mac was plagued with scandals involving campaign contributions and accounting irregularities. Obama torpedoed a Freedom of Information Act request to obtain communication and e-mail records that might have helped an investigation implicate his dear friend and Chief of Staff.

Let’s talk about some new people. Barack Obama’s choice for Director of the Office of Budget and Management (OMB) is Peter “Loverboy” Orszag. If you recall, the OMB gave the Senate Healthcare Bill a failing grade on maintaining the “budget neutrality” that the President required of any bill he would sign. Of course a quick closed door meeting between Obama and his Budget Director fixed that and within days, the OMB reevaluated the plan and Viola! It was budget neutral! Thank God for Orszag! It is critically important to economic recovery that the business community can trust the estimates of government. After all, to be able to expand and chance the hire of new employees, business must be able to accurately estimate little things like future tax liabilities and the burden that new regulations will have on the cost of manufacture, labor and energy. Can you imagine if people began to mistrust the government; especially in the area of official reports and estimates? The ramifications would be astounding. Why you could dump hundreds of billions into the economy and never create a single job!

Orszag is another one of those intellectual theorists that has never held a real job. While he was not a “Rhodes” Scholar like Bill Clinton, he was a Marshal Scholar and after earning a degree in economics from Princeton, Orszag traveled to England where he obtained his Masters Degree and Doctorate in economics from the London School of Economics. He sites several people that he considers “Mentors” including Joseph Stiglitz. Stiglitz was not your average apple pie and baseball American and was himself, a proponent of globalist economic policy, market socialism and what he called a “more sustainable and just global economic order”. In addition to Stiglitz, Orszag also considered Robert Rubin an important influence in his life.

Yes, that is the same Rubin that spent 26 years at Goldman Sachs as a board member and Co-Chairman before joining the Clinton administration as Assistant to the President for Economic Policy. After leaving the Clinton administration, Rubin became Director and Senior Counselor of Citigroup and would eventually serve as interim Chairman between November and December 2007. In January of 2009, Citigroup announced his resignation after having been criticized for his performance. Rubin became one more name on the list of individuals that had brought the financial system to ruin before leaving with more than $100 million dollars in cash and stocks.

The current Director of the White House's National Economic Council for President Barack Obama is Lawrence Summers. “Larry” began his academic career at MIT where he studied physics but soon switched to economics, earning an B.S. in 1975. He attended graduate classes at Harvard where he earned his Ph.D. in 1982. At age 28, Summers became one of the youngest tenured professors in Harvard’s history. Like Orszag, Summers is a theoretician when it comes to work and has spent his life either teaching, in government or governmental organizations like the dreaded World Bank. While all of that sounds impressive, I still don’t know how we let people teach what they have never been involved in….like where business actually fits into a market economy. Summers early career was as an “academic economist” and he was responsible for providing research data for economic studies.

As a researcher, Summers has made important contributions in many areas of economics, primarily public finance, labor economics, financial economics, and macroeconomics. Some of Summers' early papers concluded that corporate and capital gains taxes are an inefficient form of taxation. Cutting the capital gains tax rate, Summers found, could help the economy grow. One of Summers' prominent findings in labor economics is that unemployment insurance and welfare payments are a major contributor to unemployment, and therefore should be scaled back. Since the Obama administration has taken a course contrary to these proven economic strategies, it is apparent that Larry’s career in politics and as a professor at Harvard, has caused him to trade his lust for truth for the comfort of being part of the ruling elite.

Of course there is a down side to losing your “religion” and Summers would find out that when you ignore what you know is right and true because it is unfashionable, bad things are bound to happen. As Treasury Secretary, Summers led the Clinton Administration's opposition to tax cuts proposed by the Republican Congress in 1999; a 180 degree reversal from the data he provided for other economists earlier in his career. Summers supported the Gramm-Leach-Bliley Act in 1999, which lifted more than six decades of restrictions against banks offering commercial banking, insurance, and investment services (by repealing key provisions in the 1933 Glass-Steagall Act). After passage, Summers announced: "Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century," "This historic legislation will better enable American companies to compete in the new economy. Unfortunately for Summers, the deregulation under the Glass-Steagall Act is widely known to have created the conditions that directly led to the sub-prime mortgage crisis; the precursor to the financial meltdown of 2008.

Summers also testified before Congress that there was no need to require additional regulation of the institutional OTC derivatives market, a move that would later lead to the near collapse of AIG. The work that Summers did for the Clinton administration in fact, created the conditions that would nearly drive the nation into depression a mere ten years later. Upon leaving the Clinton administration, Summers became the President of Harvard University. He decided to invest University funds using the loopholes he created through deregulation. Of course interest swaps and hedge funds can’t be maintained forever and his financial wheeling and dealing would end up costing the University over $1 billion dollars and cost him his job, forcing his resignation in 2006.

Now the Obama administration is shaping the financial direction of the nation under the advice of the actual architects of the financial meltdown that nearly bankrupted the entire financial system of the United States if not the world. One could argue that the Bush administration should have taken reasonable steps to restore the needed regulations which could have prevented the crisis and he probably would have if his administration hadn’t received the assurances of the Federal Reserve and Congress that everything was fine.

So in summary, the Obama administration is blaming the Bush administration for a recession that was brought on by financial deregulation enacted by the Clinton administration under the advice of people that Obama just rehired to direct the financial direction of the country under his administration. The question that remains unanswered is why Obama thinks that any of this is a good idea.

Paul

2010 - Can Republicans Win?

Now that 2010 is finally here, the Republicans would do well to remember the age old adage that there is no such thing as a free lunch. The public rejection of a liberal agenda proposed by an unpopular President is not a guarantee that Republicans will sweep the mid-term elections. As unpopular as Barack Obama is, his poll numbers are still double that of Congress and the anger that meant victory for Chris Christie, Bob McDonnell and Scott Brown was not just meant as a message to Washington, but was also the leading edge of an anti-incumbent wave.

Neither Party has secured the faith of the American people and most view Congressional Democrats and Republicans as two pictures of the same dog. Both have a history of corrupt cronyism; both are guilty of broken promises; both have shown an unwillingness to reduce the size of government and neither has taken any steps towards reducing the levels of deficit spending let alone any real attempt to reduce the National Debt. Democrats have recently argued that Bill Clinton substantially reduced the deficit under his administration at the current spending deficits are only needed because of the damage that George Bush inflicted on the economy.

While it is true that the deficit was drastically reduced while Bill Clinton was President, the notions that his policies had anything to do with that reduction are strictly nonsense. Bill Clinton enjoyed a spill-over affect from Alan Greenspan’s reduction of interest rates. The lower interest rates reduced the interest we paid on the National Debt and that represented a roughly $200 billion dollar savings for the Federal government.

Washington has a far worse deficit than money. There is a deficit of trust and an overwhelming number of people have no faith in Congress at all. The recent accounts of back room deals and the selling of votes for the healthcare bill have severely hurt Democrats so they will have a difficult time in the fight to regain that trust. Some realize that there may be no way around the prevalent anti-incumbent sentiment and have already decided that the best opportunity to retain Democratic control is in not running. This will allow a new face to challenge the Republican candidates instead of an incumbent damaged by his association with a radioactive Congress.

Democrat strategists are deathly afraid of the new wave of conservatism sweeping the country and are doing their level best to see that if Republicans must win, that the candidates at least have a moderate philosophy. They have begun their assault on Conservatives, painting them as neo-Nazis and something to be feared. The attempt is to create fear among independent voters and to force the hand of local Republican Parties to moderate their choice of candidates. Since the healthcare debate began, they have been accusing the Republicans of obstruction and partisan politics that has stood in the way of critical legislation. Of course that is ridiculous. Before the election of Scott Brown this January, the Democrats enjoyed a filibuster proof Congress and could have passed any piece of legislation without a single Republican vote. It was the divisions among Congressional Democrats that have stalled the healthcare bill and that is because no matter what the President or Rahm Emmanuel want, it is a bad bill and some Democrats are just not biting.

Republicans can not simply run for election on the notion that they are not Democrats. They must bring about a renewal of the Party and clearly state the ideals and promises that set them apart from Democrats. They must develop a positive message of how they would deal with America’s most critical challenges. People are disillusioned and disheartened and there is no belief that the Government can be restored and that the debt that has made us slaves to China and other nations can be brought under control. Congress must be willing to reign in the super-agencies within the Federal government. The notion that agency chiefs and special advisors have regulatory powers outside of the control of the elected officials in Congress has upset the balance of power in Washington and has given the White House unconstitutional control over the nation. This is witnessed in the EPA’s threat to implement carbon restrictions by fiat if the Congress does not pass the President’s energy bill (cap and trade).

Special advisors were created to allow a fast response and specialist analysis in times of crisis. They should never have been allowed to become permanent positions and most should have been eliminated after the immediate crisis was over or in the case of a long term problem, should have been used to shape long term policy within the responsible agency and then eliminated. A “special” advisor isn’t all that special if they never go away. The President has the power to fill cabinet positions with Congressional oversight but many of these special advisors have been given real power without being required to answer to Congress. Legislation should be written that would require all special advisors to pass the same confirmation process as cabinet level appointees, or to have special advisors appointed by Congress at the President’s request for special assistance.

Social Security should be privatized and placed under the control of a congressionally appointed fiduciary. The Federal government raided those funds to support Johnson’s “great society” back in 1968 and has been liberally using the SS funds collected from working Americans ever since.

The current healthcare bill should be scrapped and the Federal government should eliminate the restrictions that have prevented insurers from competing across state lines and allow the same tax credits for small business owners that provide health benefits that the larger business and unions enjoy. Legislation to protect doctors against frivolous law suits is a must and the requirement to prevent insurers from dropping clients once they become ill is an easy remedy that does not require 2000 pages to address. Similarly, measures that allow portability of insurance while changing jobs and a common sense approach to pre-existent conditions should be sought. Pre-existent conditions will be the tricky one to get right. The only reasons insurers exclude pre-existing conditions for a set period of time is to prevent people that never had insurance in the past from jumping into a policy after they become sick. Take your pick…health, auto, homeowner, boat, travel…no insurance companies cover pre-existing conditions for all the obvious reasons.

Energy should be declared a vital strategic interest of the United States and the development of domestic resources should be exempt from regulation by the EPA. Additonally, energy development should not be subject to nuisance law suits by environmental extremists because it is a strategic concern. On the subject of strategic interests, it is foolish that our defence industry relies heavily on foreign made components. Any component used in the manufacture of military equipment should be required to be a domestic product.

The Republicans must embrace their conservative roots and commit to restoring the limits on Federal power written into the Constitution. The enumerated powers deny the Federal government the power to interfere in education, health and a myriad of other issues that are supposed to be under the authority of the individual States. If the Federal government has no Constitutional authority in these matters, then the corresponding agencies should be disbanded, returning those powers back to the States where they belong.

They must reduce taxes and make the reductions permanent to spawn true growth in the economy. They must eliminate the estate tax which has had a devastating effect on the family succession of ownership of small businesses. They must address the sacred cows of Social Security, Medicare and Medicaid which is the real crisis. The unfunded liabilities of these programs have exceeded $100 trillion dollars, overshadowing the National Debt by a factor of ten to one.

Most importantly, they must resist the rhetoric on the left that restoring Conservative values to the Republican Part will drive moderates and independents out of the so-called “big tent”. Big tents are for circuses and the Progressive Republicans like Lindsey Graham and John McCain have done more to damage the focus of the Party than anything the Democrats have done. These men may be strong on defense but they are every bit as fiscally irresponsible as Barack Obama is. If they were really serious about reform they would also begin the battle to bring about a Constitutional amendment that will finally impose term limits on Congress. The biggest reason that Congress is so disconnected from Main Street America is that many of them haven’t seen Main Street in thirty, forty and even fifty years.

Paul

Governor Paterson Battles Progressives in New York

There are moments in life that are just memorable like your first love, your wedding day or baby’s first step. Those things are indelibly etched into your brain because they are so very, very rare. Yesterday the New York Times published a story about New York Governor David Paterson lambasting the State legislature because they are spending New York into ruin. Wow!

Actually, this represents three very, very rare occasions. The first is seeing a career tax and spend Democrat actually facing the reality of a fiscal nightmare instead of trying to spend his way out of it; the second is that he laid the blame at the feet of other tax and spend Democrats instead of blaming Bush, Reagan or some new age planetary alignment and the third, the New York Times actually reported the story as news instead of lacing it with their usual brand of liberal spin. Weird huh?

New York is facing a fiscal crisis that took decades to create and is anticipating a seven billion shortfall for the coming year. Last year, New York barely escaped catastrophe, in part by federal stimulus aid, and yet state officials increased total spending by nearly nine percent, even as the economy continued to stall and State tax revenues plummeted. New York is the home to some of the highest taxes in the nation and that has cost them dearly. Businesses are relocating to areas where they are welcome instead of penalized and there has been a continuing exodus of the affluent as tax rates climb higher; a trend that began years ago because the State and City view New York taxpayers as an inexhaustible source of ready cash.

Paterson could adopt the usual liberal stance, throwing his hands in the air and reminding everyone that he inherited this mess from his predecessor. In fact, in his case it would be easy to do since he replaced a Governor that resigned in disgrace over a prostitution scandal. Even though Paterson is blind, he has displayed better vision in recent months than many of his associates at the State capitol. Hey, maybe he’s been “born again” and will be the next convert to the Republican Party but I doubt it. It’s just like the old saying that there are no atheists on a battlefield, if financial balance were miraculously restored to New York tomorrow; I would bet that he would start signing blank checks again.

Paterson is not popular but with a State budget in crisis, no governor would be. First, Paterson decried the need to bring State spending under control and urged the legislature to cut taxes or risk losing their biggest taxpayers to other states. Then he bucked pressure from the White House urging him not to run for reelection as the White House strategists claimed that it would be easier to retain Democratic control of the State with a new candidate running than it would be to try to get an incumbent reelected in the anti-incumbent climate of 2010. Now Paterson is taking the fight directly to the legislature and this time there were no niceties. There was no fluff or flourish as Paterson laid it on the line. He blamed the State’s financial crisis squarely where it belongs, with the legislature that writes the spending bills. The same legislature that refused to consider budget cuts when the piggy bank was found to be empty, and in fact, increased State spending while they “passed the hat around” in Washington hoping some sympathetic Senator would drop some loose change in it.

Washington apparently possesses the same fiscal common sense that the New York legislature does. As the national debt approached twelve trillion dollars, one would expect that the Federal government would have spent nights and weekends trying to find ways to reduce the weight of the Federal budget so we could begin to pay down our debt. That is what the American people must do when they are faced with a financial crisis. But no, our government nearly tripled the Federal budget, adding a record one point seven trillion dollars to the national debt in just one year. Instead of trying to reduce the debt, they spent their nights and weekends crafting a brand new entitlement bill under the guise of healthcare reform that will cost the American taxpayer an additional two point seven trillion dollars over ten years and that is only if the Medicare cuts in the legislation actually take place - which is something that Congress has never done no matter how many times they pledged that they would.

Thanks to the Socialist programs created under Lyndon Johnson’s “Great Society”, we now have a mandatory spending burden of over two point two trillion dollars before we even get to discretionary spending for things like national defense and just turning the lights on in the capitol building. In fact, the largest portion under mandatory spending is for Social Security which now costs more than defense spending. Now before the seniors start yelling I know that you’ve paid into Social Security all of your life and that money is yours; well at least it used to be. I’ve said it before and I’ll say it again. The first time this nation needed “healthcare reform” marked the 1965 birth of Medicare and Medicaid under Lyndon Johnson. By 1968, both of those programs had swollen exponentially and vastly surpassed CBO estimates. As the threat of insolvency loomed on the horizon, the Federal Government emptied the cash out of the Social Security trust fund to save the “Great Society” and stuffed Social Security with IOU’s. Social Security was then made a part of the Federal budget with the thought that they will fix the problem later.

Well later never came and this new “fix” of healthcare reform can only guarantee that Medicare and Medicaid will survive until 2019 even though we are preparing to gut our entire healthcare system and the economic vitality of American business to pay for it. Only one thing is certain. Just as Governor Paterson warns New York, if we cannot restore balance to the government, this nation will cease to exist as we know it. President Bush tried to privatize Social Security during his administration and was castrated for it. Why?

If the Federal government had left Social Security alone back in 1968 it would have plenty of money to meet its obligations. It was a government run retirement plan and under a fiduciary, would have generated the same gains that private retirement plans enjoy; growing through a diverse portfolio of investments. To re-privatize Social Security would mean that the U.S. government would have to repay the IOU’s with interest and that would break the hearts of Progressive Democrats. If people were allowed to pay directly into their Social Security accounts again instead of into the general treasury, where would Progressives get the money they need to fund all of those really important projects like the Napa Valley wine train in Nancy Pelosi’s district, Marijuana and Malt liquor journals or my favorite, politically correct puppet shows in Minnesota? No I am not kidding, these were all pet projects hidden in the stimulus bill.

Congress is spending like they are on a drunken binge and now that we have a professor of “Saul Alinsky Theory” for a President; his twisted view of “social justice” has all but eliminated the need to even discuss fiscal responsibility. There are only two differences between New York and Washington right now. The first is that New York cannot print its own money and the second is that there is no one in Washington trying to stop this runaway train before it runs out of track. The Republican Congressmen can say what they want about the Obama administration but where were they when Bush was on his spending spree? Republicans lost control of Congress for the same reasons that Democrats are in trouble now. America has had enough and we will have no more. If the anti-incumbent fervor can maintain direction and focus, we may be looking at the first major overhaul of Congress and the direction of the nation since the United States Constitution replaced the Articles of Confederation.

What can we do with more than five-hundred unemployed members of Congress? While I would love to see every one of them living in cardboard boxes under a highway overpass; I suppose the humane thing to do is to put them in rehab and enroll them in a twelve step program for shopaholics before they go home and do to their families what they did to America.

Paul

Where have we gone wrong?

In addition to their own magazine, airlines usually offer a complimentary copy of Skymall where unique odds and ends can be purchased by phone. I suppose enough people purchase items through this service since you can ordinarily find that catalog even when the in-flight magazines have already disappeared. If nothing else, it is a diversion on longer flights and I have found things in its pages that I wouldn’t have dreamed of looking for in a store. On a recent flight, I was thumbing through the Skymall and saw an interesting toy; a child’s ATM machine.

At first blush I thought to myself “Oh great…let’s start them on that road even earlier!” Once I actually read the ad, I slowly changed my mind. It wasn’t merely a toy ATM machine; it was an electronic “piggy-bank” too. When I was a kid there were toy wallets and toy cash registers that came complete with piles of toy money. My mother really hated those because within days, the toy money would usually be scattered around the house. As a toy, they gave you the opportunity to play as if you were a member of the real world but at a pretty stiff cost. Since those toys came with play money they never gave a child the sense of where money really comes from. I remember my own kids looking at me in disbelief when I wouldn’t buy something that was their latest burning desire because it was too expensive. They couldn’t believe I just didn’t pull out a credit card or go to the bank to “refill” my wallet.

I heartily recommend this toy ATM. The child receives a card and makes up their own PIN number. They can then put their own money in the “bank”…no, it doesn’t come with money. The machine will tell them what they have in their bank and using the ATM card, they can draw out what they have if wanted. The days of magic money falling out of the sky were over! Finally, a toy that parents could use as a tool to instruct their kids on real fiscal responsibility. Every deposit showed the increased amount in the account and conversely, every withdrawal showed the declining balance. The best part is that if you try to draw out more than you have in the bank, you are declined and that is a dose of reality that until now, most kids never learned.

Margaret Thatcher once said “The problem with Socialism is that sooner or later you run out of other people’s money”. The fact is the Federal government ran out of other people’s money a long time ago but like a child with no real sense of how money is made or in the value of thrift, has borrowed immensely against her own future. Thanks to the “progressive” tax structure, 47% of Americans pay no taxes and a fair portion of that 47% actually receive tax money in the form of earned income credits or out and out welfare. In a recent interview, people that were waiting in line for cash rent assistance in Detroit were asked where the money they were receiving came from and most had no idea. “We here to get Obama-money” one woman said. The interviewer continued “Where does Obama get it from?” Her answer displays the real problem “I don’t know….his stash. All I know is he’s giving it to us and that why we voted for him….We love Obama!”

Just like the kids throwing play money around the house, there is no thought as to where the money comes from and worse yet, there is no recognition that with a twelve trillion dollar debt and one-hundred trillion dollars in unfunded liabilities, that money will run out before their needs do. In an effort to show the compassion of the nation, Lyndon Johnson’s grand scheme was to create a national safety net to make sure the poor of this nation could survive. I’m sure this was less about compassion that it was to insure the electability of Democrats as his Great Society didn’t bother to heed the warning of Benjamin Franklin. Mr. Franklin correctly stated that “As soon as the people realize they can vote themselves money from the public coffers that will herald the end of the republic.” Johnson Democrats passed this in spite of massive oppositions even though common sense barriers to prevent abuse and fraud were ignored. Now the public entitlement programs funded through the Federal Government cost the taxpayers over seven-hundred billion dollars a year, which is larger than the defense budget for the nation.

Now the Federal government needs another bundle of play money since the expansion of Federal entitlement programs threatens the solvency of government yet again. The healthcare bill that passed the House of Representatives on Saturday is designed to do just that. The crisis that made this bill so imperative is not about the uninsured or the cost of healthcare for the nation’s citizens; it is in fact, about the cost of healthcare to the Federal government through Medicare and Medicaid. The bill as written would substantially raise taxes. It is designed to drive private healthcare insurers out of business and eventually force everyone into a single payer, government controlled, universal healthcare system similar to European systems. The easiest way to give government bureaucrats the money they crave is to funnel all of the money spent on healthcare in this nation through the Federal machine.

Once universal care is here, the Federal government will, in fact be the only customer and they will then be in a position to dictate the cost of services. That will decimate the quality of care as young people will not spend the time or money to enter an industry that is as heavily controlled as this promises to be. Universal care will also give us another Federal monopoly since they will eventually be the only insurer. As the only insurer, they will also be able to dictate what services are “acceptable” and with everyone plugged into the system, we will see waiting lines and the rationing of care based on how many years of quality life you have remaining as actuarial bureaucrats take your doctor’s place in deciding what care is warranted based on your age and condition and that is exactly what happens in Europe. Just like the woman that was standing in line for “Obama-money”, the entitlement culture is salivating at the thought of ‘free” healthcare without a thought as to what they will get or how it will be provided. What they don’t realize is that with this bill, free isn’t free and care isn’t care.

The expansion of an already bloated Federal entitlement program is irresponsible given the current debt load of the Federal government. Don’t get me wrong; there are things worth going into debt for. World War Two is a perfect example. The “perfect storm” of fascism and National Socialism were openly plotting to destroy America and sweep through our nation just as they did to Europe. The atrocities committed in the name of racial purity were inhuman and those that lived under Nazi and Japanese occupation were treated with a level of brutality unknown in modern history. This axis of evil had to be defeated at any cost and the cost was very high indeed. Still, the post war years rewarded America with financial boom as Europe and Asia rebuilt their burned and bombed-out infrastructure.

It took years but America slowly chipped away at the debt that we accumulated to fund the war effort. In 1946, our National Debt was roughly two-hundred and fifty billion dollars or 120% of GDP. By 1980, the debt had risen to nine-hundred billion dollars; however, the expansion of our economy had reduced the debt to GPP ration to 33%, a figure not seen since the 1920’s. While the growth of the national debt had kept pace with inflation since 1950, it has exploded again in the first ten months of the Obama administration. It is now at more than 90% of GDP (a 20% increase since George Bush left office) and is expected to exceed 100% of GDP by 2011, a rate not seen since World War Two.

If the CBO is as accurate in their predictions of the Healthcare Bill as they have been with other Federal programs, we can expect their estimated one-hundred and four billion dollar savings over ten years to turn into a seven to ten trillion dollar hit to the Federal budget over the same period of time. Congress knows this because like the guy that keeps climbing onto a broken scale to show his weight isn’t that bad, the Congress crafts the language of their spending bills to illicit these optimistic assessments from the CBO. Even the CBO knows it’s not true but they have to score the bills based on the language given to them and they are not allowed to enter the intent of Congress or their previous failure into those equations.

What is being done in Washington DC goes beyond irresponsible and with the Federal deficit climbing above a trillion dollars a year, has actually crossed the line and can only be described as the looting of the United States Treasury. This is beyond conscience and I would ask someone to question the legality of multi-generational entitlement programs. Having been born in 1957, where was my representation when Social Security was passed into law? Having been born in 1980, where was my son’s representation when Medicare and Medicaid were passed into law? My youngest grandson will not be able to vote for another seventeen years but not only him, but future generations of his family will be saddled with the burden of taxes imposed to correct the past hundred years of fiscal insanity perpetrated by the Federal government. Where is his representation? The principal of no taxation without representation did not foresee Federal programs in perpetuity and it’s about time we take every tax increase and entitlement program and bring them back to a vote for the benefit of the people that are paying the bill now. Let’s see how many stand that test.

Paul