It seems that the Obama Administration is set on using age-old populist talking points in an urgent effort to push through health-care reform. Of course, there is no time to waste, as the United States is in a dire health-care crisis. Time does not permit Congress to have a legitimate debate and devise a well-crafted solution to a very complex problem. This matter is too time sensitive; therefore, anyone who disagrees with the President’s vision will be asked to leave the debate table – bipartisanship (and tyranny) at its finest! (1) After all, who needs bipartisanship when the solution is so simple? All the government needs to do is make millionaires pay for the country’s healthcare. Silly free-market advocates!

In all seriousness, America’s healthcare system desperately needs an overhaul. That is an undeniable truth. However, there is a much better approach than methods that have been historically proven to fail.

President Obama’s plan will impose a surtax of 5.4 percent on couples earning more than $1 million. The term “millionaires” in the title of this column was put in quotes for a reason – the reason being that Democrats define the term “millionaire” in a different manner than most. This plan will also tax people who do not come close to earning $1 million. Households that earn $350,000 or more will also be taxed. The Administration estimates that the surtax will generate an additional $544 billion over a ten-year time period. (2)

There are several problems with the “tax the rich” approach that has been championed by the left for decades.

First and foremost, history has shown us that raising taxes during a period of recession has very negative consequences. Two famous examples are former Preisdents Herbert Hoover and Franklin D. Roosevelt. One can argue that the Great Depression may not have been so “great” had taxes not been raised and if the government did not put a regulatory stranglehold on business.

Second, millionaires are mobile – just ask state legislators who have implemented the most progressive tax scales. People have fled high-tax states such as New York, California, Illinois and Ohio in favor of tax-friendlier states like Tennessee, Florida and Texas. Wealthy Americans can also flee (from an investment standpoint) the United States just as easily as they can move from California to Texas.

Third, there are just not enough wealthy people in the United States to soak. Folks that had earnings in the $153,000 range in 2006 did better than 95 percent of Americans. In order to be in the top 1 percent, one’s income had to exceed $388,000. (3) President Obama plans to tax people who have incomes in excess of $350,000, which means he expects about the top 1.5 percent of income earners to pay for the cost of his new plan. It doesn’t take a mathematical genius to see that this simply does not add up.

Fourth, taxing the wealthy inhibits job growth. It is very perplexing that the Obama Administration does not subscribe to theory of empowering those who have the financial means to invest money and create jobs, as opposed to the government, as the way out of a malevolent recession. What is even more bewildering is the fact that this Administration campaigned on “change,” yet they are attempting to frame America’s macroeconomic environment around failed European models.

To further illustrate this point, the tax-friendly states that were previously mentioned are unaware that the nation is an economic recession! Texas, for example, has shown job growth. Cities such as Austin, Houston and San Antonio have all posted net job growth over the past year. (4)

In addition to taxing the rich, the Obama Administration’s proposal that now exceeds 1,000 pages contains more disturbing provisions. The surtax will be imposed on people’s adjusted gross income (AGI), which means that the tax will also apply to capital gains and dividend income. Raising investment taxes in a time where fresh capital is so desperately needed is foolish beyond comprehension. Recessions linger and can quickly turn into depressions when an investment incentive ceases to exist. The bottom line is people are afraid to invest their money out of fear of negative tax consequences and the uncertainty of a burdensome regulatory environment. In addition, the wealthiest people are affected the most in economic downturns. Therefore, the government might come up short of their estimated $544 billion.

Speaking of fear, the President used a town hall meeting to convince Americans to discard “fear-mongering” from those who oppose his plan. With all due respect, Mr. President, pointing out the macroeconomic reality of this plan is not fear-mongering. Rather, it is an expression of great concern that these types of legislative measures will prolong the economic recovery that people are so anxiously awaiting. Although the nation wants healthcare reform, it is safe to say they do not want it at the expense of job creation and growth. It’s rather difficult to pay health insurance premiums that will now be required under the Obama plan when one is unemployed.

For those who do not feel they need health insurance, the option to opt out of health insurance coverage will cease to exist. The plan contains a requirement that all Americans buy health insurance. People will be penalized up to 2.5 percent of their income for failure to purchase health insurance. (2) Furthermore, some employers will be penalized up to 8 percent for failure to provide health insurance coverage to their employees. (2) Obviously, the added burden to business will come at the expense of jobs and future growth, which leads to higher unemployment. Just as minimum wage laws contribute to higher unemployment among unskilled workers, requiring businesses to provide health insurance coverage will produce the same result.

The nation does not need legislation that will stymie entrepreneurial incentive at a time when it is very much needed. There are decentralized free market solutions to health care that the Obama Administration continues to dismiss; and by doing so, the President is putting the nation’s economic health at risk. Congressman Henry Waxman says, “We cannot go home for recess unless the House and the Senate pass bills to reform and restructure our health-care system.” For the sake of the nation, perhaps Congress should take their recess early…

(1) http://www.bloomberg.com/apps/news?pid=20601070&sid=apB.0D3v37as
(2) http://www.bloomberg.com/apps/news?pid=20601070&sid=aUVZeh_GVBYM
(3) http://www.taxfoundation.org/news/show/250.html
(4) http://www.bls.gov/ro6/fax/dfw_ces.htm

BY MIKE PORTER

On July 12, 2009, The Washington Post published a column written by President Barack Obama titled “Rebuilding Something Better.” Upon reading it, I jumped at the chance to write a respectful rebuttal to counter some of the points the President had addressed. The President’s article can be found here:

“Nearly six months ago, my administration took office amid the most severe economic downturn since the Great Depression.” (1)

The article begins with the President reminding everyone that he inherited this recession from the previous administration. While the President is correct on his assessment of inheriting a recession, it seems he is going out of his way to remind us every time we hear him speak. Everyone knows this did not start on Obama’s watch, and he cannot be blamed for an economy before he was elected. Still, Obama seems destined to belabor this point. The American people grow tired of continuously hearing public officials place blame on their predecessors. The sign of a true leader is one who accepts the situation, takes ownership of the problem, and leads their way out. We have yet to hear our President assume full ownership of this recession.

In addition, we hear the President time and time again referring to this economy as “the worst since the Great Depression.” Rhetoric like this may get people’s attention during a speech, but it is completely false. In November of 1982 unemployment reached 10.8 percent. That same year, the inflation rate was 4.59 percent which was down from 14.76 percent in 1980. The inflation rate today, according to inflation.com, is -1.28 percent. Unemployment would have to surpass 10 percent coupled with 14 percent inflation for the President to label this economy as the worst since the Great Depression. (2) (3)

President Obama also stated the following:

“We also passed the most sweeping economic recovery plan in our nation's history.” (1)

“The American Recovery and Reinvestment Act was not expected to restore the economy to full health on its own but to provide the boost necessary to stop the free fall. So far, it has done that. It was, from the start, a two-year program, and it will steadily save and create jobs as it ramps up over this summer and fall.” (1)

I find it peculiar how the American Recovery and Reinvestment Act was rushed through Congress, and we could not waste a single day. We did not have time to wait for our representatives to read the 1,200 page bill. This had to be passed immediately or our economic situation would become dire. In another article written by President Obama back in January, he said “If nothing is done, this recession could linger for years. The unemployment rate could reach double digits.”(4) The most recent report showed June unemployment topping 9.5 percent. As of today, we are less than one percent away from reaching the disaster our President was claiming the bill would save us. After passing a bill with spending in excess of $750 billion, it appears we are going to reach double digit unemployment after all. Now, our President says this was a two-year program from the beginning, and we have to wait to give this time to work. If we were supposed to wait two years for it to work, then why did it have to be rushed through so quickly? The truth is this bill was hijacked by Pelosi and was filled with all kinds of things to make her constituents happy.

President Obama mentioned the following:

“There are some who say we must wait to meet our greatest challenges. They favor an incremental approach or believe that doing nothing is somehow an answer. But that is exactly the thinking that led us to this predicament. Ignoring big challenges and deferring tough decisions is what Washington has done for decades, and it's exactly what I sought to change by running for President.” (1)

Many well known economists agree this bill has done nothing to address the economy. If we had two years to wait then perhaps we should have passed legislation that has proven to “stimulate” the economy such as lowering corporate tax rates or suspending the capital gains tax. Contrary to what our President might think, doing nothing actually is an answer. Doing “nothing” is actually an economic philosophy called “Classical Economics.” Classical Economics is still taught today in major Universities all over the world and has been practiced for hundreds of years. I will go out on a limb and make the claim that doing “nothing” would put us in a better situation than we are today. The stimulus bill provided no assurance to the investor that the American economy is a safe place to make an investment. Many people are waiting to see what the hike in tax rates will be to address the outrageous deficits which have occurred under Obama’s leadership. Until Congress and the President can assure the investor that their money is safe from excessive taxation, America will not see real recovery any time soon. Instead, our government talks about more stimulus and universal health insurance. All of this adds up to more spending which will continue to weaken the dollar and do nothing to address the recession.

President Obama went on to say:

“That's why we've set a goal of leading the world in college degrees by 2020. Part of this goal will be met by helping Americans better afford a college education. But part of it will also be strengthening our network of community colleges.” (1)

“We believe it's time to reform our community colleges so that they provide Americans of all ages a chance to learn the skills and knowledge necessary to compete for the jobs of the future. Our community colleges can serve as 21st-century job training centers, working with local businesses to help workers learn the skills they need to fill the jobs of the future. We can reallocate funding to help them modernize their facilities, increase the quality of online courses and ultimately meet the goal of graduating 5 million more Americans from community colleges by 2020.” (1)

I cannot completely comment on the President’s plan without seeing the plan in its entirety. Getting more kids through a community college is a noble idea and sounds great coming from any politician’s lips. However, I view anything our government does with great skepticism. For starters, an Associates’ degree is better than high school education, but most of the quality white-collar jobs require a Bachelors’ degree. How exactly is the President going to make community college more affordable? Where is the money going to come from? Are taxes going to go up or is this going to be another social program we will not be able to pay for? One thing is for sure - the more people that have degrees, the less important they will become. A high school education used to be enough to get a good paying job 40 years ago; but now high school is less important because almost everyone has finished high school. The same will be true with college degrees. Many people do go back to college during down economies. Why can’t we leave that alone to run its course? When our government talks about making college affordable, I shrug to think about how our government also wanted to make housing more affordable, and look how well that has worked for us.

Finally, the President said:

“Providing all Americans with the skills they need to compete is a pillar of a stronger economic foundation, and, like health care or energy, we cannot wait to make the necessary changes. We must continue to clean up the wreckage of this recession, but it is time to rebuild something better in its place.” (1)

As for healthcare, I have said before I prefer a free market approach to the problem as opposed to universal care or universal coverage. Our President has never addressed how he plans to handle the illegal aliens or the millions of people who already have access to government or private insurance but choose not to take it. President Obama talks about addressing energy, yet he attacks any company who wants to increase the supply of energy. I have yet to hear him talk seriously about building nuclear plants. Instead, I hear him push for Cap and Trade legislation which has been proven to impact the supply of energy and increase costs for everyone including the low income people he claims to be helping. In a down economy, we shouldn’t be holding back any companies that would like to expand by supplying America with more jobs and more energy.

I still believe President Obama means well and really wants to help people. He truly believes in the policies of his administration. I did not vote for him, but he is still my President and the President of the United States. He has a different view of what America should be and he appears to believe we should follow a European model in which the government has a larger role as opposed to the individual. This philosophy is at odds with what our country was founded on and what has made this country great.

The last sentence in the quote above bothers me more than anything else I read in this article. I worry about exactly what our President would like to build in America’s place given his voting record in Illinois and the legislation he has proposed so far as President. If we want to see a recovery, then our government has to start listening to the concerns of the people who have the money to save this economy. That money doesn’t exist with the average working man or our government. That money can only be found in high net worth private investors. These are the very people President Obama routinely attacked on the campaign trail. President Obama’s history as a community organizer and voting record as a Senator shows he is behind the average working man, but at odds with most wealthy private investors. The President is expecting the very people he spoke out against on the campaign trail to open their coffers and invest some money in America. President Obama needs to change his view and provide some incentives for these people if he expects any of them to risk capital in a falling economy. If these people are not addressed in some way, this crisis will linger on for years and we will most certainly see double digit unemployment.

(1) http://www.washingtonpost.com/wp-dyn/content/article/2009/07/11/AR2009071100647.html

(2) http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LNS14000000

(3) http://inflationdata.com/inflation/Inflation_Rate/HistoricalInflation.aspx

(4) http://www.usnews.com/articles/news/stimulus/2009/01/08/president-elect-barack-obama-on-his-american-recovery-and-reinvestment-plan.html

The latest “bright” idea that the Obama Administration has proposed is to have the Federal Reserve (Fed) regulate the largest financial players in the market (those that are “too big to fail”) in an effort to prevent a future financial meltdown. This decision begs the following questions. 1) How can the Fed ensure future financial security when it not only already has regulatory authority, but its monetary policy played a role in the housing debacle that ignited the meltdown? 2) Is it wise to expand the Fed’s regulatory authority when it has no accountability? 3) Is it possible to regulate systemic risk? If so, one can argue that the Fed itself poses systemic risk.

It is interesting how the Obama Administration proposes giving the Fed this regulatory authority when it already has general authority to regulate all banks in the United States. The Fed controls the nation’s monetary system. Its influential powers over money supply, interest rates and the availability of credit have a direct effect on the overall stability of the economy. The Fed’s effort to maintain economic stability is essentially the attempt to manage systemic risk.

One of the core responsibilities of the Federal Reserve is to supervise and regulate banking institutions to ensure consumer protection. The Fed has done a wonderful job protecting consumers and managing systemic risk in the past…why not have confidence in the future?! While it is true that Congressional policies (i.e. the Community Reinvestment Act and the vast expansion of Fannie Mae and Freddie Mac) played a role in the housing crash, the Fed helped to provide financing by keeping interest rates at questionably low levels between 2002 and 2005. The Fed could have brought to light the damage the regulatory quest for “affordable housing” caused. However, it chose to finance it instead.

The Federal Reserve is accountable to no one. It is an independent entity within the government that is quasi-public. The Fed’s decisions do not have to be ratified by Congress. The Fed does not have a budget, and it is not subject to audits. In addition, no governmental body including the President can supervise its operations. Therefore, how can the Obama Administration propose expanding the Fed’s powers when it not only failed to prevent the housing crash, but its regulators cannot be held accountable? Unfortunately, this is politics at its finest. Obama is providing nothing more than an illusion that he is taking serious action to prevent a future crisis. If the President was serious about preventing a future crisis, he would propose a legislative overhaul of the regulations and policies that created the sub-prime mortgage market in the name of “affordable housing” that lead to the crash.

Systemic risk is defined as overall market risk that cannot be diversified. The economy is cyclical – it always has been and always will be. Just as there are four seasons in a year, there will always be four parts to the economic cycle – 1) Expansion, 2) Recession, 3) Trough, and 4) Recovery. The degree of systemic risk depends on the economic cycle, which means it is impossible to avoid.

If systemic risk is impossible to avoid, then how can the Fed regulate it? The answer is obvious - it cannot. What the Fed can do is continue to prop up large financial institutions due to the fact that they are “too big to fail.” This will come at the expense of future opportunity, and it will be extremely difficult for smaller financial branches to be competitive when the larger institutions are being subsidized by the government. What should have taken place and what should take place in the future is to let the Federal Deposit Insurance Corporation (FDIC) step in, as it would make way for more viable players in the market without causing major market turmoil.

Furthermore, the Federal Reserve can CAUSE systemic risk through its policies. Just as low interest rates helped fuel the housing bubble, monetary policy in the future can contribute to more artificial bubbles and busts. The Fed has unchecked power as well as the power to negatively influence the economy. Its decisions can cause inflation, deflation, weaken currency and other factors which sharpen the impact of economic downturns and give way to future problems.

Rather than expand the powers of institutions that already have too much power, the Obama Administration should have the courage to repeal the laws and regulations that caused the housing crisis. It is fact that major banks were required to comply with the provisions of the “Community Reinvestment Act,” which forced them to loan money to people who were not worthy of such credit. Instead, lawmakers have blamed what happened in the aftermath of such a proposal: foreclosures, speculation, derivatives and the bundling of mortgage-backed securities instead of admitting that the negative consequences that ensued were the direct result of interfering with the free market. Going forward, the best way to regulate systemic risk is for the government to get out and stay of the private sector.

BY: MIKE PORTER

No debate is more lively or dividing than the healthcare debate in America. The average American pays more today for health related costs than ever before. According a Kaiser study, “health expenditures surpassed $2 trillion in 2006 and are three times as high as they were in 1990.”(1) Health care spending accounted for 16 percent of U.S. gross domestic product (GDP) in 2006 and grew at an annual rate of 6.7 percent.(1) Everyone agrees health care costs need to be addressed in the near future, but turning the American system over to the government may not be the “cure” everyone is seeking.

Let me begin by saying nobody in the U.S. wants to see anyone go without healthcare. The common goal is to have the classic utopian system where everyone has access affordable, quality care. A big misconception when conservatives make the argument against government controlled healthcare is that conservatives do not care about people without insurance. Many on the left are quick to make the charge that conservatives are against this because they want to see low-income people left out in the cold. Some will go on to say they want to “hoard” the system only for themselves and do not want to share it with poor and impoverished. These charges are not only ignorant, but false, and they insult the intelligence of Americans. The problem conservatives have with the government controlling healthcare is the fact that it has failed to provide quality care everywhere it has been tried. Many believe it will make U.S. healthcare worse and more expensive than it is today. Many countries have tried this, and the results have been catastrophic in countries with less than a quarter of America’s population, which today is around 300 million. Many individual states have tried to implement a program, and to this day, none of them have had any success. Most recently, Hawaii cancelled a universal health care plan for children only after seven months because the program was too costly.(3) If states cannot implement a plan like this just for children, what makes anyone think this can done for everyone in the U.S.?

The biggest case for universal care is to address the issue of the 47 million people in America without health insurance. This number has become a political football being tossed around on Capitol Hill painting the dark picture of millions of Americans shivering in the cold coughing, sneezing and left to die in our streets. As usual, the left fails to point out the details of who exactly are figured in the numbers of the uninsured. Stuart Browning has produced a brilliant short film called “Uninsured in America” that offers the best details that reveals the identities of the uninsured. (2)

http://www.stuartbrowning.net/

To quickly summarize, Stuart Browning makes the claim 47 million uninsured is extremely misleading. Many of these people have access to insurance or existing government programs, but choose not to take it. Many are young people who see insurance as a waste of money, so they bet against the likelihood they will get sick since they are young and healthy (I know - I used to be one of those young, uninsured myself). Some are non-U.S. citizens, illegal aliens, and even some homeless people who have retracted from society. There will always be some people who will be down on their luck and end up uninsured, but it becomes difficult to justify this as a “crisis” given this information. Consider the fact that every one of these 47 million people could get treatment at emergency centers all over the country regardless of their ability to pay. Those who cannot pay, the cost of their bill is spread out over insured/paying customers or reimbursed through existing government programs like Medicaid. Regardless of what you may hear on the left, the crisis of the “uninsured” in reality is nothing more than a manufactured fairy tale to attract votes.

Next, is the issue the Democrats never want to address is existing healthcare resources. Once all 300 million people have access to healthcare, who is to say they are all going to use it properly? Will these people pay the “patient portion” of medical bills or the premiums associated with government insurance? Will they get the proper preventative care needed to keep in good health and control overall healthcare costs? No authoritative body can force anyone to get the care they need. Should everyone be covered under a government plan? What about illegal aliens? What about drug addicts who routinely poison and destroy their bodies? Many will question what exactly is considered “healthcare.” Some have made the claim that contraceptives and abortions can be considered health care and should be covered unconditionally. Some people will also go to see a doctor to get things like aspirin or cough suppressants instead of buying them at the store. Why should anyone buy something like that when they can receive it “for free?” This will cause a huge backlog in the healthcare system like nothing seen in America before. Some will simply exploit the system to get their money’s worth. Others will not use the system as intended. Regardless, this will put an enormous strain on existing doctors and hospitals which will result in long wait times for care. It is no secret about the excessive wait times in countries that have universal care, and it would be worse here with the amount of people being covered. Expect to wait months to see a specialist and even longer for surgeries. Excessive wait times and sub-par care are the primary reasons many people choose private hospitals over public facilities in countries that have socialized medicine. It is ironic that people would pay out of pocket for care when they already pay exorbitant taxes to fund the public healthcare system. If public care provided by universal healthcare is so good, then why is there any demand at all for private hospitals in these countries?

Cost controls will become the primary focus of our new universal healthcare system. Rationing of the system will become a way of life to manage costs and care for 300 million people. Older patients may be forced to wait longer than younger patients. Our government will have the power to intervene with the doctor/patient relationship and begin to tell doctors what they can charge. In some cases, our government will make the decision where doctors can practice. If the government decides there are too many doctors in one neighborhood, doctors can easily be told that they need to practice in less desirable areas. The government may assume some tests being performed are not necessary since it adds to the cost. All of this will discourage people from entering the medical field, which will make wait times worse and add to the restriction of resources and health care rationing.

Finally, one will be amazed at the creative ways our government will come up with methods to pay for a universal system. Taxes in every form imaginable will be levied on everyone to pay for this new system. Not only will the government (possibly future “health czars”) tell doctors what they can and can’t do, they will tell you what you can and can’t do. We will see excise taxes like never before on anything government bureaucrats or health czars will deem hazardous. Lifestyle activities we take for granted in a free society will be discouraged and heavily taxed, if possible. Alcohol consumption, smoking, eating fatty foods, soft drinks, scuba diving, sky diving, etc. will be considered too dangerous for our own good. At this point, America will have lost all the freedoms our founding fathers fought and died to preserve. All of our freedom will be surrendered to our government under the guise of providing Americans with universal healthcare.

Given this information, why would anyone want to turn our healthcare into a production-line system consisting of rationed care? Costs in the current system are expensive and need to be addressed. However, universal healthcare jeopardizes our freedoms, the quality care people take for granted and will make care more expensive. Don’t dismiss the fact that other countries have the current American system to fall back on. Other countries around the world will be in worse shape and would cause a real global health care crisis if America decides to adopt a similar government-run plan. Look no further than the current state of existing government programs like Social Security, Medicare and Medicaid, which are on the pace to go bankrupt within the next two decades in spite of rising taxes. Shouldn’t we address our existing social programs before we start new programs?

What is the Solution to healthcare? My preference would be more free market solutions and less government regulations and waste. More patients with Health Savings Accounts (HSAs) give them a direct stake in choosing providers who offer good service at a low price. The issue of illegal immigration along with some kind of tort reform needs to be addressed, as the cost of malpractice insurance and legal fees are passed onto the patient. Just like any other business, all doctors’ costs and expenses are figured into the price they charge you for the medical service they provide. In conclusion, we cannot afford socialized medicine for everyone. If this program were put into place, then as history all over the world has shown, it will come at the expense of your freedom, wealth, and care.



(1) http://www.kaiseredu.org/topics_im.asp?imID=1&parentID=61&id=358
(2) http://www.stuartbrowning.net/
(3) http://www.foxnews.com/story/0,2933,439607,00.html

On June 1st, General Motors (GM) filed for bankruptcy protection. $20 billion dollars in government aid later, the company has now realized what has been inevitable all along. The efficiency of global competitors has brought the auto giant to its knees. As a result, the United States’ government now has a 60 percent stake in the company. The United Auto Workers’ Union (UAW), creditors and the Canadian government own the remaining 40 percent. In lieu of the new ownership, the name “Government Motors” would better suit the company. It is now official: the auto industry in the United States is effectively nationalized as two out the three giant U.S. automakers are now under the supervision of bankruptcy judges, the U.S. and Canadian governments. (Chrysler LLC filed for Chapter 11 bankruptcy on April 30th.) One can only wonder if Ford Motor Company will suffer the same fate in the near future in spite of the short-term success of its restructuring efforts.

Cost-Benefit Analysis for Taxpayers

Taxpayers are not given a choice when the government decides to take ownership in what was once a private business, and unfortunately, the results of this decision will be grim. Failure is a part of business, and the market is resilient in the sense where the death of business cannot be prevented. The only probable outcome of this type of decision is taxpayers are stuck with a sunk cost. While an argument can be made that government involvement buys time, it also creates bigger and more catastrophic problems in the future. As death is part of life, the death of business is just as certain when a business does not adapt and move with the times. When the government gets involved, it is funding a bottomless pit and cannot sustain the life of the business regardless of how much money it invests.

Taxpayers have now unwillingly invested $50 billion in GM - $20 billion in loans prior to the Chapter 11 filing and $30 billion in promised aid during the restructuring. The Bush and Obama Administrations have argued that GM’s failure would produce a calamitous ripple effect on the economy as suppliers, plant workers, dealership employees and many other businesses would be affected. However, General Motors’ problems did not begin in 2008. The giant automaker has been dieing since the 1970’s. The question that confronts taxpayers now is how much money will the government continue to invest in order to keep GM on life support and prolong what the market will eventually correct and has already begun to correct since the early 1980’s?

Near 600,000 vs. less than 60,000

In the 1970’s, GM employed nearly 600,000 Americans, and the company sold one of every two cars in the United States. (1) The 1980’s brought revolution to the auto industry. The emergence of foreign competition put pressure on American car companies to change the way they did business. Toyota Motor Corporation was able to rapidly grab market share through its innovation and by pioneering new ways to produce a wide range of quality automobiles at a low cost. Toyota was among the first of the automobile manufacturers to re-invent the mass production process to lower costs and become more efficient.

In the meantime, GM along with the other two major U.S. automakers (Chrysler and Ford) was very slow in adapting their business models to the dynamic changes in the market. Pressure from the UAW prevented scaling back on some of the company’s unsuccessful brands. As a result, dealerships, workers and factories were kept open in spite of a hemorrhaging market share which came at the expense of future innovation and opportunity. In addition, GM’s expansion of General Motors Acceptance Corporation (GMAC) in recent decades has caused the automaker to become less focused on making quality automobiles and increased its exposure to other negative economic impacts. Due to GMAC’s expansion into home loans, the company felt the impact of the housing crash as foreclosures began to mount. Over-diversification along with the reluctance to change long-held business practices has put the once dominant auto giant in the position it is in today.

Market Forces Trump Political Forces at a Substantial Price

Returning to the argument made by the Bush and Obama Administrations, one must wonder just how much of a ripple effect will the failure of GM have on the economy and how much of this decision is political. It is clear that GM cannot continue on the path it has been on for the past 30 years. Considering that GM’s workforce is currently one-tenth of what it was in the late 1970’s, it is safe to say that the market has already adjusted, and the full force of the negative ripple has already been felt. If American automakers cannot sell cars, then businesses that rely on their success will have to look elsewhere in order to thrive. The businesses that quickly adapted survived and those that did not have already perished. Therefore, what exactly is $50 billion supposed to save? The government is attempting to apply a band-aid to companies that have been bleeding for decades, and now this exorbitant band-aid will be applied to what is nothing more than a slow leak.

In addition, The Bush Administration’s initial argument was that Chapter 11 bankruptcy was not an option due to the negative impact a bankruptcy would have on the economy. The Obama Administration made that same argument when it agreed to give GM a second loan. Less than a year later, GM is forced to file Chapter 11. Therefore, the negative impact will now be worsened by billions of dollars in sunk costs.

GM has plans to divest its Saturn, Hummer, Pontiac and Saab brands and shed more than 2,000 of its 6,000 dealerships by next year. As a result, it is estimated that 100,000 job losses will occur from the closure of these dealerships. At least a dozen plants that employ most of more than 20,000 U.S. workers have been identified for closure by the end of next year. Assembly lines in Pontiac, Michigan as well as a Wilmington, Delaware-based facility will be closed later this year. (2)

In summary, the current situation begs the following question: What is the taxpayers' return on investment? The answer is ZERO, and it will remain ZERO in the future. The government has spent billions in an attempt to avoid what market forces will always dictate. When the government tries to prevent the inevitable, not only do market forces trump political forces, but the government’s investment comes at the expense of FUTURE opportunities. It is quite fitting to quote Henry Ford, the founder of Ford Motor Company: “Failure is only the opportunity to begin again, only this time more wisely.” A wiser approach would be for the government to cease involvement with the private sector and allow market forces to bring about new life and opportunity in the automobile industry and elsewhere.

(1) http://jutiagroup.com/2009/05/18/general-motors-abandons-us-workers-focuses-on-operations-in-china/

(2) http://money.cnn.com/2009/06/01/news/companies/gm_bankruptcy/

by Jordan and Michelle S

President Obama has taken his promise to “spread the wealth” for the sake of “fairness” and actually went through with it, much to the dismay of people who want the economy to recover. Since January, Mr. Obama has pretty much nationalized the auto industry, proposed a major increase in government participation in the health care industry and will change the rules of credit card companies so that those with good credit are subsidizing those who had bad credit. Not since the fascistic New Deal has an economy been chopped up and served so willingly to rabid, hungry bureaucrats by the elected representatives of the people. This is what is known as corporatism, and it will not bode well for those who want to prosper in America.

Corporatism and Cartels

Since the Second World War, the American economy has been one of a mix of private business and government intrusion. America's free market ideology went out of style when the anti-capitalist myths of the Great Depression took hold. Unlike World War One, when the socialized/nationalized wartime economy fell apart due to the reluctance of the American people to give their financial future the unsympathizing government, the Progressives of the New Deal ingrained it into the new American generation that the state is your friend, your father, your mother, your eternal watcher and caretaker. The Nanny State that emerged was so powerful that every Republican president up to Reagan refused to take it on.

The National Recovery Administration (NRA), the Tennessee Valley Authority (TVA), the War Industries Board (WIB ); all the alphabet soup agencies created by FDR did not simply nationalize the economy, though that did occur in some sectors. No, instead of simply taking control of the economy and running it through and through, the agencies regulated the economy into submission to fit the goals of the government. This is what's known as corporatism. It was a major part of early-to-mid century economies of all the major powers: America, the United Kingdom, Fascist Italy and Nazi Germany. Only the Soviet Union, a communist nation, rid itself of major private industry.

The New Deal agencies would use an iron fist to direct the economy. For example, the NRA instituted price controls on everything from dry cleaning to the price of a newspaper on the street. This was in the name of helping the “forgotten man” who supposedly survived on selling products at above-market prices. Businessmen were actually thrown in jail for violating these regulations, the most famous being a dry cleaner who charged five cents lower than the NRA mandated. The fetish with price controls went so far that tons upon tons of food (wheat, pigs, etc) were burned or culled by order of the government so that the prices would stay high for farmers.

Within these agencies, though, were the very men of industry FDR would assail in his speeches and his fireside chats. The steel makers, the arms manufactures, the bankers, the auto makers; all those who found it easier to work with the government than to fight it. These men took it upon themselves to carve out their own little sections of the economy for their respective companies. These economic fiefdoms are called cartels. The military-industrial complex that the left-wing warns us of all the time is one of these cartels, created out of FDR's need to coral industry to suit the purpose of the government. Unwittingly, the left and their crusade to humanize the economy is creating new complexes run by federal paper pushers that will drain the innovation and the dynamic prosperity our still somewhat free markets provide.

Cars, Crutches and Credit

George W. Bush told the American people just before the November 2008 election that it was necessary to abandon the free market in order to save the free market. His position was reminiscent of Herbert Hoover’s in the aftermath of the 1929 stock market crash. Bush unveiled the Troubled Asset Relief Program (TARP), which allowed the government to essentially become a shareholder in major banks and the auto industry.

Instead of banks and the auto industry taking their lumps and overhauling their business models, top executives ran to the government for help. Upon doing so, the government now has the power to tell these companies how to run their business. This does not bode well for the companies and the American people.

The “Big Three” and “Big Brother”

Recently, President Obama called for the Chief Executive Officer of General Motors to step down. Although, General Motors did not perform well under the leadership of Rick Wagoner, the government should not be making these decisions. In the past, these decisions were made by the company’s shareholders. However, now that the government is a “shareholder,” the President and other bureaucrats otherwise known as “car czars” can use force to implement their agenda. In addition, bureaucrats can tell the auto industry what kind of cars they will make and what type of workers they employ. As a result, the stranglehold the United Auto Workers Union (UAW) has on the car companies will be tighter.

In the end, both the consumer and the company are hurt. The UAW’s mandates have driven labor costs to almost twice the cost of their foreign competitors. The cost is then passed to the consumer who has elected to buy better made foreign cars. If American car companies cannot sell cars, they are forced to lay off workers. Therefore, one must ask what good the UAW had done for America when consumers pay more money for cars that cannot match the quality of their foreign competitors’ products. Unions destroyed the American steel industry in the 1970’s and 80’s, and now the American auto industry is in serious trouble.

To further complicate matters, the Obama Administration has unveiled new fuel efficiency standards that will eventually require vehicles to have a much higher mile-per-gallon rate. One would think a mandate like this would benefit consumers. After all, why not have higher standards? Why not rely less on foreign oil? Why not make cars that are better for the environment? The truth is consumers would not be better off, and these mandates have not reduced our oil consumption in the past.

First off, hybrid vehicles are more expensive, and there is no cost benefit when comparing fuel savings to the higher cost of the vehicle. Second, the demand is simply not there, as Americans prefer bigger cars. Third, the United States is obviously not the sole country that uses oil. Therefore, even if we reduced our oil consumption, which in turn, would lower prices; the overall world demand would NOT decrease. Therefore, increased demand elsewhere in the world would drive prices up. Increased demand from China and India was a key factor in driving up crude oil prices to record levels in 2007.

“Big Brother” offers a “lending” hand

Most of America’s largest banks got in line with the auto industry to ask Uncle Sam for a bailout. As a result, the banks are now under the “brilliant” leadership of Congress. Just as the government tells the auto industry what kind of cars they will make, banks will be told to whom they will lend money. The government will also tell them what kind of financial shape they are in based on bureaucrat derived stress tests. Although government mandates such as the “Community Reinvestment Act” were not the sole cause of the housing bust, these types of mandates created the sub-prime mortgage sector and led to reckless lending practices. These reckless practices caused a surge in demand for housing, which drove the cost of housing up to a level that was disproportionate with inflation.

Through quasi-public institutions, Fannie Mae and Freddie Mac as well as the Federal Reserve, the government has had its hands in the banking industry since 1913 (the year the FED was born). The very same government that caused one of the biggest financial debacles in decades now wishes to tell banks and lending institutions how and to whom they should extend credit. The government through the Federal Reserve and congressional mandates has created a society that lives on credit. Debt is a way of life for the average American today. Accessibility is what drives demand. Increased demand drives up prices. Remedial economics shows how easy access quickly inflates prices. Have you ever wondered how your grandfather was able to pay cash for his automobiles and even his home? Answer: limited access to credit. The accessibility of credit and the amount of credit people can receive is sole cause of deflating purchasing power. Since our government cannot manage debt either, the value of the U.S. Dollar is declining.

“Big Brother” and “Band-Aids”

Uncle Sam is very generous. Bureaucrats wish to tell us what kind of cars to drive, how much credit we should have, and now they want to provide us with healthcare. The biggest argument that is made against privately-run healthcare is that profits are put ahead of the care of human beings. This hypothesis is severely flawed in the sense that the elimination of “profit” does not eliminate the constant need to control costs. In addition, this conclusion neglects to consider the fact that profits allow reinvestment for better technology and better personnel which directly results in better care for the individual.

The second argument that is made in favor of government run health care centers on the government being a competitor to private sector insurance providers. The sad attempt by politicians to turn the supply-side argument of increased competition leading to lower prices is pure fallacy. This is due to the fact that the government will not merely be a competitor to private insurance companies. The government will impose very strict regulations on private insurance companies by requiring insurers to insure all applicants and place price caps on premiums. In the meantime, the government could borrow from taxpayers and the U.S. Treasury to make up for its shortfalls. The cost of compliance for private insurers would be exorbitant and allow the government to squeeze them out in an effort to MONOPOLIZE the industry. So much for competition…

Healthcare is NOT FREE if the government provides it. People will see tax increases not seen before on both federal and state levels. Employers’ cost of compliance will come at the expense of jobs and growth.

Last but not least, one must ask if they really want a government bureaucrat making their personal decisions when it comes to their own health care and the health care of their loved ones – the very government that has trouble delivering your mail.

Empathy Rewards Mediocrity

Both FDR and Obama made promises of an empathic government. They told the “forgotten man” that he'd be heard. They promised the little man his check would be bigger. They promised the hard worker that selling his labor would not be in vain. They took on the fat cats, the bankers, the traders, the factory bosses, all the name of fairness for the employed and the poor. It's a nice notion, like any other do-gooder idealism, but it’s impractical and inefficient past a certain point (that point being crossed decades ago by FDR). The federal government's economic role is not that of feelings and paternal instinct, but of streamlining and protection of property. No where in the Constitution does it talk about giving the greedy their due or making sure Jimmy the Carpenter can buy his family some new clothes for Christmas. Those powers are left to each state to make on their own time and on their own dime.

The federal government's supposed empathic regulation ends up creating cartels around the powerful chairmans and minions of the economic congressional committees. Decades of federal usurpation and consolidation of economic liberty has fed congressional corruption to the point that trillions upon trillions of dollars have vanished into the crony black hole, never to be seen again, unless you happen to drive by the home of John Murtha's nephew. He received of tens of millions of taxpayers dollars for “warehouse services” for the military, but, ironically, has a skeleton crew watching such sensitive and expensive material. Chris Dodd protected his sweetheart deals with Countrywide while writing up new regulations for banks. Barney Frank kept his mouth shut about Fannie Mae and Freddie Mac, two of his major donors, while beating his chest over freer, less toxic banks. Diane Fienstein got millions upon millions of dollars of bailout money for a company her husband runs. Chuck Schumer cries about credit cards, but last year he publicly leaked confidential letters that sunk a California bank at the same time he defended the solvency of New York banks, which eventually crashed anyway. Empathy, indeed.

Despite our objections to government pseudo-empathy governing economic regulation, we recognize that there is a need for a basic safety net in today's world. Basic welfare for those who truly cannot work, basic unemployment for those who have been recently laid off and cannot find work, medical coverage for the low-income elderly and the low-income disabled, protection of bank accounts under the FDIC; these things are the thin armor of the economy. While it cannot protect everything, it does stop many dangers and allows for flexibility and speed; characteristics essential to the prosperity of our nation. What the President and the Democrats have proposed with the auto industry, health care and credit cards is solid metal plate. It may attempt to protect everyone, but it’s cumbersome and near impossible to move quickly. Granted, it may be able to take some hits, but once you knock it off balance it'll tumble end over end until it hits bottom.

The light armor and adaptability of the American economy is what has allowed it to prosper for so long and so well during peacetime. The post-war boom cited by many preaching collectivists was actually a confluence of military and economic history. Continental Europe was physically and mentally annihilated by World War II and the Spanish Civil War. The United States sold them everything they needed to rebuild themselves. Since the post-war period, every boom has been heavily driven by the ambition and innovation private business, not the empathetic government bureaucrat. Mr. Obama's new economy will destroy that ambition and innovation in favor of “fair” cartel-style redistribution, led by the less than trustworthy leaders of the Congressional committees.

The new socialized corporatist economy will take a nation driven to the top by exceptionalism and bring it low by rewarding mediocrity and blocking economic progress.

The recent bill designed to restrict credit card interest rate hikes and excessive fees that had an overwhelming amount of bipartisan support in the Senate is a perfect example of how our elected officials put politics ahead of doing what is prudent. Angry constituents have demanded that the government crack down on the credit card industry for charging them outrageous interest rates and fees. As a result, Congress responded to the populist outcry as elections in 2010 are quickly approaching. Lawmakers have completely ignored the fact that the last time the government attempted to meddle with interest rates (almost three decades ago), the results were not what lawmakers intended, which is indicative of most demand-side policies. However, it’s safe to say that no politician on Capitol Hill would recall that incident or be brave enough to put policy ahead of their political career to make the following points:

Credit card interest rates are OPTIONAL:

How many people realize that money can be borrowed free of interest for the duration of the grace period? If people pay off their balance when the bill comes, then they have had the benefit of borrowing money interest free for 25 days – the typical grace period. Instead, most people abuse credit cards and borrow more than they can afford to repay. Senator Chris Dodd D-Conn says "This is a victory for every American consumer who has ever suffered at the hands of a credit card company.”(1) Senator Dodd’s logic is perplexing. How is it that the consumer has suffered when consumers have the ability to decide how much or if they would like to borrow any money on a credit card?

Interest rate caps restrict the flow of credit:

This actually might be a good thing as the lending industry is not entirely innocent. Although it is clear that people have abused credit, the lending industry is equally guilty of extending too much credit to consumers. However, it is best that this problem be solved without government intervention seeing how well the government’s involvement went with the housing sector. High interest rates will curb borrowing, which is necessary in certain phases of an economic cycle; however, government overreach during a recession can place too much of a restriction on credit flow. Since the beginning of the “economic crisis,” the term “frozen credit markets” has been frequently discussed. If this economic crisis is as serious as politicians have made it out to be, then why pass a measure that will further restrict the flow of credit, which according to them, will make things worse?

It is best to let the private industry work with their customers who are having a hard time paying their bills. There are many services available to customers from their lenders that surprisingly exist without “big government” passing laws. It is in the best interest of the lenders to recoup some of the cost when a customer is unable to repay, which is why lenders often do reduce borrowing rates. Both the lending industry and consumers will have to pay for their mistakes, and it is best for the government to move aside to allow for private negotiation.

Credit card lending is a risky business:

Why are interest rates on credit cards so much higher than the rates for home or automobile loans? Are these types of lenders greedier? One could think the answer to the latter question is yes after hearing all of the talk on Capitol Hill. The truth is interest rates on credit cards are higher due to the fact that money is being loaned to consumers with NO COLLETERAL. When people buy a home, the bank can repossess the house if the borrower is unable to repay – the house is collateral. The same holds true for automobiles. However, when banks issue credit cards to consumers, the bank has no recourse if the borrower is unable to repay. Therefore, interest rates are determined by RISK factor and overall demand for credit.

It is most unfortunate that politicians have focused on the fact that they do not wish to appear insensitive to people struggling to pay their bills with the hope that voters will remember this bill when it comes time for the 2010 elections. Even more disturbing is the Republican Party, a supposed “conservative alternative,” voting for a measure that expands the powers of the federal government. Chairman Michael Steele need not look any further than this bill to see why less than 25 percent of voters identify themselves as members of the Grand Old Party.(2) Eight years of George Bush’s big government fiscal liberalism has done considerable damage to the party’s reputation. If the Republican Party has any chance of growing in size, it must take itself off the path of the last eight years and become the party that stands for small government, individualism, freedom, self-responsibility and put practicality ahead of populism.

(1) http://news.yahoo.com/s/ap/20090519/ap_on_go_co/us_congress_credit_cards

(2) http://thehill.com/leading-the-news/fewer-than-one-in-four-identify-as-republican-2009-04-29.html