The arrogance of the Obama Administration and Congress has cost Democrats a Senate seat in the bluest of blue states. Scott Brown emerged victorious last night against a very liberal candidate in Martha Coakley. It seems that the 2008 liberal playbook of talking points needs revision. Listening to liberal candidates blame George W. Bush is a bit like watching the Chicago Bears offense run the same play over and over for no gain after it worked on the first try.

Scott Brown’s victory brings many positives to light. The Democrats have effectively lost their supermajority power, which means that markets and the public no longer have to fear their ability to ram through catastrophic legislation. Gridlock is also very bullish for the market. This victory also sends a very chilling message to Democrats across the country that the heavy hand of big government is being rejected by the people. This was a Senate seat in Massachusetts and was occupied for decades by the late Ted Kennedy! Never in my lifetime would I have thought the seat would have gone to a Republican, especially only one year after the public and the media fawned all over President Obama. My first column after Obama was elected stated that he would make the best case for classical liberal/free market ideas. However, my optimism certainly didn’t extend to Massachusetts. If the Obama Administration and Pelosi-Reid led Congress respond with the usual arrogance and ignore the public’s message, then November is going to be a very dismal month for Democrats.

Now for the bad news…

Scott Brown’s victory may be just what the country needs in the short term, but ignoring the bigger picture does pose long-term problems.

Scott Brown was not even close to being the ideal candidate. His record, especially fiscally, is very disturbing to say the least. In fact, Brown has an 11-year record of voting for expanding government that includes the following:

• Brown urged voters to vote AGAINST “Ballot Question One” in the 2008 election that would have ended the Massachusetts state income tax. In addition, he failed to publicly endorse and take a stand on the biggest tax and spending issue facing Massachusetts this year – a ballot initiative to roll back the sales tax from 6.25 percent to 3 percent. It is estimated that Massachusetts families would have had 32,929 new private sector jobs if the measure was passed. (1)

• Brown not only supported and endorsed the Massachusetts health care reform bill (also endorsed by Ted Kennedy) known as “Romneycare,” he played a key role in its design. “Romneycare” actually served as a model for “Obamacare,” as the bill forced all Massachusetts workers to buy health insurance or be subject to a penalty tax. It is very ironic that voters now sent him to the Senate to vote against “Obamacare.”

• Brown’s voting record does not show any sponsorship of a bill that cuts taxes, eliminates wasteful spending or shrinks government during his entire 11 year tenure in the Massachusetts state senate. (2)

The long-term concern here is populist outrage. Such outrage puts America in a perilous situation, as this type of outrage played a key role in Obama’s victory in 2008. The public was so angry and fed up with George W. Bush, many cast a blind vote for Obama without realizing that the agenda was the same – especially from an economic standpoint. People closed their eyes and ears to reality and did not take the time to actually listen to him on the campaign trail. Now that the anger has switched ideologies, folks on the right are repeating the same mistake. People are so caught up in their anger towards Obama and his policies, they are ignoring the fact that a lawyer with a fiscal record that would make some Democrats jealous was just sent to Washington to stop the very same agenda! While there is no doubt Brown will ride the populist wave and vote against big government, the concern lies in what he will do when “Father Time” quells the anger.

It is apparent in 2008 that a vote for Obama was simply a vote against Bush. Conservatives and libertarians must not make the same mistake and vote for candidates that do NOT represent their ideology to simply vote against Obama. Voters need to examine potential candidates’ records very carefully, and not fall back into the “lesser of two evils” mentality. Otherwise, the left, once again, gets to turn populist rhetoric in their favor by casting blame on an ideology when its principles were never enacted. Fake allies pose a much greater threat and can do far greater damage than known enemies. The tenure of the Bush Administration and John McCain’s unsuccessful presidential bid should have proved that conclusively.

Classical liberalism has made a comeback. The ideas of limited government and free markets were never dead. They were dormant. President Obama has allowed these ideas to be resurrected. It is now time for voters to make wise choices, examine records, hold their candidates accountable and vote based on IDEOLOGY not PARTY. Let’s not get caught up in the Democrat vs. Republican war, as America has seen where that leads.

November, 2010, poses one of the best opportunities in decades to get candidates in office who understand economics and will fight for free market principles. While I am thrilled to see people embracing these ideas and rejecting the current statist agenda and equally thrilled to see the Democrat machine take a hit in Massachusetts, I don’t want voters to lose sight of the long-term picture. Scott Brown is not the long-term solution we need to put America back on the path to prosperity.

(1) http://www.centerforsmallgovernment.com/feature/warning-to-tea-party-activists-and-supporters-town-hall-meeting-protesters-and-tax-cutters-living-in-massachusetts-who-are-even-considering-voting-for-scott-brown-for-us-senate-january-19th/

(2) http://www.votesmart.org/voting_category.php?can_id=18919&type=category&category=10&go.x=13&go.y=12

When in doubt, it is always safe to pander to the masses. President Obama’s approval ratings have taken a severe hit; but there is no better way to try and change direction than to have sharp words for Wall Street bankers and to portray himself as siding with the little guy. However, there are many facts the President left out of his little P.R. stunt.

During his interview on 60 Minutes Sunday evening, he said “I didn’t run for office to be helping out a bunch of fat cat bankers on Wall Street.” Is that so Mr. President? If one has paid any attention to President Obama’s first 11 months in office, they would be very well aware of the fact that he has not only continued, but has expanded the Bush/Paulson bailout plan. He has also recently considered bailouts for the ailing newspaper industry.

The President may claim that he has no intention of helping Wall Street fat cats, but one is left to wonder why these fat cats were so generous in their donations to his presidential campaign. (1) Goldman Sachs was President Obama’s second largest donor contributing nearly $1 million to his campaign. The top ten list included Citigroup, JP Morgan Chase & Company, Google, Microsoft, Morgan Stanley and General Electric.

These fat cats have invested heavily in this administration since they not only get rewarded for their irresponsibility; they also stand to profit immensely off of their proposed policies such as Cap and Trade. Cap and Trade would do absolutely nothing to address climate change concerns, but it would give the government tremendous power while companies like Goldman Sachs would profit off of the commissions. Goldman Sachs currently owns a 10 percent stake in the Chicago Climate Exchange. All of this would be at the CONSUMER’S expense. President Obama can spew rhetoric all day long that talks about heavy taxation and regulation, but the truth is that these taxes and regulatory costs are passed onto the consumer. It’s quite comical to think otherwise.

General Electric (GE) also made the list and is currently being repaid with the receipt of lucrative government contracts. The company also started a joint venture called Greenhouse Gas Services which will invest and manage the trading of greenhouse gas credits. During the fourth quarter of 2008, the company’s stock declined 30 percent. However, that did not stop the company from spending $4.26 million on lobbying. (2)

It’s interesting how the left widely publicized former Vice President Dick Cheney’s connection to Halliburton Corporation, yet they turn a deaf ear to amount of influence General Electric has had on public policy not only through lobbying, but through the promotion of its agenda via its ownership of NBC Universal along with Jeffery Immelt’s special connection to President Obama. Mr. Immelt sits on the President’s Economic Recovery Advisory Board. Mr. Immelt has all but run GE into the ground, yet he is being consulted for economic advice? These types of connections make the former Vice President’s look like small potatoes.

President Obama claims he will put pressure on banks to open up their purse strings and loan money to small businesses. There is the saying that “ignorance is bliss,” but this is not the case. Obama denies what really caused the crash of 2008 – the Federal Reserve’s policy of cheap money which allowed for the financing of reckless lending practices backed and regulated by the government. He’s never spoken seriously or has expressed real concern for the weakness of the dollar, the amount of debt that burdens the nation and a dangerously large federal deficit – the largest in history. Instead, he continues and expands on the Bush administration’s (the same administration he loves to blame) absurd monetary policy while encouraging banks to stray from prudent lending practice all in the name of saving the economy.

When all of the facts are examined, one can conclude just how much Obama cares about “the little guy.” He shows his concern by condoning a monetary policy that weakens the purchasing power and net worth of every American. He supports bailouts of failing companies (many that are run by those fat cats he says he doesn’t wish to help) that prevent opportunity. Propping up failure comes at the expense of growth and innovation. He does not address any of the burdensome regulation and mandates that prevent small businesses from expanding and hiring people. Larger corporations enjoy economies of scale, which allows them to spread out and pass the regulatory cost onto the consumer; but the small business owner cannot. It’s no coincidence that there has been a surge in the hiring of temporary workers over the past several months since these mandates do not apply to temporary workers. In addition, temporary workers can be let go much easier than employees, which is a wise move for employers in precarious economic times. All that the President offers is a promise that banks will give small business the option of assuming more debt – just what it needs!

The little guy doesn’t need the Obama Administration’s statist agenda and the enactment of the same failed policies that have prolonged and made recessions worse in the past. Such polices create a very volatile economic atmosphere – not the kind that puts people back to work and ensures prosperity for all.

(1) http://www.opensecrets.org/pres08/contrib.php?cycle=2008&cid=N00009638

(2) http://www.washingtonexaminer.com/politics/Obamas-hidden-bailout-of-General-Electric_03_04-40686707.html

In spite of the burdensome and complex regulations that preside over financial markets, criminals like Bernie Madoff can pull off schemes that destroy the lives of many innocent people. One is left to wonder how a person can manipulate the system with such ease. Perhaps criminals like Madoff devise their schemes from the “legal” ones resembling Social Security. Is that a bit of a stretch? Probably. However, the parallels are quite interesting and close enough to make the assertion with the stark difference being intention, of course. The government does not intend to rip people off – it just doesn’t foresee the economically catastrophic consequences of programs designed to help people.

The definition of a Ponzi scheme is “a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from any actual profit earned; or an investment swindle in which high profits are promised, and early investors are paid off from funds raised from later ones.” A Ponzi scheme is essentially a pyramid scam since it relies on future investors to pay returns to the initial investors.

An examination of the Social Security system reveals some similarities to illegal pyramid schemes. Social Security is a “pay as you go” system. A payroll tax exists in which funds are taken from a worker’s paycheck and distributed to those who currently qualify for benefits. The government does not have individual bank accounts set up in which the money you contribute can grow until you reach retirement age. Therefore, the Social Security system relies on “new investors” to pay returns to the people who are eligible.

The Social Security tax burden is equally shared by the employer and employee. However, just because the employer pays half, does NOT mean that it doesn’t come at the employee’s expense. Businesses designate a certain amount of dollars that they deem an employee is worth. The government takes their cut from payroll taxes, and the employee is left with the difference, which translates into lower gross pay. If a company affords a $50,000 salary for an associate, the 12.4 percent employer/employee Social Security burden reduces gross pay to $43,800. (1) This does not include other payroll taxes such as Medicare tax and income tax.

Social Security has built the “pyramid” over the years, and a pyramid scheme is an unsustainable business model. Eventually, there are too many people requiring a return and not enough people buying into the scheme. Before life expectancy increased and differences in population growth (“baby boomers” vs. “generation X”) took hold, Social Security was able to thrive since there were more people paying into the system than drawing on benefits. For example, in 1950, the ratio of people aged 20-64 was about 7.25 to 1 to people aged 65 and over. (2) This means that there were 7 people paying into the Social Security system for every one person collecting. This number does not include those under the age of 20 who were also working and paying into the system. In 2007, the ratio has fallen to about 4.7 percent. Due to the falling ratio, the government has raised tax rates and delayed benefits to younger generations to adjust for longer life expectancies.

Bernie Madoff’s investors probably didn’t know how their money was being invested. They were simply promised a very high return. Social Security was sold to people under the guise of financial security in later years. How many individuals know what the government does with Social Security dollars? How many know that the government spends Social Security funds on other programs? These “loans” are called “intergovernmental holdings.” The Treasury department issues bonds to the Social Security Administration; and those bonds are held in a “trust fund.” Bonds are simply a promise of future tax increases, which means that taxpayers are funding other government programs via Social Security. Would you mind if Vanguard or ING Direct borrowed from your 401k contributions to pay other investors? Only the government can make loans to itself with other peoples’ money, require a loftier investment from people in the future to pay off the loan, and no one winds up in jail.

What would happen if workers’ were given a 12.2 percent increase in pay today with a stipulation in place that a certain percentage of one’s salary had to be placed in a retirement fund? Imagine if workers actually had a say in how their money is invested, and they were given quarterly statements that show an account balance to assess their progress. Imagine retirees being able to pass on their savings to their children and grandchildren instead of receiving a $255 death benefit.

Isn’t it time that people take control over their financial future instead of contributing to a government slush fund? How secure is Social “Security” when a worker pays into the system all of their life, but dies at age 66? The surviving spouse has a choice between taking their benefit or their deceased spouses’ – whichever is greater. They do NOT get both, and children are not entitled to benefits unless they are disabled or under the age of 16. The rules are complex and have some exceptions; however, the key point is that people should be able to designate freely who their beneficiaries are and be able to KEEP all that they invested.

The Social Security pyramid is going to collapse. The ratio of those paying into the system versus those receiving benefits will continue to drop. It is estimated by 2016, a deficit will exist, and the deficits will be made up by redeeming trust fund assets. (3) America’s economic performance will determine how long it will take the government to deplete the trust fund.

Social Security will have disastrous economic consequences if the move to abolish the program is not made soon. It all boils down to individual as opposed to statist control over your golden years.

(1) http://www.ssa.gov/OACT/ProgData/taxRates.html
(2) http://www.ssa.gov/OACT/TR/TR08/V_demographic.html#167717
(3) http://www.ssa.gov/OACT/TRSUM/index.html

BY: MIKE PORTER

I find it ironic that healthcare, the strongest campaign message by the Democrats in 2008, has today become the party’s largest thorn. During the campaign, healthcare reform was a clear and concise message that struck a nerve with liberals, independents, and some disgruntled Republicans. Obama and Clinton continued to banter back and forth during the primaries on health care reform which registered with voters and showed America the Democrats owned this issue. Healthcare for everyone was the campaign slogan and nobody would have to pay extra for it - except for a few wealthy people who should buy it for you anyway, right? If you like your current plan you can keep it. If you are down on your luck there will be a public option for you. President Obama rode into Washington with an approval rating just shy of 70 percent on the heels of many promises; the most important being health care.(1) A badly beaten Republican party, who already lost Congress back in 2006, turned the White House over to the Democrats. America today is being lead by the country’s most liberal leaders in our history. Liberal Democrats have majority control in every branch of government – Executive, Judicial, and Legislative.

How could something so good go so wrong for the Democrats? Months after the health care bill has been drafted, many Americans do not fully understand what he is trying to reform. Obama has completely lost control and has failed to lead during this process. Back in 1993 when Bill Clinton was pushing “Hillary Care,” he addressed the nation and explained the plan to the public. Obama has had several opportunities to explain this and to this day all of his addresses have lacked specifics. That leaves one to conclude our President doesn’t understand the plan himself, or he does not feel comfortable talking about the plan with us. I tend to believe the latter, and as long as the media fawns over this man, nobody will put him on the spot with difficult questions that will force him to explain anything. This tactic has not worked, and it has been detrimental to the Democrats.

While our President has failed to communicate with the American people, our government has ignored the concerned citizens who have flooded town hall meetings expressing their concerns. Thepublic option and cuts in medicare have been among their primary concerns. Most people do agree the system needs reform, however many statistical polls show that 75 percent of the people in America are happy with their current plan. Many of these people do not believe the entire system needs to be overhauled in order to provide reform. The current bill, H.R. 3200, does nothing to address the costs that go into why doctors charge so much. Instead, it just tries to “bandaid” the issue by extending insurance to everyone. Many of the so called “uninsured” today already have access to some kind of plan, either private or governmental. Government mandates on insurance and tort laws are the primary reasons why medical costs are so high, yet the bill does nothing to address these costs. Instead, the bill contains more mandates on companies who already provide insurance and individuals being forced to purchase plans. Many are concerned about whether a public option will eventually lead to single payer, and rightfully so. Obama has yet to answer how this can work without adding any new doctors to provide this additional level service. No one has ever explained how illegal aliens will be treated with the public option.

Citizens of this country are storming the town halls and burning up the phone lines calling their representatives frantic for answers. Meanwhile the White House and many of the elite in Congress simply brush this off as a Fox News initiative driven by far right radicals, or people being sent by insurance companies. I cannot think of anything more devastating than public officials ignoring concerned voters in their constituency. Downplaying, and in some cases, insulting Americans who are executing one of the most essential rights of liberty is not going to help the cause. Americans are rightfully angry at the bill's contents. They should be heard and taken seriously by everyone. The people voicing their concerns have damaged the possibility of a public option and the passage of this bill in general. Many "blue dog" Democrats opposed this bill from the start. Meanwhile, some in Congress support an even more liberal version of this bill and do not believe this goes far enough. Many argue the President let the far left have far too much influence in the writing of this bill, which today is over 1,000 pages.

What has happened here is a perfect example of “the straw that broke the camel’s back.” Today, healthcare costs are about 17 percent of our gross domestic product (GDP). The Democrats have decided to quickly push through healthcare without any bipartisan support or debate. The great uniter has quickly become the great divider. America has already seen an expensive and urgent stimulus package which almost all economists agree will never work. Cap and Trade was next, and now healthcare. All of these bills have been enormous making it impossible to read. Bills of this size are in itself an exploit of our entire government model. Americans are seeing spending and deficits that were once unthinkable – despite the outrageous spending from the previous administration. Americans have simply had enough. This is not the change that drew moderates and independents to vote for Barack Obama - that much is clear. America is still a center right nation, and I am proud to say that is not going to change anytime soon. No one in Washington is going to force us to change the way we live so we can be more like Sweden or France. Both are wonderful places to visit and the people there are great, but no one can expect anything there will ever work over here without a drastic change in our lifestyles. It will not happen and outraged Americans are speaking out against this nonsense.

Congratulations to everyone out there who has let their voices be heard. This is how our government is supposed to work. Polls show support for the President and the Democrats are in a free fall. The latest Rasmussen poll shows the President is at a 47 percent approval rating and falling – down from almost 70% only nine months ago!(2) Even George W. Bush, who left office with the lowest approval ratings ever, fared better than this through his first eight months as President. Without a drastic change by this administration, the Democratic party stands to be in a lot of trouble in the 2010 elections.

(1) http://www.gallup.com/poll/113962/obama-starts-job-approval.aspx
(2) http://www.rasmussenreports.com/public_content/politics/obama_administration/daily_presidential_tracking_poll

Moments of change happen to people every single day. Babies are born. Parents die. Children die. A house burns. A theft. A rescue. An opening. A closure. These things come in the billions everyday. Moments crashing into another over and over in towns, cities, farms and forests. Everywhere. There wasn't an iota of human existence that hasn't been touched by the forces of the world.

There's always been a mystic feelings to watching history. I can never place my finger on it, but it was there. It's there like the sun each morning, even through the smoke of the brushfires or the black cover of a mountain storm. It took a normal day that was blue and calm and transported me to a place out of step with what came before it. The sun didn't look right. The air had a tinge of uncertainty. The world that I saw wasn't the world that I experienced just moments before.

And yet, the world had never changed, not in the sense we short-lived intelligent animals think of as change. Not in the sense of the creation of the solar system or the destruction of the dinosaurs. Those things are real, forever change. Change that utterly ended the world without destroying it. I've been alive twenty four years and what I've been alive to see has simply been the reiteration of the natural truths of human existence in new and interesting forms. The events themselves are new, no doubt, as, for example, the Romans never put a man into space (nor did they do it in a race against Carthage), but the basic reason behind the events have never, ever lost their force.

These forces are so primal, so natural, that we dress them up in new words to disguise what they really are. When you talk about the Final Solution, you are not just talking about the genocidal dictates of a race-oriented national socialist dictator, but you are also talking about a hatred. Pure, deep tribal hatred. Something that repeated itself dozens of times 20 years before the Nazis and dozens of times 20 years after them. When you talk about the fall of the USSR, you are not just talking about the fall of communism, but you are talking about the felling of a single empire which took the place of a previous empire, which in turn took the place of the empire before it. During those empires, the Russian people never tasted freedom, nor do they taste it today. Before the Suffrage Movement, oligarchical Sparta had equal rights for women while democratic Athens shunned the gender. Where the first human and civil laws were created thousands of years ago now lays the bloody print of a dead dictator, one who took from another bloody dictator, who was given his patch of land from an empire that spanned the globe.

If you talk to those who dream of the future of progress and push for our civilization to reach for social perfection, they seem to think what they're doing has been done before. Our leaders, past and present, the ones with the vast visions and the big plans, they saw history as progressive. They saw the moments of humanity individual and apart from other moments. What they didn't know is these things they pine for are not new nor are they special if you put them up against the rest of history. The tale of human civilization shows we human beings, and our human nature, is consistent in its ability to bring us to greats highs like Babylon and its laws, Sparta's equality among the sexes, Athens' experiment with democracy, the Bill of Rights, the liberation of Europe from Nazi, then Soviet tyranny; and in its ability to bring us people like bloody Nero, the Athenian mob, Spartan infanticide, Persian tyranny and murder, the antebellum slave trade, the Islamist terrorist blowback of the Cold War. And all these things are just customs or events in the life time of our modern nations. Dare we think of what could come in our lifetime that may rival the fall of Rome, the Spartan-Athenian War or the Second World War?

When the television told me change is on the way, or a spry newborn revolutionary wanted me to ride the tide of liberation, I followed. When the bombs dropped on Belgrade in 1999, I thought it was new. When the towers fell, I thought it was new. Even when our President was elected last November, I still had that feeling of history. And yet, it wasn't truly there. There was something repetitive about it. Something old. His name was different, his voice was different, even his skin was different, but I'd be damned if I didn't think I saw a tinge of our past, let alone the past of Western civilization, in it. This is why we can't ignore the clues of our past and the words of our Founders. They saw the past, they read the histories and they knew the follies of narcissistic peoples. They enshrined the highs and build walls to prevents the lows. There's a reason they talked and wrote of God-given rights and of human nature and not of the rights we may have later or of the need to implement social justices and save humanity. It's not because they wanted to inspire us to run headstrong into the future, spreading the gospel we think we read in our nation's events, taking for granted that we are safe in our democracy (nay, republic). It's because they wanted to warn us against thinking our future was new, that our actions are unique and that our choices are impossible to fathom from so far in the past.

I don't know what will happen in the future, but what I know is I see the signs of human consistency. It could be before I die or after I die, but if we do not heed to the histories of our human nature, we shall become an example to the future republicans of some lucky, distant nation.

Cross-posted at Generation Patriot

President Obama’s timing of announcing Ben Bernanke’s reappointment as Chairman of the Federal Reserve may not have caused the distraction from the news regarding the federal deficit in which he had hoped. As the federal deficit approaches $1.6 trillion and the debt draws near $12 trillion, Obama has decided to stick with the man who played a significant role in causing this financial turmoil. The starting quarterback has thrown three interceptions, and the score is 21-0 in the first quarter. With no viable backup, the Obama Administration is sticking with their “starter.” However, it is clear that there must be a change in the game plan.

It’s too early for “Hail Mary” passes, and Ben Bernanke is not Roger Staubach. Bernanke’s panicked approach to monetary policy indicates he is afraid of “the bear”…the bear market that is, which is not to be confused with the legendary Chicago Bears’ “46 defense.” Perhaps it is time to slow the tempo of this game down, manage the clock and run the ball. This is not an impossible feat as any member of the 1992 Buffalo Bills who played in the famous “comeback game” will attest. In addition, a one-dimensional offense does not work on the football field or the playing field of economics. Dan Marino was one of the greatest passers in NFL history, but he does not own a Super Bowl ring. “Helicopter Ben”… take a lesson from “Air Marino.”

If Ben Bernanke does not wish to go down in history as the worst Federal Reserve Chairman, he must incorporate a multi-dimensional offense and tough defense in his strategy. When asked about managing asset bubbles, he once said “even if the Fed could identify bubbles, monetary policy is far too blunt a tool for effective use against them.” Bernanke believes that it is easier to clean up the mess after the bubble bursts. It is safe to say that Marv Levy would have preferred to be ahead 35-3 in that famous 1993 playoff game, as the odds for winning would have been much better.

Catch-up football and the Federal Reserve’s strategy of printing money to keep up with government spending have an interesting parallel. Both have very long odds for success. Bernanke is considered to be an expert on the history of the Great Depression, yet his policy does not take into consideration history’s greatest lesson – a nation cannot spend itself into prosperity.

Perhaps Bernanke should seek out a new nickname. How about “Deflator Ben” instead? One of the main reasons why the nation is in perilous financial shape is due to appalling economic policy that does not focus on production and does not use deflation as a remedy to a recession. Bernanke’s predecessor, Alan Greenspan, played a huge role in the crash of 2008 by using low interest rates to induce spending and borrowing whilst outsourcing much of that debt to China and Japan. This policy may have lessened the impact of the previous recession; however, it greatly sharpened the impact of the current demise.

Production is the way out of a recession. The Federal Reserve’s giveaways to induce borrowing and spending will only lead to inflationary nightmares and will make the U.S. dollar worthless. The average American need not plunge farther into debt on account of weak purchasing power.

The price of capital and labor must fall, which will lead to lower prices for goods. When the price of producer goods begins to fall faster than prices for consumer goods, the wheels of the correction process will be rolling. In due time, consumer spending will pick up and market equilibrium will be achieved.

If the answer is so simple, then one must wonder why Ben Bernanke and politicians do not see such a simple solution. Elected officials fear deflation because it is self-correcting. Politicians must sell the illusion that they are needed to “fix” things for people. After the housing bubble burst, prices fell and banks contracted lending. The government responded with financial bailouts which not only prolongs the misery, but stifles the opportunity for capital to be deployed to more opportunistic sectors of the economy. Bailouts, tax credits and all of the other “goodies” politicians give away curtails deflation, and doing so opens the door to more catastrophic consequences in the future.

If Bernanke does not wish to see a repeat of the crash of 2008, he will not repeat the mistakes that were made in “correcting” the recession in the early 2000s. This time, it may not take five years to see an explosion. Economists who are predicting positive GDP growth and cheering over the fact that this ugly recession may be coming to an end is a very hazardous, short-term view. The concern should be on the inflationary impact of the actions taken to “soften the blow” which poses the possibility of a double-dip recession. Will “Deflator Ben” come to the rescue?

The Obama Administration has understood the fact that many Americans do not want a public insurance option. Although it is currently unclear as to whether or not the Administration will abandon the public option, the co-op solution that is gaining some support will extend the same problems that the current health care system has to more people. The only difference between co-ops and the public option is that the term “co-op” doesn’t have as negative of a connotation as “government run.” Once again, politics is put ahead of real solutions that will work.

The lawmakers’ rationale behind the co-op system is that the creation of private, not-for-profit insurance companies will serve as competition to for-profit private insurance companies in an effort to bring down the cost of insurance. This conclusion is illogical because profits are not the reason for the high cost of health insurance, and the following provides a better analysis:

The Misuse of Insurance

Over the years, health insurance has evolved into the key for getting access to health services as opposed to being a safeguard against catastrophe. Thousands of federal and state mandates exist that define coverage – from prescription drugs to hair transplants. When insurance companies are required to cover certain procedures and medications, the cost will rise. In addition, insurance coverage boosts the demand for services, but supply cannot grow at the same rate which also leads to higher costs.

The current system has the government defining the medical services that should be covered and mandates how insurance companies are able to charge for premiums. The community rating system establishes limits in charging different prices to different consumers which results in healthier people paying for those in poor health who require more care.

The co-op system focuses on getting people insured, when the focus should be on limiting the role health insurance plays in getting access to health care. Instead, co-ops will continue to boost the demand without addressing supply.

Three Percent Profit Margin vs. Not-for Profit

It has been established that the inception of co-ops will continue to stimulate demand for health services without addressing supply. Next, let’s examine the insurance companies’ profit margin. For-profit insurance companies average a 3.3 percent profit margin, and there are 85 industries that do better. (1) Ironically, the beverage/brewer industry is number one with a whopping 25.9 percent profit margin, yet there are no politicians complaining that we have a beverage crisis! Has there ever been a time where news reporters have interviewed families who cannot provide their children with a soda pop treat, or college kids complaining that the cost of a keg for their Friday night bash is killing their future?

Therefore, how can politicians blame profits when it is illogical to conclude that a 3.3 percent profit margin is driving up the cost of care? If co-ops serve their purpose, then they can reduce the cost of premiums by 3.3 percent. In addition, this cost reduction may not even be possible due to the supply/demand concern.

Public vs. Not-for Profit in “Capital” Terms

This is a concern that is currently being glossed over by the lawmakers. If co-ops are to be established, then how will they be funded; and how much of a role will government funding play? Not-for-profit companies do not have the advantages that publicly traded companies have when it comes to raising capital. For example, not-for-profit companies cannot issue common stock or sell bonds in the open market to raise capital.

The issue of raising capital is a critical issue to address since start-up costs will be involved in the establishment of co-ops. There are federal and state laws that require insurers to hold reserves of up to one-third of premiums. If co-ops are to be established in every state, it is possible that the federal government will have to contribute billions of dollars just in start-up costs without even addressing future capital requirements. The result would be as economically catastrophic as a public option and still does not address the high costs of insurance.

The Fallacy of Profits at the Expense of Care

One talking point that liberal politicians cling to is the argument that profit or the incentive to make a profit comes at the expense of quality care. This argument may have some merit if the majority of the health care industry was for profit, and the for-profit sector had very high profit margins. However, the opposite is true. According to the American Hospital Association’s 2007 annual survey, about 15.2 percent of registered hospitals in the United States are for-profit. (2) In addition, for-profit hospitals are not faring much better than the insurance companies as their average profit margin is 3.6 percent. (1)

Another aspect of this argument to consider is that the need to control costs does not disappear with the incentive to make a profit, as funds and resources are limited. However, there might be a correlation between limited resources and removing the incentive to profit. Returning to the beverage industry example, it seems that the supply of beverages is ample and the product is affordable, yet this industry is the most profitable. Although the beverage industry and the health care industry are completely different, the point to be made is that the incentive to profit boots SUPPLY. The problem with rising health care costs leads back to the simple economic concept of supply and demand.

In conclusion, if the government lets the free market work, as opposed to attempting to stifle incentive, we will solve the problem of high costs.

(1) http://seekingalpha.com/article/155858-health-insurance-industry-s-profit-margins-rank-86?source=yahoo

(2) http://www.aha.org/aha/resource-center/Statistics-and-Studies/fast-facts.html