In the previous several weeks, there has been a lot of commentary and argument between so-called liberal and conservative groups regarding health care reform, specifically HR3200 and the inclusion of a public option for those unable to afford health insurance.
Allusions to racism, the Nazis or other scary associations are made many times when a group or individual protests the issue of a public option for health care. Recently, an individual with a swastika clearly painted with a line through it in a circle (a fairly universal symbol meaning "NO"), was described in a derogatory way by Nancy Pelosi. Interestingly enough, the person was protesting against National Socialism, not for it. The health care plan with a public option such as that set forth in HR3200 is another step down the path towards socialism in America.
From a somewhat different point of view, rising costs or the inability to afford insurance for some does not mean that it is time to relieve that burden and place it by point of force on the shoulders of other hard-working citizens. How is it ever morally right to take by point of force from some, to provide to others?
Health care, like any other good or service that answers the wants and needs of a citizenry, is subject to the laws of supply and demand. Nowhere have I seen a rational discussion in the mainstream media explaining the economic fact that when prices are set artificially low (in this case, FREE), demand correspondingly rises dramatically. This will cause a shortage of supply (doctors, clinics, hospitals) and therefore a form of rationing where people will wait a very long time for care or pay for it out of their own pockets, at a higher price than was previously available due to the increased demand. The latter happens in places like Canada and England quite regularly; people pay out of pocket for care because their health will not allow them to wait.
Incidentally, I am not a "right wing nut", or a "conservative mob member." These ad hominems are trotted out when people are afraid to think about the facts at hand and let their choices and opinions be governed by emotion instead. I have spent literally thousands of hours studying economics and U.S. history on my own time, in order to understand and make better choices regarding issues such as that which we currently face with HR3200 and health care reform. There is no logic that I have seen presented for how a free public option will not cause the same problems that any other form of price fixing has always done (gas shortages in the 70's, or wheat crop surpluses in the 30's dustbowl years, etc.). And finally, when private companies can no longer compete with the lower "priced" public option, they will slowly fall by the wayside until there is no choice left. The system which need not bother with concerns over profit and loss will be left standing to fill the needs of everyone. When it comes up short, there will always be more taxes and/or inflation of the money supply. We have a long way to fall, mind you. Many people who are considred poor in America still have cell phones and cable TV. Here in America, our taxes are less than in the many European socialistic countries but our rates (and prices of goods) are destined to rise as the American State grows continually larger and more powerful, sapping vitality and power from society and the private economy.
It is time for real, rational debate. Stop the ad hominem attacks, stop the yelling and begin the discussion with honest, sound economics. There are so many arguments why government should not be doing what it is doing (constitutionally, economically, and morally I see no basis for the actions). It is time either for a real argument based in logic to come forward for health care "reform", or more appropriately, for the centrally planned economic state to fall by the wayside for good.
Tuesday, August 18, 2009
Tuesday, July 28, 2009
Wisdom of Sound Economics
I was re-reading the first economics book I ever read this evening, and I came across a particularly insightful paragraph that I want to share, if for no other reason than to marvel at the beauty of sound logic and sound economic reasoning. Notice, I say sound economic reasoning instead of sound economic calculation or prediction; I am not a believer that a system of literally hundreds of billions of independent actions carried out by billions of actors can be modeled via any extensive calculus.
So, without delay here is the insightful paragraph I mentioned for your amazement and enjoyment!
"Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to "buy" houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion. In brief, in the long run they do not increase overall national production but encourage malinvestment."
- Henry Hazlitt, Economics in One Lesson, 1946, Chapter VI, Credit Diverts Production.
Notice, Hazlitt's paragraph could easily have been written today to describe exactly what would happen say, after the Federal Reserve sets the federal funds rate to 1.0%, then Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac provide (mandated by law) loans in large amounts to people who might have had some difficulty qualifying for a traditional private mortgage. The loans would possibly take the form of Adjustable Rate Mortgages (ARMs) with little or no down payment required, among other forms. The ARM rates were derived directly from the federal funds rate, and consequently would be awfully low because of this fact.
This type of mortgage (ARM with little or no down payment) has been implicated as a prominent factor in our recent housing boom and bust. Amazing how sound economics can generally get the story straight, eh? And from 60 years before hand, no less. The paragraph describes very well the upshot of the current situation (where we have many millions of unsold homes on the market in America, and prices still artificially high in many areas as people caught up in the malinvestment are trying to sell at an acceptable level before losing all the capital they have invested). It should sound about right to anyone who bought a house over the last few years in many places, faced with out-sized pricing for even the most modest dwelling, and potential large losses if they have been forced to sell due to unexpected circumstances such as a job loss or relocation.
In the meantime, the taxpayers are forced via taxation to pay for this in the form of subsidized low interest mortgages, tax incentives for home buyers based on the American Reinvestment and Recovery Act, and as well the implicit guarantee of nearly 65% of all mortgages through GSEs Fannie Mae and Freddie Mac. And, I will only briefly mention that the FED also works to keep interest rates artificially low through its purchase of Mortgage Backed Securities (MBSs) - packages of bad loans on banks' books which the FED is now buying to the tune of $500 billion to help clear the way for more new low-interest loans!
This short quoted paragraph is so surprising to me because with simple deductive reasoning Hazlitt explains in a nutshell the economic debacle we currently face in America, in clear language that mostly anyone could understand with some thought, including many children I know. This simple eloquence is not something we will likely ever hear from the likes of Ben Bernanke as he tries to defend his actions as Chairman of the Federal Reserve. Hazlitt was a student of the Austrian School of Economics, and refuted in a weighty tome the writings of John Maynard Keynes - the fellow who provided the groundbreaking intellectual patchwork and background in favor of heavy public deficit spending as a replacement for so-called inadequate demand from the private sector around the world in his treatise 'The General Theory of Employment, Interest and Money" (1936).
Keynes' writing was not meant to be understood by the layman and indeed was written with the intent to convince the economists of the day. Keynes himself noted this in the preface to his famous book. I would welcome a description of the fundamentals of Keynesian doctrine that can be put forth in as simple and eloquent a manner as Hazlitt's remarks on the effects of government-sponsored mortgages, that were as convincing. It seems in order to reach the maximum number of individuals and also groups in society this would be a worthy goal. Sadly, I've looked very hard for such a description and have yet to find it. I am a logical person, and the appeal of the Austrian Business Cycle Theory and of economists such as Hazlitt and Ludwig von Mises is that the thought processes prescribed simply make sense in a logical way. I must admit, I have decided that I cannot and do not believe in the system Keynes prescribes, since it makes no logical sense to me whatsoever. But, I can be hopeful for the most concise and well-stated version of those ideas in order that I more and more fully understand the position I have taken, as well as that of the alternate viewpoint.
I will close with the thought that it is also simply impossible for me to take seriously a man who thought it would be reasonable for people to have a job digging up bank notes buried in bottles by the government. Don't believe me? Look it up. Keynes thought that it wouldn't be best, but it would be better than nothing in the face of political or practical pressures. To me, that is just so much nonsense.
So, without delay here is the insightful paragraph I mentioned for your amazement and enjoyment!
"Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to "buy" houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion. In brief, in the long run they do not increase overall national production but encourage malinvestment."
- Henry Hazlitt, Economics in One Lesson, 1946, Chapter VI, Credit Diverts Production.
Notice, Hazlitt's paragraph could easily have been written today to describe exactly what would happen say, after the Federal Reserve sets the federal funds rate to 1.0%, then Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac provide (mandated by law) loans in large amounts to people who might have had some difficulty qualifying for a traditional private mortgage. The loans would possibly take the form of Adjustable Rate Mortgages (ARMs) with little or no down payment required, among other forms. The ARM rates were derived directly from the federal funds rate, and consequently would be awfully low because of this fact.
This type of mortgage (ARM with little or no down payment) has been implicated as a prominent factor in our recent housing boom and bust. Amazing how sound economics can generally get the story straight, eh? And from 60 years before hand, no less. The paragraph describes very well the upshot of the current situation (where we have many millions of unsold homes on the market in America, and prices still artificially high in many areas as people caught up in the malinvestment are trying to sell at an acceptable level before losing all the capital they have invested). It should sound about right to anyone who bought a house over the last few years in many places, faced with out-sized pricing for even the most modest dwelling, and potential large losses if they have been forced to sell due to unexpected circumstances such as a job loss or relocation.
In the meantime, the taxpayers are forced via taxation to pay for this in the form of subsidized low interest mortgages, tax incentives for home buyers based on the American Reinvestment and Recovery Act, and as well the implicit guarantee of nearly 65% of all mortgages through GSEs Fannie Mae and Freddie Mac. And, I will only briefly mention that the FED also works to keep interest rates artificially low through its purchase of Mortgage Backed Securities (MBSs) - packages of bad loans on banks' books which the FED is now buying to the tune of $500 billion to help clear the way for more new low-interest loans!
This short quoted paragraph is so surprising to me because with simple deductive reasoning Hazlitt explains in a nutshell the economic debacle we currently face in America, in clear language that mostly anyone could understand with some thought, including many children I know. This simple eloquence is not something we will likely ever hear from the likes of Ben Bernanke as he tries to defend his actions as Chairman of the Federal Reserve. Hazlitt was a student of the Austrian School of Economics, and refuted in a weighty tome the writings of John Maynard Keynes - the fellow who provided the groundbreaking intellectual patchwork and background in favor of heavy public deficit spending as a replacement for so-called inadequate demand from the private sector around the world in his treatise 'The General Theory of Employment, Interest and Money" (1936).
Keynes' writing was not meant to be understood by the layman and indeed was written with the intent to convince the economists of the day. Keynes himself noted this in the preface to his famous book. I would welcome a description of the fundamentals of Keynesian doctrine that can be put forth in as simple and eloquent a manner as Hazlitt's remarks on the effects of government-sponsored mortgages, that were as convincing. It seems in order to reach the maximum number of individuals and also groups in society this would be a worthy goal. Sadly, I've looked very hard for such a description and have yet to find it. I am a logical person, and the appeal of the Austrian Business Cycle Theory and of economists such as Hazlitt and Ludwig von Mises is that the thought processes prescribed simply make sense in a logical way. I must admit, I have decided that I cannot and do not believe in the system Keynes prescribes, since it makes no logical sense to me whatsoever. But, I can be hopeful for the most concise and well-stated version of those ideas in order that I more and more fully understand the position I have taken, as well as that of the alternate viewpoint.
I will close with the thought that it is also simply impossible for me to take seriously a man who thought it would be reasonable for people to have a job digging up bank notes buried in bottles by the government. Don't believe me? Look it up. Keynes thought that it wouldn't be best, but it would be better than nothing in the face of political or practical pressures. To me, that is just so much nonsense.
Monday, March 2, 2009
Free and independent
This is the inaugural entry to a collection of thoughts and writing constructed to help bridge what I perceive to be a widening gap in America. That gap, in a nutshell, is widening due to an ideological war between the political left and right. Everywhere - in the news, radio talk shows, newsprint, blogs - we see arguments full of anger and combativeness. There are divisive comments made by high ranking politicians. There are hysteric rants made by talk show hosts. Interviewers talk over their guests and ridicule them for speaking in favor of a different philosophy. Name calling is common; in fact it seems as if it is expected.
I think there is a better way to interact with one another, and I intend for these writings to help describe and illuminate a path to this end.
The ideas here will focus on economics, political policy, and social interactions. The basis for the thoughts presented here grows from the fact that at heart, we are all individuals. Society is moved by people pursuing their own individual interests. Most people want to work for the improvement and betterment of their own lives. When people treat others with respect, society benefits as a supplemental consequence. There are of course deviants, criminals, thieves, and dishonest people. But they are not the majority. The majority are working and striving in general for the great ideals of life and liberty, friendships and family, freedom and prosperity.
It is my intention to persuade, with clear writing and thoughts, that we as a people in America would benefit from a sea change in thinking. This change would require the courage to stop thinking about left and right, and to realize the truth about our government and political two-party system. Ultimately, I hope to raise questions for thoughtful people, liberal and conservative alike, which are pointed enough to enable that sea change in thinking to take place. If I can convince even one other person to see things in a different light, I will consider this blog a resounding success.
I think there is a better way to interact with one another, and I intend for these writings to help describe and illuminate a path to this end.
The ideas here will focus on economics, political policy, and social interactions. The basis for the thoughts presented here grows from the fact that at heart, we are all individuals. Society is moved by people pursuing their own individual interests. Most people want to work for the improvement and betterment of their own lives. When people treat others with respect, society benefits as a supplemental consequence. There are of course deviants, criminals, thieves, and dishonest people. But they are not the majority. The majority are working and striving in general for the great ideals of life and liberty, friendships and family, freedom and prosperity.
It is my intention to persuade, with clear writing and thoughts, that we as a people in America would benefit from a sea change in thinking. This change would require the courage to stop thinking about left and right, and to realize the truth about our government and political two-party system. Ultimately, I hope to raise questions for thoughtful people, liberal and conservative alike, which are pointed enough to enable that sea change in thinking to take place. If I can convince even one other person to see things in a different light, I will consider this blog a resounding success.
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