How about 100 percent?

June 19, 2009

Paul Krugman opines today

True, the proposed new Consumer Financial Protection Agency would help control abusive lending. And the proposal that lenders be required to hold on to 5 percent of their loans, rather than selling everything off to be repackaged, would provide some incentive to lend responsibly.

But 5 percent isn’t enough to deter much risky lending, given the huge rewards to financial executives who book short-term profits. So what should be done about those rewards?

Here’s a better solution Professor.  How about 100 percent reserves.  If banks actually had to hold on to 100 percent of their loans, then wouldn’t that make all those ridiculously risky loans and such impossible?

Of course, the good Professor overlooks the most important bank, in fact the only one, that needs regulation.  Sadly he puts his trust in the Fed, the one bank that has complete monopolistic control over the money supply.  And like any monopoly…yes, another graph.

fed_our_moneyLook at what the fed has done to our money.

And while we’re at it, why not just go the full monty and return to the gold standard.  Really simple solution now isn’t it?  But that’s the problem, it is THAT easy.  All that wild banking was the RESULT OF, not the cause of, worthless paper money printed with reckless abandon.

Eliminate the source of the problem.  But that would require less government.  And we know where he stands on that one…

Advertisements

Killing health care

June 19, 2009

A while back, I wrote about how to kill health care.  In reality, the government has been killing health care for a long time.  According to a report from the AARP the government already accounts for 46 percent of all health care spending in the country.

That number will only increase.

In 2018, healthcare spending will make up more than one-fifth of the American economy and the government will pay more than 50 percent of those costs, according to projections issued at midnight Tuesday by the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS).

This is exactly the problem with health care “costs”.  The more government spends on health care, the more and it will, and need to spend, on health care.

Here’s a perfect example.

Since its inception, Medicare spending has grown more than 14 times the rate of inflation to about $300 billion. It spends more than $800 million a day. In a decade, analysts estimate, spending will top half a trillion dollars and account for nearly a fourth of the federal budget.

Government is the single largest “consumer” of health care already.  It matters not who receives the care, it mattes only who is paying.  The government has no incentive to price ration, and neither does the patient.  In addition, there is no incentive or need for the provider to compete on price.

Government expenditures on health care displace private dollars spent on health care.  Worse than that, price is never a consideration.  We have ipso fact socialized medicine, as the government has such large market share.  As Mises so accurately described, without price calculation, the socialist system fails.  Is it any wonder why our health care system is in such need of “reform”?

So, according to the AARP report, which cited the CBO’s 2008 report on Growth in Health Care Costs, what is driving much of the increases in health care costs?

Much of what is driving the cost of health care is the widespread use of new medical technologies. Advances have introduced treatments for conditions previously untreatable and new categories of spending.

You don’t say?  So, if they are correct, and it is technological advances, you know, the life saving kind, the types that were unavailable just a few years ago, that is driving the increases in spending, then there is an easy solution.  All we need to do is curtail medical advancements.  Of course, that might cause a few lives to be cut short, but hey, it’s all about the greater good.

And you needn’t even pass a law that prohibits new medical technologies, all you have to do is impose price/cost controls.  Problem solved.

I’ve often said to people (and my classes by the way) that the rising prices of health care are a good thing.  Now, I do get many funny stares and sometimes worse, but once again, Austrian economics to the rescue.

Prices are the signal that producers and consumers use to communicate with each other.  Rising prices indicate that more resources ought to be directed into that sector, and alas, they were.  The resources delivered newer and better medical technologies and countless lives were saved that otherwise would have been lost.

The rules of scarcity still apply (even when you’re a Nobel laureate from Princeton) and shortages do occur.  They are alleviated with higher prices.  Over time markets adjust.  In fact, there is no reason at all why good health care shouldn’t be more expensive.  If consumers value good health care more, than they ought to, and I imagine they are willing to, pay more.

Government intervention into the market only causes distortions.  As there is no reason to make pricing calculations, consumers and producers have no way to determine the proper allocation of resources to and within the health care sector.  Already, as previously covered here, doctors are leaving the profession and even those with insurance are sometimes unable to receive care.

The more the government spends, and the more they impose controls, the worse it will be.  The solution to our health care problem is actually quite simple: get government completely out of the health care market.  When government expenditures on health care are zero, when the market is truly competitive, then the most people will get the best care at the lowest price.


The wages of government

June 19, 2009

For those not familiar with the Golden State’s problems, here they are in a nutshell:  we are dealing with a budget deficit over 20 billion dollars.  A series of ballot initiatives, basically to raise taxes, all failed, and the state is slashing expenditures across the board.

As Mises so accurately described it many years ago, a dollar of public spending necessarily offsets a dollar of private spending.  In fact, the problem is much worse as the Austrian school is precise to detail.  For the government dollar doesn’t simply replace a private dollar, it is actually destructive.  The dollar of government spending not only crowds out an equal amount of private spending, but the dollar spent by the government necessarily is consumptive.  Thus, whatever is spent is gone once consumed.

Since the dollar spent by the government must come from somewhere, it comes from taxation or from borrowing.  Both dollars are taken directly from what would otherwise be the pool of loanable funds, which would then be invested into wealth creation.  Thus public expenditures necessarily destroy what would otherwise have been created.

Now, California has been on a public spending binge.  Lest anyone think that California Forward is some “right wing” think tank, note that its leadership council includes labor leaders and a former director of OMB for the Clinton administration.  It is a “bipartisan” group, which of course means they equally favor leviathan.

One way to measure change in state spending, is to track spending per person.  Over the past ten years, controlling for inflation, California’s per capita spending has risen by 41 percent, increasing from $3,244 in 1997‐98 to $4,565 in 2007‐08.

41 percent increase in per capita spending.  And we wonder why California is in such dire straits.

Here’s an extremely interesting piece of information.  California’s spending on health and human services has increased in the past ten years by 127%.

Sometimes, even the most benign of observations is the most damning.

Under California’s tax rules, high‐income earners pay a larger percentage of their income in income taxes than do middle‐income and low‐income earners.  One result is that during good fiscal years, a large number of very wealthy Californians pay high taxes.  But during downturns in the economy, the amount of tax payments from the very wealthy drops dramatically.  As a  result, the state must content with significant fluctuations in personal income tax.

Not only has the public spending skyrocketed, destroying wealth in the process, but the wealth generating class has been the victim of an ever increasing amount of theft.

The good news in all of this is that what has happened to California is soon spread to the rest of the nation once Obamanomics takes effect.  Debt fueled consumption, ballooning public expenditures, wealth confiscation, and massive crowding out of private investment lead a state, and a nation, to poverty.  But hey, the best part of all is the misery will be shared equally.

The only thing California, or any state for that matter, cannot do is print money.  Well, Uncle Ben has that one taken care of quite nicely.  So, on top of everything else, we’re going to get massive inflation.

base


%d bloggers like this: