FUNDAMENTAL TRUTH #68: ” Beware the demagogue, the champion of the poor, for he has dictatorial aspirations.” -Old Pithy

Posted by PITHOCRATES - May 31st, 2011

A Despot needs a Mob

A despot can’t rise to power alone.  Because there is only one of him.  Or her.  A despot needs a mob.  Either to take power by force.  Or to vote him or her into office.  And unless the despot is in a despotic/third world country, the taking of power by force is not an option.  Military coups are just not that common in first-world democracies.  Mainly because no one’s life is that bad where they would risk the punishment for treason.  Because things like that will stay on your permanent record.  Doesn’t look good on a resume.  And treason can get you killed.

So, in a democratic country, you need to get people to vote for you.  Because the path to power is through the ballot box.  Even Adolf Hitler got his power in an election.  And he did that by lying.  Well, if you read his book (Mein Kampf), you had an idea.  Because he pretty much spilled his guts out in that book.  But few read it, apparently.  Even though it became a best seller.  After the fact.  When he had already ascended to power and it became required reading.  Or, required ownership.  It was the Nazi Bible.  Everyone had to have one.  Though few read it.

So how did Hitler rise to power?  He made the people like him.  And took advantage of some crises.  The armistice that ended World War I.  The Versailles Treaty reparations.  The Great Depression.  Things that really hurt the German people.  Made them angry.  Looking for relief.  And Hitler promised it.  Delivered in some magnificent oratory.   He hypnotized the masses with his speeches.  He knew what was wrong.  And it wasn’t the people’s fault.  It was others who wronged them.  The Allies.  The politicians who stabbed Germany in the back at Versailles.  And, of course, the Jews. 

Class Warfare works because it’s Emotional

It’s a winning formula.  Take advantage of a crisis.  By blaming it on someone.  It doesn’t really matter who.  As long as it is a small voting bloc.  And, of course, championing the little guy.  Being their voice.  Say the things they would like to say.  Say what they want to hear.  And who is the little guy?  None better than the poor.  Because there are always a lot of them.  And a lot of them are uneducated.  But they know one thing.  Rich people have a better life.  And an easier life.  While they have little.  And have a harder life.  Anyone can see how that isn’t fair.  Anyone that is poor, that is.  And anyone looking to exploit the poor.

There’s a reason why class warfare has been successful.  It works.  It’s irrational.  Illogical.  But it’s emotional.  Which is how you win elections.  By tapping into the feelings of the masses.  You don’t want them to think.  You want them to feel.  To feel their wrath.  Their frustrations.  Their hopelessness.  For them to feel how unfair life is.  How those in power (the politicians, the rich, the Jews, etc.), are keeping you down so they can live a privileged life.  It’s powerful.  And wins elections.

Of course, it’s often nothing more than a bunch of lies.  A complicated formula of treaties started World War I.  After the assassination of an Austrian duke.  In contested land in southeast Europe.  The Balkans.  A great historical crossroads of culture and religion.  That everyone and his brother has laid claim to since time immemorial.  It was a mess getting into.  And a bigger mess getting out of.  It had less to do with Jewish bankers.  And more to do with territorial ambitions of empires.  Which Germany had.  As did Hitler.  But that doesn’t go over well with the masses at election time.  Because history is boring.  No one wants to hear about it.  History is old.  About a time long ago.  The voters don’t want to hear about that.  They want to know what you are going to do for them now.  What are you going to do about their anger and frustration now?

The Power of the Lie

Well, you lie, of course.  You have to.  Because an angry and frustrated people want some kind of relief.  And they’re going to vote for the person who promises to give them the most.  They’re not going to vote for someone that is going to take away their freedoms and make them live in a police state.  I mean, if Hitler had told the truth in one of those magnificent speeches instead of putting it in a book that was painful to read, people would have heard the truth.  And it would have made a difference at the ballot box.  “So, Heinz, who are you going to vote for?  The Independent (Hindenburg)?  The Communist (Thälmann)?  Or the Nazi?  That guy that’s going to create the Gestapo that will oppress us and make us live in fear?  And conscript us and send us away to fight in a world war while our cities are bombed?”  “Hmmm, I don’t want a harder life, Günter, so I’ll probably vote for the Commie or the Independent.”  Incidentally, the vote tally in 1932 was as follows:  53.1% (Independent), 36.7% (Nazi) and 10.1 % (Communist).  Hitler didn’t win the presidential election.  But because of the large vote he got, Hindenburg reluctantly made him chancellor.  Proving the power of the lie.  And the rest is history.

No one willingly votes for a harder life.  And that’s what a despot will do once elected.  Because the despot wants power and wealth.  Not to help the poor.  The poor are only a convenient tool to use during an election.  So the despot must lie.  And because they are lying and have no intention of following through on any of their promises, the sky is the limit.  They can promise anything.  Even things that are impossible to do.  And attack the rational plan of the opposition as radical and extreme.  So they appeal to the emotions.  And attack the rational.  That’s why dictators in third-world nations round up intellectuals, college professors, students and anyone with glasses (a sign that they can read).  They don’t want people thinking.  They want them feeling.   Feeling their anger.  And feeling their frustration.

And this is why they win elections.  For people would rather hear a pleasant lie than an unpleasant truth.  Because it feels better.  Vote for me and I will give you a free college education, a housing subsidy, a shorter work week, a longer summer vacation, a younger retirement age, a richer pension and, of course, free health care for everyone.  We’ll pay for it by taxing the rich.  And we’ll tax them so much that we’ll be able to cut your taxes.  People like that message.  Those who don’t consider themselves rich, at least.  They don’t want to hear that the country is broke.  That we can’t afford these generous benefits anymore.  They want to hear yes we can.  If only the rich pay their fair share.

Pushing People down into Poorer Classes

Of course, the problem becomes that dividing line between the rich and everyone else.  Because the rich are the bad guys.  The ones living the comfortable life without having to work hard.  They’re easy to demonize.  The poor have no love for them.  But the middle class is another story. 

The middle class is the sweet spot of the population.  They’re not rich.  And there are a lot of them.  More importantly, they’re not poor.  And they vote.  So what to do?  If you lump them in with the rich when you attack the rich, they may not vote for you.  But politics is about one thing.  Money.  And you get it by increasing taxes.  The rich are taxed so much that raising rates on them does little.  They got rich because they’re smart with money.  And they will only pay so much in taxes.  And the poor are poor.  No, if you’re going to increase taxes, you have to do it on the middle class.  So you do.  After the election.  After the lying.  Then you raise their taxes.  So much so that you force those at the bottom of the middle class into the poor class.

For this is the goal of the despot.  To push people down into poorer classes.  Push some of the rich into the middle class.  And a lot of the middle class into the poor class.  Then you champion the poor.  Attack the rich.  While taxing the middle class.  Those you allow to remain rich become your cronies.  As in crony capitalism.  Who lavish you with wealth in exchange for government contracts.  While the middle class toils away for less.  And the poor look up to you as their savior.  Grateful that you’re one of them.  Even though you live in a palace.  While they don’t.  And even though their lives are still pretty wretched, the rich at least got theirs.  Sure, it doesn’t put food on the table.  But it feels good.

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Civil War Sesquicentennial and Memorial Day, Honoring our War Dead

Posted by PITHOCRATES - May 30th, 2011

Union Armies Advance along the Mississippi, Tennessee and Cumberland Rivers into the Confederacy

While General Robert E. Lee and his right hand, General Stonewall Jackson, won battle after battle in the east, the Union Army won the war in the west.  A West Point graduate and veteran of the Mexican War was an unemployed failure at the beginning of the war.  In need of commanders, the Union Army gave Ulysses S. Grant a command.  He jumped off from Cairo, Illinois, nervous and lacking self-confidence.  As his army advanced to Fort Henry, protecting the Tennessee River, he found the fort already had surrendered after a naval bombardment.  His counterpart was just as nervous as he was.  Filled with a new sense of confidence, he advanced to Fort Donnellson, protecting the Cumberland River.  Assaulted it.  And took it.  Opening the Tennessee and the Cumberland rivers to Union navigation.  Grant then took the Tennessee to a place called Pittsburg Landing.  Near a one-room church at a little crossroads.  Shiloh.

The Confederate’s finest general would meet Grant in the 2-day Battle of ShilohAlbert Sidney Johnston.  Who won the first day of battle.  But did not live to see the second day.  With Johnston dying the night of the first day, the attack was not pressed.  A mistake.  For the Army of the Ohio reinforced Grant that night.  And turned defeat into victory.  It was the first of the bloody, big battles that would define the Civil War.  Over 23,000 dead and wounded, stunning a nation that expected some Napoleonic battle charges, one army retiring from the field of battle and a victory parade.  Not four years of battles where they count the dead and wounded by the tens of thousands.

The Union armies advanced in the west.  General William Rosecrans won a bloody battle near Murfreesboro (called the Battle of Stones River in the North).  And then went on to take Chattanooga without a fight with some well executed marches, leaving the enemy on unwinnable ground.  So they abandoned Chattanooga.  Rosecrans followed.  To a career-ending battle called Chickamauga in northern Georgia, the Gettysburg of the West.  The Confederates exploited a hole in the Union line and sent the Union Army running all the way back to Chattanooga.  The only thing saving the army from annihilation was the great stand at Horseshoe Ridge on Snodgrass Hill by General George Thomas, keeping the door open to Chattanooga long enough to save the army.  With the Union army back in Chattanooga, the Confederates laid siege.  This time, they had the high ground.  If you ever traveled on I-75 near Chattanooga, you probably saw billboards for Lookout Mountain and Ruby Falls.  This is the high ground the Confederates held during the siege.

Lincoln Promotes Grant Commander of all Union Armies after his Successes in the West

Meanwhile, Grant was making progress down the Mississippi River, trying to cut the Confederacy in half.  And the biggest obstacle on the river was the impregnable Fort Vicksburg.  Sitting high on a bluff on a hairpin turn of the river.  It commanded the river.  As traffic slowed to negotiate the turn Vicksburg cannon could plink them out of the water.  Grant tried numerous ways to best Vicksburg.  Even building a ship canal through the bayou on the west side of the river.  Nothing worked.  So with the help of Admiral David Porter and the Union Navy, some gunboats ran the Vicksburg gauntlet while the army marched through the bayou.  They got south of Vicksburg.  Crossed the river.  And attacked.  First took Jackson, Mississippi.  Then marched back towards the river and laid siege to Vicksburg.  The fort fell on the Fourth of July.  A day after Picket’s Charge at Gettysburg.  And the day Lee began his retreat from Gettysburg.  With the fall of Vicksburg, Grant had cut the Confederacy in half.

They promoted Grant.  Grant promoted William Tecumseh Sherman in his place.  And left to lift the siege of Chattanooga.  Which he did.  And then the Union Army drove the Confederates from Lookout Mountain.  And sent them in a retreat that never ended.  Abraham Lincoln promoted Grant to commander of all Union armies.  Grant then left for the Eastern Theater.  While Sherman and Thomas took over in the west.  Sherman advanced and took Atlanta.  A vital rail junction.  Then marched unopposed through Georgia to the sea.  Shrinking the size of the Confederacy into an island of Union-held territory.  He made the South “howl.”  And he made it hungry and in want of the necessities of life.  The war wasn’t over.  But the outcome was now inevitable.

Meanwhile, Grant now advanced with General George Meade who commanded the Army of the Potomac.  And followed Lee.  Looking to outflank Lee and force him onto some favorable ground for one last battle to end the war.  For his forces outnumbered Lee’s.  He just needed one open battle to end it all.  They soon squared off in battle.  Not on open ground.  But in a tangle of forest.  The Battle of the Wilderness.  Both sides suffered heavy losses.  But Lee no doubt sensed impending doom.  Where all the previous commanders retreated after suffering such losses, Grant didn’t.   He was relentless.  He took a lot of casualties.  But he inflicted more.  Worse, Lee had run out of replacements.  It was a battle of attrition in the bloodiest sense. 

Grant, Sherman, Lee and Johnston Win the Peace

This kicked off the Overland Campaign.  A series of bloody battles that pushed the Confederates back towards Richmond.  But it was a costly campaign.  Losses were high.  On both sides.  Lee, having been an engineer during the Mexican War, used his engineering skills in building defensive fortifications.  To even the odds against a numerically superior attacking force.  And did.  Grant’s bloodiest days were at Cold Harbor.  Veterans by then were writing their names on scraps of paper and pinning them inside their uniforms.  So if they fell in battle someone could identify their bodies and send them home for burial.  After the last assault, days passed before they called a truce to tend to the dead and wounded between their lines.  Most of the wounded by then had died.  One wrote in his diary presumably as he lay dying from a mortal wound.  When they found his diary, the last entry read, “June 3. Cold Harbor. I was killed.”

Though paying a high price for every inch of ground, Grant did what no other commander had done.  Push Robert E. Lee back.  All the way to Richmond and Petersburg.  Where his army was besieged by Grant’s.  The Confederacy had nothing left to give Lee.  Sherman had emerged from Georgia and was now attacking up the coast.  Lee broke from the besieged lines and made it as far as Appomattox Courthouse.  Grant had him surrounded.  They met.  Grant’s terms were so favorable that Lee accepted them.  Surrendered his army.  Ending the specter of a protracted guerilla war.  Sherman later met with General Joseph Johnston.  Who surrendered his forces after receiving favorable terms, too.  Lee and Johnston’s actions were followed by other commanders who laid down their arms and gave up the fight.  Even the feared General Nathan Bedford Forest.  Whose cavalry still ran at will within Union controlled territory. 

The war was over.  And the easy peace Abraham Lincoln wanted and discussed with Grant and Sherman before his assassination prevailed.  Not without a few hiccups.  But it prevailed.  Thanks to Grant, Sherman, Lee and Johnston.  There would be no guerilla war.  Instead, there would be reunification.  But still soldiers died.  The last being a Union soldier.  John Jefferson Williams, a private in Company B of the 34th Regiment Indiana Infantry.  Killed on May 13, 1865.  In a battle occurring after the official end of the Civil War.  The Battle of Palmito Ranch.  Ironically, a Confederate victory.  On the banks of the Rio Grande.  Near Brownsville Station in Texas.  Little over a month after Lee’s surrender.

The Civil War changed the United States from an ‘Are’ to an ‘Is’

Over 620,000 died during the Civil War.  It was America’s deadliest war.  A war that started with the cessation of the South over the issue of slavery.  That was the political reason for the war.  But that wasn’t why most fought.  To free the slaves.  Or keep them enslaved.  For those fighting the battles had other reasons. 

Some started out with thoughts of military glory.  But those thoughts soon vanished after their first battle.  Instead, what kept them fighting after that first battle was one simple thing.  They wanted to go home.  To the family they left.  To the life they left.  And the way home was through one bloody battle after another.  Which they fought with grim determination.  Accepting that the odds were not in their favor of ever going home.  But the war would end one day.  It had to.  After they fought enough battles.  And those still standing could then go home.  Of course, what that home would be like depended on the outcome of the war.

Before the war people identified their country by their home state.  Especially in the South.  People were Virginians.  Georgians.  South Carolinians.  They weren’t Americans.  We were a nation of united states (small ‘u’ and small ‘s’).  Foreign nations, when addressing the United States would ask, “Are the United States…”  After the war, they would start asking, “Is the United States…”  As the historian Shelby Foote said, the Civil War changed the nation from an ‘are’ to an ‘is’.  Singular.  Which is more the way the North felt.  The South preferred the ‘are’ interpretation.  So that’s another reason why they fought.  To keep the country like it was before the war.  The way their homes were.  So they could go home.  To the way it was.  For the North it meant keeping it an ‘is’.  For the South, it meant keeping it an ‘are’.

I want to go Home

Home is the most powerful force in the world.  When those soldiers pinned their names inside their uniforms before those ill-fated assaults at Cold Harbor, they were thinking of home.  Some would make it.  Many would not.  It’s what made them form ranks and charge into that withering fire.  Because that was the way home.

For every Grant, Sherman, Lee and Johnston, there are thousands of names we will never know.  Like the men who fell at Cold Harbor.  And all those who died in Civil War battles few will ever know the name of.  Or battles since.  Leyte GulfOmaha Beach.  The Hürtgen Forest.  The Battle of the BulgeOkinawa.  The Chosin ReservoirKhe SanhHuếFallujahKandahar.  And the list goes on.  So many battles.  And so many dead.  Whose last thoughts were probably a single word.  Home.

Many of us are fortunate enough to be home this Memorial Day.  Be thankful for that.  And think of those who never made it back home.  Think of them.  If you drink, raise a toast in their honor.  The bravest of the brave.  Who knew the way home was through yet another battle.  They may not have survived that last battle, but their spirit lived on.  And returned home.  Where it lives on.  Forever part of the home they once left.

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Obamacare and the United States Postal Service to have a lot in Common

Posted by PITHOCRATES - May 29th, 2011

Obama Slams the United States Postal Service (USPS)

Back during the Obamacare debates, way back in 2009, the public option was still on the table.  President Obama tried to soothe people’s worry about the public option putting private insurance out of business.  He said it was ridiculous to worry about such a thing.  Because federal monopolies can’t do anything well.  And that private business will always provide a more superior service than a government provided service.  Strange way to advance his case for more government involvement in health care.  But he said it.  And gave an example of a poorly run government monopoly providing no threat whatsoever to its private counterparts.  The United States Postal Service (see The President and the Postal Service by Ed O’Keefe posted 8/11/2009 on The Washington Post).

“I mean, if you think about it, UPS and FedEx are doing just fine, right? No, they are. It’s the post office that’s always having problems.”

President Obama is right.  FedEx and UPS are doing just fine.  And, just as he said, it is the USPS that is having the problems.  As always.  To quote Obama.

FedEx is Profitable

FedEx’s shipping volume in their fiscal third quarter set a record.  And their revenue and margins are looking pretty good, too (see FedEx offers strong outlook for this quarter and beyond by Lynn Adler, Reuters, posted 3/17/2011 on msnbc).

FedEx Express volumes were at an all-time fiscal third-quarter high, and “Ground is knocking the cover off of the ball with both volume and yield gains,” [John Koczara, portfolio manager at AMBS Investment Counsel] said.

“We expect continued positive yield trends to improve revenues and margins in the fourth quarter and in fiscal 2012,” said Alan Graf, [FedEx] chief financial officer.

One thing for sure, it doesn’t look like the public option, the USPS, is giving FedEx any problems.  Confirming what Obama said.  FedEx is doing just fine.  Score one for the private company.

UPS is Profitable

Now, FedEx is good, but there is someone even better.  And it isn’t the USPS (see UPS Profit Tops Estimates, Sees Record in 2011 by Reuters posted 2/1/2011 on CNBC).

United Parcel Service, the world’s largest package delivery company, reported a quarterly profit that beat estimates and forecast record-high profits in 2011, sending its shares up 4 percent.

Doesn’t look like the public option, the USPS, is causing any heartburn for UPS.  Unless they consume too much champagne and caviar courtesy of their record profits.  Score another one for the private company.

The USPS is Sucking Air

With FedEx and UPS booming you’d think that the USPS would be booming, too.  So are they?  Are they posting record profits in the latest quarter?  Not quite (see Sun is setting on rural post offices by Kevin Murphy posted 5/28/2011 on Reuters).

The postal service is losing $23 million a day and is $15 billion in debt, its allowed limit, said Rich Watkins, spokesman for its Mid-America District. The service has cut about 100,000 positions through attrition in the past three years and consolidated sorting and other operations, he said.

The postal service is in such bad financial condition that it may not be able to make a $5.5 billion prepayment for future retiree health benefits due September 30, Postmaster General Patrick Donahoe told a Senate subcommittee last week.

Unlike the private companies, FedEx and UPS, who are doing very well, the USPS is sucking air.  That’s private company: 3; government monopoly: 0.  Which is pretty amazing considering that they have a legal monopoly enforced by the federal government.  Only they can deliver letters.  Unfortunately, they do that so inefficiently that postal customers have found alternatives.

The U.S. agency has lost business to electronic mail and to private sector competitors like FedEx and the United Parcel Service.

That’s the problem with a monopoly.  Always trying to do something the way they did it a generation ago.  Meanwhile, people have turned to email and text messaging.  And paying their bills on line.  Because it’s cheaper.  And easier.  No postage required.  No envelopes.  No trips to the post office.  No muss.  No fuss.  And you can send pictures and video in today’s digital world.  You can’t do that with first class mail.  At least, not with a lot of additional cost.

Of course, they can compete with FedEx and UPS.  Because you can’t send packages electronically.  But the one thing the USPS can do well they still can’t do as well as FedEx and UPS.  We need to fix the USPS.  It needs to be reformed.  To meet the needs of today’s generation.  And tomorrow’s.  But that’s one thing that a government monopoly just can’t do well.  Change.  Or be efficient.  Or provide a service that people demand.

The Public Option will be a lot like the USPS

President Obama was right in 2009.  The government can’t do anything well.  And when they compete against private industry they fail miserably.  In fact, these government run enterprises are so bad that only government intervention can maintain their monopoly.  For awhile.  Because when something is that bad, even government intervention can’t prevent the inevitable.

Which begs the question why did Obama use the USPS-FedEx/UPS analogy to promote the expansion of government into the private health insurance industry?  What’s his argument?  Don’t worry about the public option.  It’ll be as horrible as the USPS that it won’t harm the private insurance market.  But we will pattern the public option after the USPS.  Because only the public option will provide affordable, quality health care.

Yes, the public option will be that remarkable.  It’ll be both horrible and the best thing since sliced bread.  Depending on who the government is talking to at the time.

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Egypt Opens Gaza Border, Palestinians to try Statehood at UN

Posted by PITHOCRATES - May 28th, 2011

It is now an Islamic Arab Border

It’s done.  The border is open.  The siege is lifted.  Let the love begin (see Egypt opens Gaza border crossing, easing 4-year blockade by Ernesto Londono and Joel Greenberg posted 5/28/2011 on The Washington Post).

Egypt’s military rulers announced earlier this week that they would permanently open the crossing, the main gateway to the outside world for the 1.6 million Palestinians in the Gaza Strip…

The Egyptian government had kept the border closed or tightly controlled since Hamas took over Gaza, bowing to Israeli concerns that militants could smuggle weapons into the coastal enclave and fears of a spillover of militant activity into Egypt.

Yes, militants could smuggle weapons.  They did.  And they fired them into Israeli cities.  Because the Hamas charter calls for the destruction of Israel.  You see, Hamas has no love for Israel.  They hate Jews.  And they keep trying to kill them.  Hence the attacks on Israeli cities.  Now Hosni Mubarak is gone.  The once banned Muslim Brotherhood is now part of Egypt’s future.  The Egyptians sponsored talks in Cairo to help the militant Hamas join the moderate Fatah in a unity government.  And now the Egypt-Gaza border is now open for business.  But there’s nothing to worry about, is there?

“We are very happy Egypt is now in control of the border,” said Halawen, who was traveling to have spinal surgery after a botched procedure in Gaza. “It is now an Islamic Arab border. Egypt and the revolution of January 25 brought us this.”

Oh, it is now an “Islamic Arab border.”  As in the Islamist Muslim Brotherhood.  Who has close ties with the Islamist Hamas.  Who has close ties with the Islamist Iran.  But there is nothing to worry about, is there?  As long as you’re not a tiny Jewish state being swallowed in a sea of militant Islamism, that is.

And now Bombs and Explosives can Cross more Easily

The Israelis aren’t all that happy with this development.  Fatah and Hamas are, though (see Fatah official hails ‘brave’ Egyptian decision to open Rafah crossing by Reuters and The Associated Press posted 5/28/2011 on Haaretz.com).

“We are very happy, it was a brave decision by Egypt to open the crossing and to dismantle the prison imposed by Israel on the people (of Gaza),” [senior Fatah official] Shaath said.

“Opening this door does not mean Egypt wants to allow bombs and explosives … Egypt wants to allow safe passage of individuals who want to conduct their lives,” he continued…

The deputy foreign minister of Hamas, Ghazi Hamad, called the opening of the Rafah crossing “a unique move and a positive development.”

Despite all of these developments, Hamas hasn’t revised their charter.  They refuse to renounce violence against Israel.  Palestinian President Mahmoud Abbas has yet to say he will accept a Jewish state (as Israeli Prime Minister Benjamin Netanyahu has said he will accept a Palestinian state).  Interestingly, Shaath was quick to say that just because the border is now open it won’t mean bombs and explosives will cross.  But that’s what is on everyone’s mind.  Why?  Because everyone knows that bombs and explosives will be crossing that border.  Into Gaza.  Where they’ll be used to fulfill the Hamas charter.

The Palestinians plan an UN End-Around to Pressure Israel

So it is no wonder that the Israelis are a little skeptical about the Palestinian quest for peace.  And then there were President Obama’s remarks about restarting the peace process from the pre-1967 borders.  When the Israelis escaped annihilation from a coordinated Arab attack (the Six-Day War).  The Israelis won that conflict.  And gained strategic ground.  Making it more difficult for another coordinated Arab attack.  And they refuse to just give up this security for hopes of peace when one of the negotiating parties still has the destruction of Israel in their charter.

And the other nonstarter in any negotiations is the right for displaced 1948 Palestinians (or their descendents) to return to the Jewish state in the two-state solution.  For if they do, there won’t be two states.  They’ll be one large Palestinian state.  Asking for the pre-1967 borders and the right of return is asking for something they know the Israelis cannot give.  So why ask for them?  It’s obvious.  They don’t want to negotiate a two-state settlement.  They want to stay at war.  And fulfill the Hamas charter.  Of course, it’s the Israelis that are being stubborn and don’t want peace (see Abbas sees no hope for talks with Israel, firm on UN path by Reuters posted 5/28/2011 on The Jerusalem Post).

The Palestinian president said on Saturday there were “no shared foundations” for peace talks with Israeli Prime Minister Benjamin Netanyahu and seeking UN recognition of Palestinian statehood was his only option.

So they’re going to try an ‘end-around’ instead.  Get UN recognition of Palestinian statehood.  Which the U.S. opposes.  So that’s more political posturing.  To make it look like Israel and the U.S. are just mean, a couple of schoolyard bullies pushing around the innocent Palestinian people.  The same people who fire missiles into Israel.  And include Hamas.  Who has the destruction of Israel in their charter.

Apparently, only Diplomacy that Weakens Israel is Good Diplomacy

So what does the Jew in the street think?  Well, here’s an opinion from a Jew that left Israel as a child and went to the United States (see Gene Simmons tells Obama to kiss off on 1967 by JPOST.COM Staff posted 5/28/2011 on The Jerusalem Post).

Calling President Obama naive and skewering him on foreign policy during his interview, Simmons didn’t hold back on the expletives. “If you’ve never been to the moon, you can’t issue policy about the moon. You have no f***king idea what it’s like on the moon,” he said.

“When you grow up you find out that life isn’t the way you imagined it, and President Obama means well,” said Simmons, who had admitted to feeling regret for having voted for Obama. “I think he’s actually a good guy. He has no f***king idea what the world is like because he doesn’t have to live there.”

Yes, the fire-breathing, blood-spitting demon with the super long tongue is a Jew.  Okay, so Gene Simmons of Kiss probably doesn’t represent the average Jew in the street, but his opinions are no doubt the same.  He sees what they all see.  For some reason, only diplomacy that weakens or destroys Israel is good diplomacy.  Well he’s not one to sit idly by and bite his tongue.  (If you don’t know who Gene Simmons is, ask your parents).

But Simmons says what many think.  President Obama’s foreign policy is naive.  And it’s making the world a more dangerous place.  Especially in the Middle East.  Where an aggressive and Islamist Iran is sitting back watching it all unfold in Act I.  And getting ready to take center stage in Act II.

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Obama Prolongs the Recession with High Food and Gas Prices and anti-Business Policies

Posted by PITHOCRATES - May 27th, 2011

Consumer Spending and Wages are Flat thanks to Inflation

Consumer spending at last shows some growth.  No, wait a minute.  It’s not growth.  It’s only inflation (see April consumer spending shows weak gain by the Associated Press posted 5/27/2011 on the Los Angeles Times).

Consumer spending rose 0.4 percent, reflecting a surge in the category that covers food and gasoline, areas which showed big price gains last month, the Commerce Department reported Friday. Excluding price changes, spending rose a much smaller 0.1 percent.

Incomes rose 0.4 percent but after-tax incomes adjusted for inflation were flat for a second straight month.

Analysts are worried that weak income growth and big gains in gasoline and food prices are leaving consumers with little left to spend on other products. That could dampen economic growth. Consumer spending is closely watched because it accounts for 70 percent of economic activity.

Increased consumer spending is a good thing.  But not when consumers are only paying more for the same stuff.  That’s not new economic activity.  That’s just inflation making life more expensive.  Food and gasoline are the main culprits.  And it’s gasoline that plays a large role in making food more expensive.  Because gasoline is used everywhere in bringing food to our grocery stores.

Worse, Americans are paying more.  But not earning more.  Which leaves less disposable income to stimulate the economy. In other words, the U.S. is still in recession.  And won’t be coming out of it anytime soon.

Still no Recovery in the Housing Market

So we’re still mired in recession.  Of course that means houses should still be cheap.  With low interest rates.  Put the two together and someone should be buying houses at least (see Pending Home Sales Plunge, Reaching Seven-Month Low by Reuters posted 5/27/2011 on CNBC).

Pending sales of existing U.S. homes dropped far more than expected in April to touch a seven-month low, a trade group said on Friday, dealing a blow to hopes of a recovery in the housing market.

Damn.  Housing sales had been the backbone of the U.S. economy.  Because furnishing a house drives so much consumer spending.  The more people that bought houses the better.  So that was U.S. policy.  Putting people into houses.  Which led to the subprime mortgage market.  A housing bubble.  The subprime mortgage crisis.   And a glut of foreclosed homes on the market driving housing prices down further.

It’s a buyer’s market now.  Because so few are buying.  So the economy is not going to get any assistance from the housing market any time soon.

Universal Health Care Ruins Massachusetts First, then the United States

So things are bad.  But can they get any worse?  Are there any new big regulatory compliance or taxes in the pipeline?  Anything that could snuff out even the most anemic of economic recoveries?  As it turns out, yes (see Health Insurance Premiums Continue to Rise Under RomneyCare by Peter Suderman posted 5/27/2011 on reason).

Not only are Masachusetts’ health insurance premiums higher than elsewhere in the U.S. on average, they’ve grown at a faster rate since the adoption of RomneyCare, according to a report released yesterday by the state government. The report, which was published by the state’s Division of Health Care Finance & Policy, notes that for the last two years, private group insurance premiums rose by between five and 10 percent per year despite the fact that the regional consumer price index, which measures inflation on common goods and services, rose by just two percent..

The Obama administration has explicitly stated on numerous occasions that RomneyCare was the model for the federal overhaul. Given the Bay State’s spiraling costs, it seems more and more likely that, thanks to ObamaCare, we can all expect higher health insurance premiums in our future.

So Obamacare is Romneycare at the national level.  So the American people can expect spiraling health care costs and insurance premiums.  That can’t be good for the economy.

Obamacare hasn’t really kicked in yet.  Most of the activity has been by companies seeking waivers to be excluded from the requirements of Obamacare as it places too great a cost burden on their small businesses.  But these are only one-year waivers.  So small business costs will be going up eventually.  When they do in fact comply with Obamacare.  And that will be a great disincentive to hire new employees.  Being that small business is the biggest generator of jobs, Obamacare will further stretch out this recession.  Or make it an even more severe recession.

The Obama Administration would like Gas at $8/Gallon

If only we could get a break on gasoline prices.  That is such a large part of consumer prices that if they went down the economy might tick up.  So the government should focus all of its powers on lowering gas prices (see Obama’s Bad Policy, Harmful Regulations Add to Gas Prices by Darrell Issa posted 5/27/2011 on USNEWS).

From the campaign trail, then Senator Obama spoke of increased electricity prices as a means for advancing his agenda, noting that costs would “necessarily skyrocket.” Energy Secretary Stephen Chu was equally blunt. “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe [currently $8 a gallon],” Mr. Chu announced. Last year, President Obama declared that America must be the nation that leads the “clean energy economy.”

So the plan was to make gasoline prices high all along.  To make gasoline so expensive that the more expensive green energy became cost competitive.  To encourage the American people to choose it.  And by ‘encourage’ I mean force.  Talk about devious. 

Even as compliance costs for traditional and affordable sources of energy rise, the administration’s willingness to promulgate even tighter regulatory controls and raise taxes on oil and gas producers rolls along. In his fiscal year 2012 budget, President Obama requested more than $60 billion in direct tax and fee increases on American energy production over the next 10 years.

Tighter regulatory controls and higher taxes won’t help the economy.  Especially when those controls and taxes are on the one thing that drives most prices.  Gasoline.  It’s almost as if the Obama administration is trying to prolong the greatest recession since the Great Depression.

The Government’s Help is killing Small Business

So how about the man in the street.  Or, rather, a man on an airplane.  Stephen Carter, Yale law professor, sat next to a small business owner on a recent flight.  An actual person.  Not the abstract business people who are trying to cheat the government out of their taxes or take grandma’s medications away.  A flesh and blood real person.  They had an interesting conversation.  About small business.  The greatest generator of American jobs.  And he asked this business owner why he was prolonging the recession by not hiring new employees (see Carter: Economic Stagnation Explained, at 30,000 Feet by Stephen L. Carter posted 5/26/2011 on Bloomberg).

“Because I don’t know how much it will cost,” he explains. “How can I hire new workers today, when I don’t know how much they will cost me tomorrow?”

He’s referring not to wages, but to regulation: He has no way of telling what new rules will go into effect when. His business, although it covers several states, operates on low margins. He can’t afford to take the chance of losing what little profit there is to the next round of regulatory changes. And so he’s hiring nobody until he has some certainty about cost.

One thing business people don’t like is uncertainty.  Because when they screw up they can’t just raise taxes or print money.  They have to deal with real the consequences of bad decisions.  So they are very careful about making costly decisions.  Like hiring people.

“I don’t understand why Washington does this to us,” he resumes. By “us,” he means people who run businesses of less- than-Fortune-500 size. He tells me that it doesn’t much matter which party is in office. Every change of power means a whole new set of rules to which he and those like him must respond. ‘‘I don’t understand,” he continues, “why Washington won’t just get out of our way and let us hire.”

Republican.  Democrat.  It doesn’t matter.  Every time there is a change there are new rules to follow.  And more of that thing they so hate.  Uncertainty.

“I think about retirement a lot,” he says. “But I can’t.” I wait to hear about how much he loves the business he founded, or about his responsibilities to his employees, or perhaps to the town, somewhere in the Dakotas, where his factory is located. Instead, he tells me that it’s impossible to make a sensible decision about winding down his firm when he doesn’t even know from one year to the next what the capital gains rate is going to be.

So it’s just not the Wall Street robber barons affected by the capital gains tax.  The greatest employer, small business, is affected, too.  He is just one of many.  Unable to make decisions like when he can retire.  Does he have enough money to retire?  And pay his capital gains tax?  If not it could be a problem.  Because you just can’t un-retire when you sell or close down a small business if you calculated wrong.  Instead, you’ll be an old guy trying to find a job.

I ask him what, precisely, he thinks is the proper role of government as it relates to business.

“Invisible,” he says. “I know there are things the government has to do. But they need to find a way to do them without people like me having to bump into a new regulation every time we turn a corner.” He reflects for a moment, then finds the analogy he seeks. “Government should act like my assistant, not my boss.”

An assistant doesn’t tell the boss how to run his business.  Because an assistant doesn’t know how to run his boss’ business.  Government bureaucrats aren’t even as knowledgeable as the assistant.  The assistant at least has a job in a business.  Few in Washington have ever run a business.  Let alone had a real job.  Yet here they are constantly trying to tell others how to run their businesses.

On the way to my connection, I ponder. As an academic with an interest in policy, I tend to see businesses as abstractions, fitting into a theory or a data set. Most policy makers do the same. We rarely encounter the simple human face of the less- than-giant businesses we constantly extol. And when they refuse to hire, we would often rather go on television and call them greedy than sit and talk to them about their challenges.

Recessions have complex causes, but, as the man on the aisle reminded me, we do nothing to make things better when the companies on which we rely see Washington as adversary rather than partner.

The best thing Washington can do to help small business?  Stop helping. 

In the Recession Business?

From small business regulation to inflation to the high cost of health care to the high cost of gasoline it would appear that the current administration is actually in the recession business.  Or utterly incompetent.  One almost has to lean towards incompetence.  Because there is an election in 2012.  And making the worst recession since the Great Depression more like the Great Depression can’t possibly help at the polls.  Even if you have compromising photographs of the Republican candidate having a good time with someone that is not his or her spouse.

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LESSONS LEARNED #67: “Free health care is very expensive.” -Old Pithy

Posted by PITHOCRATES - May 26th, 2011

Romneycare

In 2007 Romneycare took effect in Massachusetts.  A precursor to Obamacare.  Though not by design.  The new health care requirement included an individual mandate.  You either bought health insurance or they penalized you.  Ditto for employers.  They either provided health care or they penalized them.  It included subsidies to help the less wealthy pay for their mandated insurance.  And added a new and powerful health care regulatory board.  Finally, an example of what compassionate Big Government could do.  And how successful has Massachusetts been in providing free/affordable health care to everyone?  Well, as of 2011, not a single state has followed their example.

It has failed to provide universal coverage.  It has failed to control health care costs.  It has cost more in taxes than originally projected.  Health care has become more bureaucratic.  There is less choice.  Medical bankruptcies went up.  And there’s talk about implementing price controls.  And, of course, rationing.  Everything the critics warned about in a universal health care program.  And everything the proponents poo pooed.  Because those things only happen when everyone else tries universal health care.  But everyone else isn’t them.  They know how to do it right.  And their plan will not only not have those problems.  It will provide universal, quality health care at affordable prices while reining in health care costs without new and higher taxation.  Of course they were wrong.  And the critics were right.

Sound familiar?  The proponents of Obamacare have said the same thing.  In fact, Obamacare is pretty much Romneycare at the national level.  Interestingly, Mitt Romney, the architect of Romneycare, opposes Obamacare.  As a Republican candidate for the 2012 election, he promised to repeal Obamacare.  Probably because if they do at the national level what he did at the state level it would ruin the U.S. economy.  Because nothing went as planned in Massachusetts.  So there is no reason to believe that Obamacare will not be the train wreck Romneycare was.  Even if the ‘right’ people finally take a crack at it.

Medicare

In the U.S., federal tax revenue (i.e., federal income taxes) averaged about 18% of GDP between 1970 and 2010.  So if the government’s budget was balanced, federal spending would also equal 18% of GDP.  When it’s not balanced and they spend more than this 18% of GDP it results in deficits.  Which the government has to finance either by raising taxes, borrowing money or printing money.

In 1970, Medicare outlays were about 0.7% of GDP.  By 1980, that number increased to 1.2% (a 71.4% increase over the decade).  By 1990, it increased to 1.9% (a 58.3% increase over the decade).  By 2000, it increased to 2.2% (an increase of 15.8% over the decade).  Or a total increase of 214% in only 30 years of the program.  And that’s the good news.  The projections are far worse.  By 2020, it will be 3.6% of GDP (a 414.3% increase from 1970).  By 2030, it will be 4.9% of GDP (a 600% increase from 1970).  By 2050, it will be 6.7% of GDP (an 857.1% increase from 1970).  By 2075, it will be 9.6% of GDP (a 1,271.4% increase from 1970).  At which time it will consume more than half of all tax receipts.  And equal the size of the 2010 federal deficit.  And this is for Medicare alone.  It doesn’t include Social Security.  Defense.  Or interest on the debt.

These numbers are huge.  Growing.  And out of control.  It’s the biggest piece of all entitlement spending.    And it’s the biggest single item of the federal budget.  It is without a doubt some of the worse number crunching the federal government ever did.  Not only did actual costs exceed their estimates, they were three times higher in only 30 years.  One thing is clear.  The federal government doesn’t know the first thing about running a health care system.  And yet here they are.  With Obamacare.  Which will be a lot like Medicare.  Only bigger.  Because Obamacare won’t just be for the seniors.  It’ll be for everyone.

Cubacare

To borrow a medical term, Medicare is circling the drain.  It won’t be around for the kids of today.  Unless they enjoy paying a flat tax of 100% of their earnings to continue to fund it and the rest of government.  Of course, that won’t leave anything for food, utilities, rent or the other necessities of life.  In other words, they will work.  But they won’t get paid.  Reduced to involuntary servitude.  Life will be pretty bleak.  But there will be health care for everyone.  But not in the utopian way the government planners are promising.  It will be more like in Cuba.  Where it’s illegal to criticize the government.  So most don’t.  And they abort babies when it looks like they may not live through infancy.  Thus giving them a low infant mortality rate.  A sign of a first class health care system.  But the hospitals are dirty.  And filled with out of date equipment.  Much of which doesn’t work.  And there is a wholesale lack of medicine.  Because they are just too impoverished to buy any.

We have to fix Medicare.  If we want to keep having Medicare.  It can’t stay as it is.  It’s just too costly.  As all universal/free health care tends to be.  And a declining birthrate compounds the problem.  Baby boomers are retiring.  And making the system top-heavy.  The consumers of health care are growing faster than the payers of health care.  What’s worse is that it borrows from one generation to pay for another.  As they tax the young more for today’s retirees the young will have less to save for their own retirement.  So not only will they not have Medicare when they retire, they will have saved less than today’s retirees.  Making their retirement truly a bleak and impoverished picture.  How bleak?  Cuba bleak.

And continually raising taxes isn’t the answer.  Because there’s a limit to how high you can raise taxes.  Massachusetts has apparently reached that limit.  For they are now considering price controls and rationing.  Which will make things worse.  Not better.  The UK and Canada are in earlier stages of price controls and rationing.  Cuba is in a much later stage.  And you can see the progression of quality.  Of these four countries, which would you choose for your health care needs?  Most probably would choose the United States.  Many, though, no doubt, would choose Canada or the UK.  But one thing for sure.  No one would choose Cuba over the other three.  Sadly, based on the numbers, that’s where Medicare is heading.  Of course, it probably won’t ever be like Cuba.  For it probably will cease to exist long before it gets that bad.

Costs will Continue to Rise

If we learn anything in life it needs to be these two things.  Nothing is free.  And government is horrible at running things.  Providing quality yet affordable health care to everyone are two conflicting goals.  You can provide high quality health care.  But not to everyone.  And you can provide health care to everyone.  But it can’t be high quality.  Universal health care, because of its cost, has to make limited resources cover more people.  That is to say, they will have to ration resources. 

When the government is picking up the tab for health care, there will be no more private rooms in hospitals.  Or semiprivate.  There will be crowded wards.  So doctors and nurses can carry higher patient loads.  To keep costs down.  And to allow fewer resources cover more people.  They will ration high-cost treatments.  Not everyone will get dialysis.  Or chemotherapy.  There will be fewer machines.  And less medicine.  Because of costs.  Only the few meeting the government’s criteria will get these treatments.  Or those with pull.

Even then the costs will continue to rise.  And the more the government takes over, the more health care costs will be transferred to the taxpayers.  Who will pay ever higher taxes.  And get ever less in return.  But they will have universal health care.  It will just be horrible.  As their lives will grow to be.

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Democrats get Liberal Arts Degrees because there’s less Math Required

Posted by PITHOCRATES - May 25th, 2011

Mathematically Challenged when it comes to the Stimulus

You know it’s pretty bad when they can’t project a spending amount correctly when they themselves determine the amount (see Stimulus price tag once again lurches higher by Stephen Dinan posted 5/25/2011 on The Washington Times).

Congress’s chief scorekeeper said Wednesday that the price tag on President Obama’s stimulus law has risen once again, this time to $830 billion — or more than $40 billion more than first projected…

When it passed, the stimulus was expected to cost $787 billion over 10 years, with most of that being front-loaded. But the CBO has regularly adjusted that cost — usually upward — and now says the 10-year price tag will be $830 billion. That’s a $9 billion jump from the last estimate in February.

When you say you’re going to give everyone quality yet affordable health care you know there are a lot of guesstimates in the proposed price tag.  No one knows what the future holds.  So you know that actual costs are going to exceed whatever they project.  Because they can’t even guess the number right when they set the number themselves.

Imagine the stimulus bill as your grandparent coming over and giving you $20 so you can go out and buy something.  The grandparent gives you one of his or her $20 bills.  When your grandparent goes home that day, he or she has $20 less.  He or she spent $20.  A week later that spending was still $20.  A year later that spending was still $20.

You’d think that if the government put $787 billion into a fund for stimulus spending that they’d spend that money until that $787 billion was gone.  Simple, yes?  Instead, they accidentally spent more than they said they would.  It’s like they’re taking a test from a school textbook.  Only they have a teacher’s edition.  With the answers next to the questions.  And they still get the answers wrong.  Doesn’t give you much confidence in their number crunching abilities.

Republican Sponsored Tax Cuts Stimulated the Clinton Years

But those in Washington were always a little fuzzy with their math.  When they crunch the economic numbers for the Nineties, they show how higher taxes spurred economic activity (see The Graph That All Tax Hike Mystics Need to Grapple With by Romina Boccia and Curtis Dubay posted 5/25/2011 on The Foundry).

Economic growth was so impressive in the latter half of the ’90s, in fact, that some claim the Clinton-era tax hikes spurred the economy to prosper…

The data tell a different story. Growth in the first half of the decade following the Clinton tax hike was clearly subpar, and real wages actually fell. The economy didn’t take off until later in the decade, and not coincidentally after a 1997 Republican-sponsored tax cut.

Remember that Clinton‘s first term wasn’t a very good one.  Though he campaigned as a moderate, he governed as a liberal.  Remember Hillarycare?  The secret meetings to take over and nationalized U.S. health care?  That didn’t go over well with the voters.  The Democrats lost the House of Representatives at the midterm election.  And it was the republicans that yanked him back to the center.  And pushed for tax cuts.

As the Heritage chart shows, a closer examination of the economic growth data during the Clinton era reveals a very different story than the one Ezra Klein and the CBPP told. Despite the unusually favorable economic environment during the period, the Clinton tax hikes likely dampened real output and real wage growth. Economic growth, measured as real Gross Domestic Product (GDP), was a moderate 3.3 percent in the period from 1993 through 1996, and real wages actually fell for the entire period. In contrast, the 1997 tax cuts, which significantly lowered the capital gains tax rate, coincided with a period of strong business investment, strong real GDP growth at 4.4 percent, and strong real wage growth of 1.7 percent.

Before the Republican takeover of the House GDP did rise.  But real wages fell.  After the Republican takeover, both GDP and real wages rose.  Proving again tax cuts makes life better for the people.  Not tax increases.

The principles of economics still hold: If you make something more expensive, you get less of it. Taxes on capital and labor, ignoring all other factors, reduce economic and real wage growth. The real story of the Clinton-era tax changes is that the 1993 tax hikes resulted in slower economic growth than expected, while the 1997 tax relief unleashed economic and real wage growth—and a cottage industry of liberal history re-writes.

The numbers are all there.  Anyone can check them.  Just like the economic data from the Reagan years.  But the facts don’t help those who want to buy votes with continued spending.  So they rewrite history.  And belittle anyone who dares to disagree with them. 

Fuzzy, Pragmatic Math

When it comes to the economy, there are some like Raymond in Rain Man.  Brilliant people with their Ivy League degrees.  But put a dollar sign in front of something and they will inevitably get it wrong.  Like they did with the stimulus bill.  With Reaganomics.  With the Clinton years.  As they will get it wrong with Obamacare.  You see, their math has political ends. 

Their math is pragmatic.  It’s fuzzy.  So it can add up differently as needed.  In their world, the ends justify the means.  They want to raise taxes so they can spend and social engineer.  So the facts don’t mean what they appear to.  A low unemployment rate is too high under Reagan and Bush.  While a higher unemployment rate is not that bad under Obama.  A $200 billion deficit is too high under Reagan.  A $1.4 trillion deficit is not that bad under Obama.  And we can’t afford tax cuts for the ‘rich’ but we can afford to give everyone health care.  In short, anytime the flow of money increases from the people to Washington it’s a good thing.  Whenever that flow decreases it’s a bad thing.

That’s why getting the stimulus amount wrong doesn’t bother them.  Or that Obamacare will cost far more than they said it would.  Because both have or will increase the amount of money flowing from the people to Washington.  And that’s always a good thing in their pragmatic world.

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FUNDAMENTAL TRUTH #67: “Free health care is very expensive.” -Old Pithy

Posted by PITHOCRATES - May 24th, 2011

No Such thing as a Free Lunch

Things cost.  In more ways than one.  A free lunch, for example, isn’t free.  If a client takes out a customer for lunch they’re hoping to get something in return.  A new contract.  A new sale.  Continued good will for a future contract or sale.  Even with the quintessential honest business person.  Who can’t be bought.  But can always be persuaded in the event of a tie.  Where all things being equal, the tie will likely go to the relationship that fosters the greater good will.  And there’s nothing wrong with that.  It’s one of the intangibles to consider.  And sometimes the intangibles can outweigh the tangibles.  Especially if there are tricky milestones to meet.  And a fastidious customer to please.

Then there’s the lunch itself.  It isn’t free.  Someone has to pay for it.  Because a restaurant is not just going to give their lunches away for free.  Because it costs them to make a lunch.  They have food to buy.  And people to pay.  From food prep to cooks to wait staff.  And food suppliers don’t give their food supplies away for free.  Because they have their own bills to pay.  And people don’t work for free.  Because they, too, have their own bills to pay.

Even though you’re not picking up your own tab, you are still paying for it.  Buying lunches is an entertainment expense.  Part of the larger marketing and sales budget.  Which is part of the larger overhead account.  Here’s how it works.  You have sales revenue.  And cost of sales (i.e., direct costs to make those sales).  You subtract cost of sales from Revenue and you have gross profit.  You subtract overhead from gross profit to get net profit.  Which is greater than zero in a healthy business.  To do this you need to make sure your sales prices include the costs of all of these free lunches.  In other words, sales prices include a markup to cover the costs of the free lunches.  So you end up paying for your free lunch.  Even though someone else is picking up the tab at the restaurant.

The Remarkable Mechanism of the Free Market

For those of you who enjoy the occasional free lunch, do you notice how often you get one?  It’s usually occasionally, right?  Maybe a free lunch once a month or so.  Maybe a nice spread at the holidays.  You may even get a nice Christmas gift.  Say a nice bottle of scotch.  Or a gift certificate where you can buy something nice.  The free lunches and gifts are nice.  And you probably wish you could get these freebies on a more regular basis.  Because free is nice.  But, of course, they’re not free.  You in fact pay for every last one.  Or your boss.  Because it adds to the cost of whatever your company buys.  And the more free stuff you get, the higher the prices your company pays.  To cover the costs of the free stuff.  But if the markups get too high, your company will have to stop buying that stuff.  And find someone else to buy from at more reasonable prices.

Some of you may not care what your boss pays for this stuff.  You figure he or she is rich.  He or she can afford it.  But he or she is not as rich as you think.  Because running a business is not as easy as it seems.  You see, wherever you work, they sell stuff, too.  And they compete with other people selling similar stuff.  This competition keeps sales prices down.  So to be profitable, you have to keep your own costs down.  And if you buy things at highly inflated prices that include a lot of free lunches and gifts, your costs will be greater than your revenue.  Your company will lose money.  And look for ways to cut costs.  Like laying a person or two off.  And if you’re one of those people, then you’ll start caring about what your boss pays for this stuff.

This is the remarkable mechanism of the free market.  Competition keeps sales prices down.  And costs down.  Because someone’s sales are someone else’s costs.  That’s why people simply can’t charge what they want.  There’s a limit to the amount of markup you can place on any sale.  And a limit to the amount of free lunches and gifts that can be buried in sales prices.

Health Care Insurance became Expensive after it became a Benefit

Now let’s look at health care.  The ultimate free lunch.  Before World War II we used to pay for our own health care.  But when the government implemented price controls on wages, employers couldn’t entice the best and brightest anymore with higher wages.  So they came up with a new idea.  Benefits.  Can’t pay you more money?  Not a problem.  We’ll pay for your health care instead.  Let’s you keep more of your money.  So it’s just like getting a raise.  It started with GM.  And spread to the other automotive companies.  Soon, everyone was providing health care insurance as a benefit. 

Eventually, health care insurance began to pay for everything.  You went to the doctor’s office and paid only a small co-pay out of pocket.  Everything else was free.  Someone else paid.  Just like getting a free lunch.  Only problem was that these free lunches added up.  And there was no free market mechanism to keep prices down.  Someone else paid.  Who wasn’t even at the lunch.  They weren’t there to say, “Hey, I can’t turn in an expense report with a $200 bar tab on it.  It’ll come out of my pocket.  Then my boss will fire me.  Have a Coke instead.  They give free refills.”  Nothing like this happens in health care.  So the costs of health care went up.  And the sales price for health insurance sky rocketed.  It was breaking the back of businesses.  It was becoming the largest single expenditure they had.  And it kept going up.  And never came down.  Soon, employees started paying a portion of these costs through a payroll deduction.  And that deduction kept going up.  As did co-pays.  But these were just a drop in the bucket compared to what the employer was paying.  It got so bad that they had to choose between staying in business.  Going to a cheaper and less comprehensive health care plan.  Or dropping insurance altogether.

Worse, as these employee deductions went up, young, healthy people cancelled their health insurance.  This left only heavy uses of health care with health care insurance.  Older and less healthy people.  And families.  The young and healthy didn’t go to the doctor.  So most of their premiums helped to pay for those who did.  When they started to leave the system the insurance rates on those remaining went up to pick up their lost contribution.  Soon, health insurance wasn’t health insurance anymore.  A fortune was paid in premiums.  And a fortune was spent on health care costs.  It just took money from those not sick today to pay those who were sick today.  It’s now little more than a transfer payment.  And has more in common with Medicare than insurance.

Some of the most Expensive Free Health Care in the World

Medicare has the same problem.  Only worse.  Because it’s a program for the elderly.  Who are big consumers of health care services.  Who are also retired.  And living longer thanks to the good health care they’re getting.  Of course, Medicare isn’t insurance.  The government reimburses health care provides with money collected through payroll taxes.  When they set up Medicare, there was still an expanding birth rate.  So taxpayers then outnumbered retirees on Medicare.  But that changed soon.  The birth rate declined radically.  We went from having big families to having small families.  So retirees on Medicare now outnumber current taxpayers.  So fewer taxpayers must pay more in taxes.  Which is an even bigger problem than the private health insurers are facing.

This means that the free health care we get is some of the most expensive free health care in the world.  And it’s like this because the consumer of the health care isn’t paying the bill.  When a private insurer or the government pays, there is no free market mechanism keeping costs down.  Like in private business.  Who know the full cost of a free lunch.  And they don’t give so many away that they have to raise their prices so much that it makes their goods and/or services unaffordable.

There is no lunch crisis (free or otherwise).  But there is a health care cost crisis.  And the big difference between the two is the free market mechanism.  Health care needs more of it.  For it is the most effective thing in keeping costs down.  It would be so effective that it may even make health care insurance what it once was.  Insurance.  Where a lot of people pay a little bit in to protect their financial assets.  To pay for the few with an unexpected catastrophic expense.

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Solving Public Spending and Debt Crises with Privatization

Posted by PITHOCRATES - May 23rd, 2011

To Privatize or not to Privatize the NHS

Some want to start privatizing parts of the National Health Service (NHS).  Some don’t.  Some want to improve quality and cut costs.  Some don’t.  But as people live longer into retirement, there is no place for costs to go but up.  Especially when there is no competition (see Where lucre is still filthy posted 5/19/2011 on The Economist).

THE profit motive is alive and well at the Circle hospital outside Bath, in south-west England. The hospital was designed by the architect Norman Foster, and is run by Circle Healthcare, a firm part-owned by its employees and set up by Ali Parsa, a former banker at Goldman Sachs, in 2004. It treats a mixture of National Health Service and private patients. Corridors are wide and gleaming, operating theatres newly equipped. Doctors and nurses have more say in management decisions than in many English hospitals.

So a private, for-profit hospital is well run, clean and has new equipment.  Which implies that the run of the mill NHS hospital is bureaucratic, cramped, dirty and outdated.  Hmmm.  Based on this it would appear that the private, for-profit hospital is a better hospital than your run of the mill NHS hospital.  At least, from a patient’s viewpoint.  And who could argue?

Trade unionists and lobby groups are queuing up to denounce any expansion of the private sector’s role in health care.

So trade unionists and lobby groups are against cleanliness and modernity.  They prefer bureaucratic, cramped, dirty and outdated.  One can only presume so because of the money.  For it usually is.  Of course, they will deny this.  And say they are just looking out for what’s best for Britons.

To some foreign observers, this reticence about private involvement looks odd. There is ample international evidence that competition among private providers yields better results. For example, a report last year by America’s National Bureau of Economic Research found that increased competition in health care was correlated with improved financial and clinical outcomes; adding a rival hospital and instigating patient choice substantially increases the quality of management. As Nick Seddon, of the British think-tank Reform, points out, “It’s a fallacy to think you can choke off the profit motive without losing momentum and innovation.”

And the current debate somehow overlooks the fact that for-profit companies are already delivering many support services in health, education, prisons and other public services. Family doctors have been private operators since the foundation of the NHS in 1948. The profit motive has been making further steady advances in the state sector since Margaret Thatcher’s outsourcing campaign in the 1980s. Tony Blair let privately owned treatment centres provide specialist services within the NHS. His wider reforms were restricted by internal battles in the Labour Party; all the same, a recent report from the London School of Economics found that introducing competition among NHS hospitals in 2006 helped to reduce patient deaths.

The history appears to side with privatization.  Both in the UK.  And the USA.  That is if you’re measuring by the quality of patient care.  And by the number of people you prevent from dying.  Which is a rather important statistic in any hospital I would think.

Let’s take a closer look at this ‘not dying’ thing.  Suppose there is only one hospital serving an area.  And suppose that 5 out of every 10 patients that enter dies.  Now suppose a second hospital opens up.  Where only 1 out of every 10 patients that enter dies.  Which hospital would you want to go to?  I’m guessing the 1 out of 10 one.  Because that ‘not dying’ thing is pretty relevant when choosing a hospital.  And when more people do in this example, the ‘5 in 10’ hospital will have no choice but to improve.  To become a better hospital.  This is what competition does.  It makes everything better.  And it’s just not the UK and the USA seeing this.

Britain is unusual among rich democracies not in how much private involvement there is in its public services, but how little. Only 4% of acute-care beds are provided by private companies. In Germany, the proportion of hospitals run for profit (32%) overtook the number of publicly run ones (31%) two years ago (charitable and voluntary organisations account for the rest). The Spanish region of Valencia allows for-profit firms to run over 20% of its health-care services, with the sort of long-term deal British providers hanker for. New European democracies are experimenting with similar public-private mixes. Two-fifths of Slovak hospital provision is delivered by private operators.

It’s rather ironic.  The people who did so much to improve the life of the individual coming out of the Middle Ages is now among the least free nations when it comes to health care.  They’re talking about privatizing more health care to improve quality.  And cut costs.  Because the NHS, as all state monopolies do, is trending in the wrong way in areas of quality and costs.  The fact that there is a debate proves this.  Now, don’t get me wrong, the NHS is full of good people.  It’s not the people in the system.  It’s the system.  And the people managing the system.

But old bureaucracies are hard to reform.  People trust them.  Because they’re used to them.  Like a comfortable pair of filthy, worn slippers.  But people are living longer.  Consuming more health care in their retirement years.  Vastly increasing health care costs.  Which the NHS has to pay.  Either by more taxation (which can reduce economic activity, which will reduce tax receipts across the board).  Rationing services to make what they have cover more people.  Or by more deficit spending.  Borrow and spend for today.  Leaving a debt bomb for future generations to worry about.

Italy and Spain Circling the Drain?

And speaking of debt bombs, a couple more are about to go off in the European Union (see U.S. stocks plunge on European debt worries by the Associated Press posted 5/23/2011 on the Los Angeles Times).

Stocks plunged Monday after warnings about the finances of several European countries stoked fears that the region’s debt crisis is worsening. The euro dipped briefly to its lowest level against the dollar in two months…

Italy is the latest European country to be affected by the region’s widespread debt problems. Standard & Poor’s said Saturday that country was in danger of having its debt rating lowered if it could not reduce its public borrowing and improve economic growth.

Too much public sector spending has caught up to the Italians.  High taxation to support that spending is hindering economic growth.  And they’ve borrowed so much that people are starting to think that they won’t get their money back.  Making people that much more reluctant to loan (i.e., buy Italian bonds) them money again.

Spain’s public finances are also worrying investors. Spain’s ruling Socialist party was roundly defeated in local elections, raising concerns that political instability would keep that country from enforcing spending cuts. The Ibex 35 index on the Madrid stock market fell nearly 2 percent in midday trading.

The 10-year U.S. Treasury yield fell to 3.10 percent, its lowest level this year. Bond yields fall when prices go up, so the drop is a sign that investors are clamoring for the safety of long-term U.S. debt.

And the Spanish are in the same boat.  Even with their partial privatization of health care, there’s still just too much public spending.  And a political atmosphere that won’t take kindly to spending cuts.  Unemployment among the young and educated is high.  Close to 50%.  Making their prospects for future borrowing not that favorable either.  So they, like the Italians, will not be able to pay their bills one day.  Which will eventually bring about those spending cuts.  The hard way.

Greece too far gone to Save?

The big public sectors in the social democracies of the European Union (EU) are taking their toll.  Their costs are crippling some of their economies.  And it all started in Greece.  Who is still trying to dig themselves out of their debt hole (see Greece mulls deeper spending cuts as borrowing rates hit record by Derek Gatopoulos, Associated Press, posted 5/23/2011 on thestar.com).

Greece’s borrowing costs surged to another record Monday, as the crisis-hit country’s prime minister chaired emergency talks to deepen austerity measures beyond his own government’s term in office.

A Cabinet meeting began as yields rose above 17 per cent for Greek 10-year-bonds, hitting a record margin — or spread — over the benchmark German rate.

Greece suffered another bond downgrade late Friday from the Fitch ratings agency, lowering its investment ranking by three notches deeper into junk status. Prime Minister George Papandreou conceded over the weekend that plans to return to bond markets next year may not be achievable.

Junk status.  Wow.  That’s bad.  That means few people think they’ll get their money back if they loan any to Greece.  And according to Papandreou, no one will next year.

Greece’s economy is being kept afloat by €110 billion ($156.6 billion), in a 2010-2013 package of rescue loans from European countries and the International Monetary Fund.

But that rescue package does not cover all of Greece’s financing needs for 2012, and EU countries are demanding tougher cost-cutting action from Greece before considering offering another financial lifeline.

In return for the bailout, the government imposed a series of austerity measures, including pay cuts in the public sector, tax hikes and social security reforms, and is under strict supervision from the EU and IMF to ensure the country is meeting the conditions for the rescue loans.

And here we see why they have such a debt crisis in Greece.  High salary and benefits for a bloated public sector.  And state benefits that are too generous.  Things that are hard to cut.  As is evident by the requirement of another bailout.  And the demand by those doing the bailing for tougher cost-cutting.  Because what they’ve done so far isn’t enough.

In Vienna, top financial official Olli Rehn said Greece needed to take more steps “in the coming days and weeks” to convince other EU nations and lending institutions that it is serious about overcoming its huge monetary deficit.

He urged the crisis-hit national to urgently step up its ambitious privatization program. General elections are due in Greece in 2013.

And here again we come to that wonderful panacea.  Privatization.  For the EU countries with the greatest debt crisis are the ones with the least privatization.  Whereas the strongest economy in the EU, Germany, has quite a bit.  Even in the one area people fear most.  Health care.  Germany has more private hospitals than public ones.  So profit (i.e., lucre) isn’t a dirty word in Germany.  They have a strong economy.  And fiscal restraint.  Which is why Germany is doing a lot of the bailing in the EU.  Of course, they have experience rehabilitating financially weak nations.  They no doubt learned a lot when they reincorporated the former East Germany into a reunified Germany after the Cold War.

Ticking Debt Bombs

Public spending has grown in countries big and small.  And it is crippling countries big and small.  Privatization is a way to cut public spending.  But it doesn’t help win elections.  So it’s not easy to do.  People get set in their ways.  And once people grow up on generous state benefits, it’s hard to convince them that things will be better if they start paying for what they once got free.  So few try.  It’s easier to just keep promising more of the same.  And close your eyes to that ticking debt bomb.  Hoping that it will blow up later rather than sooner.  And that the people continue to enjoy their comfortable pair of filthy, worn slippers.  No matter how filthy and worn they get.

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The High Cost of Health Care and Beer

Posted by PITHOCRATES - May 22nd, 2011

The Rising Cost of Beer

Economics can be confusing.  And boring.  A lot of it sounds Greek.  And wonkish.  Worse, there are those who like to sound wonkish.  They like to show charts with curves.  And explain why beer is more expensive these days by moving a curve on their graph.  Yeah, I know.  Yawn.  But they feel smart.  And they think it impresses the ladies.

But beer prices are real.  For some, it’s part of the weekly routine.  Get paid.  Buy a case of beer.  Those who do know this commodity price very well.  And it’s been tracking higher.  Why?  Because of the laws of supply and demand.  You see, the stuff that goes into making beer is getting scarcer.  And, therefore, more costly.  Hence the rise in beer prices (see The economic forces behind the rising cost of beer by Loren Berlin posted 5/22/2011 on msnbc).

Three years ago, Bavaria, the largest state in Germany, suffered a bad hops harvest. These green, pine cone-shaped flowers are the essential ingredient in brewing beer, and because Germany alone provides roughly 35 percent of the world’s supply of hops, the crop shortage created an immediate and significant problem for beermakers who found themselves suddenly scrabbling to locate this key ingredient. And as we all know, when supply decreases and demand doesn’t, prices rise. To cover those new higher costs, brewing companies added a few cents to the price of our beer.

But it’s not just one ingredient.

…a heat wave in the Ukraine can directly add to the cost of beer — and is doing so right now. Global grain production is down, thanks in large part to unusually brutal heat in the former Soviet Union and droughts in China. See the previous discussion of supply and demand, but in this case, the effects are wider, because unlike hops, which is mostly used in beer, we’ve got a few other uses for grains. Between people food, animal food, biofuels and of course, our beer — along with a steadily growing world population that wants to consume them — yes, another few pennies are getting added onto the cost of every beer.

But it’s not just these two ingredients.

Then there’s transportation. All those raw materials have to be shipped to the brewers, and the finished products shipped to the retailers who sell it to us, all of which requires fuel. Fuel, that, until very recently, had been getting steadily more expensive this year. Yet another addition to the price we pay for our beer.

Yes, the cost of fuel, too.  These are all input costs to making beer.  When they go up beer is more costly to make.  And brewers being in the business to make a profit, have to increase the price of beer to cover these higher input costs.  While still being able to make a profit.  For if they couldn’t make a profit, they’d have no incentive to make beer.  And wouldn’t.  And we wouldn’t want that, would we?

Free Health Care is very Expensive

Understanding health care is a little more difficult.  Because we don’t pay health care costs like we pay for beer.  We know the price of beer.  There’s a price tag stuck to the beer so we can see the full price to make an informed purchasing decision.  The vast majority of people, though, don’t pay the full price of their health care costs.  So they haven’t the foggiest clue of what they are.  Other than the cost of co-pays.  So they keep demanding more.  Don’t want to hear anything about reforms to Medicare.  And are all for free health care for everyone.  Problem is, free health care is very expensive (see Republicans suggest deal possible on taxes, health by Andy Sullivan posted 5/22/2011 on Reuters).

On healthcare, the two sides are separated by a gulf of trillions of dollars. The Republican-controlled House has passed a budget, authored by Ryan, that would save $2.2 trillion by scaling back Medicaid and Medicare, the government-run health plans for the poor and elderly, and repeal President Barack Obama’s signature health reform program, the 2010 Affordable Care Act.

Obama, in turn, has proposed saving $480 billion by accelerating reforms in the program — a nonstarter for Republicans who insist it must be repealed.

The nation’s debt is $14.3 trillion dollars.  And President Obama’s 2010 budget added the last $1.4 trillion of that number.  $480 billion in health care reform savings is less than his last deficit.  This will still result in deficits.  And add to the debt.  The problem is the federal government is giving away too much stuff.  And stuff costs.  Medicare and Medicaid are about 40% of the federal budget.  And the baby boomers are just starting to retire.  Which will break Medicare.  Unless it’s reformed.  And it is amidst all of this that they passed Obamacare.  It’s too much.  Something has got to go.  Like it or not.

Democratic Representative Chris Van Hollen, a participant in the Biden talks who is also the top Democrat on the House Budget Committee, said the Democrats had proposed savings in the Obama’s healthcare program and could find more by lowering the price the government pays for prescription drugs, rather than scaling back benefits for patients.

Van Hollen repeated Democrats’ contention that any debt-reduction plan requires higher taxes, saying Republicans’ reluctance to them forced Ryan to push his unpopular cuts to Medicare and Medicaid.

If it’s that simple, why don’t the beer-makers just lower the price they pay for hops?  And get the price of beer down?  Because it’s not that simple.  With less hops to sell, they have to sell what they can at a higher price to cover their costs.  If they sell at lower prices, and with a smaller harvest to sell, they will lose money.  And possibly their farms.

If the government tells a drug company to lower their prices, what will happen?  With less revenue they won’t be able to spend as much.  They may have to cut research and development, that costly process that brought so many of their wonder drugs to market.  Or they may just say the new law makes it impossible to make a profit and shutter the business.  Either way, there will be fewer drugs to go around than before.  Just as the government wants more drugs to pass around.  And, with medications more difficult to find, people will take less.  And perhaps get sicker.  Possibly requiring hospitalization.  Which will increase costs.  Kind of the opposite of what they would hope for by lowering drug prices.

We’ve hit our head on the debt ceiling.  The White House wants to raise the ceiling.  But don’t you think $14.3 trillion dollars should be enough?  It is.  We’re spending too much.  And raising taxes does nothing to rein in spending.  Quite the contrary.  It encourages more spending.  Ronald Reagan agreed to higher taxes in exchange for future spending cuts.  The spending cuts never came.  They never do.  If you can’t cut the spending now because there’s too much opposition, that opposition will still be there in the future.  And they’re not going to let you cut spending then either.  It’s the oldest trick in the book.  Make a promise that you know you can’t keep.  You lose nothing.  And gain everything.

It’s Simple Supply and Demand

It’s simple supply and demand.  If you buy more you pay more.  If supply goes down prices go up.  And if you have no idea of the full price of what you’re buying you can’t make an informed decision.  Which the politicians count on to keep increasing the debt limit.  So they can keep on spending.

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