Blog_2009

Crisis I: After posting last week’s entry, an update on the battle over GovCare, SAFE wrote the Delaware members of Congress. Our message: it was time to push the reset button on healthcare, scrap the energy bill (cap and trade, etc.), and adjourn for the holidays.

Good advice, but action in the Senate continued to grind along, and as of this writing it appears that some sort of a healthcare bill will be passed before Christmas setting up a reconciliation conference between the House and Senate bills next year.

All 40 Senate Republicans are opposing the bill, which means cloture cannot be invoked without the support of each and every member of the Democratic caucus. The efforts to bring all 60 on board were not pretty.

Senator Joe Lieberman (I-CT) was won over by an agreement to drop all vestiges of a public option from the bill including a proposal for increased access to Medicare. Dems recraft health[care] bill to win passage, Jennifer Haberkorn, Washington Times, 12/17/09.

Recent moves to strip the bill of its public insurance plan and Medicare expansion moved Sens. Joe Lieberman, Connecticut independent, and Mary L. Landrieu, Louisiana Democrat, to support the bill, unless major changes are made.

Senator Ben Nelson (D-NE) held out for additional restrictions on the use of government funds for abortions, but he was under heavy pressure. Whether the threat was credible or not, the linkage of a Strategic Air Command base in Nebraska to the healthcare vote was undoubtedly intimidating. White House threatens Sen. Nelson with military base closures in Neb., Michael Goldfarb, Washington Examiner, 12/15/09.

Offutt Air Force Base employs some 10,000 military and federal employees in Southeastern Nebraska. As our source put it, this is a "naked effort by Rahm Emanuel and the White House to extort Nelson's vote." They are "threatening to close a base vital to national security for what?" asked the Senate staffer.

It was subsequently announced that Nelson would vote for cloture, apparently putting the Senate bill on track for a final vote by Christmas. Sen. Ben Nelson to announce support for healthcare bill, Shailagh Murray and Lori Montgomery, Washington Post, 12/19/09.

Democratic leaders spent days trying to hammer out a deal with Nelson, and worked late Friday night with Nelson on abortion coverage language that had proved the major stumbling block. But Nelson also secured other favors [an air base?] for his home state. Asked if he was prepared to support the bill, Nelson said, "Yeah."

Might the Senate bill yet be derailed? It seems unlikely, but public opinion has swung strongly against the GovCare proposal and some of those who vote “aye” may lose their jobs as a result. Democrats on Healthcare Precipice, Kimberly Strassel, Wall Street Journal, 12/17/09.

Public opinion on ObamaCare is at a low ebb. This week's NBC-WSJ poll: A mere 32% of Americans think it a "good" idea. The Washington Post: Only 35% of independents support it—down 10 points in a month. Resurgent Republic recently queried Americans over the age of 55, aka Those Most Likely to Vote In a Midterm Election. Sixty-one percent believe ObamaCare will increase their health costs; 68% believe it will increase the deficit; 76% believe it will raise their taxes.

On the merits, we believe tbe GovCare plan is poorly conceived, has been dishonestly presented, and could have seriously adverse consequences. Perhaps there will a way to undo some of the damage in the future.

Despite the president’s warning that if his healthcare plans fail the nation will go “bankrupt,” for example, the shoe is actually on the other foot. It is also untrue that one can “talk to every healthcare economist out there and they will tell you that ... whatever ideas exist in terms of bending the cost curve and starting to reduce costs for families, businesses and government, those elements are in this bill." All the President’s Mendacity, David Harsanyi, Townhall.com, 12/18/09.

What about balancing tax codes so that those with employee-provided health insurance and those with individual health insurance can benefit from the same benefits? Does that idea exist? You don't even need a staff of researchers to find economists who say it does.

What about opening up health insurance markets beyond state lines to create competition and more access? What about tort reform to end frivolous lawsuits? What about expanding health savings and flex accounts instead of killing them?

Crisis II: The House did adjourn last week, but there was no rest for 20 members. House Speaker Nancy Pelosi (D-CA) and the others, including six Republicans, flew to Copenhagen and joined the UN climate summit. Why are Republicans in Copenhagen, Byron York, Washington Examiner, 12/17/09.

NAME: 15^th Session of the Conference of the Parties to the UN Framework on Climate Change (COP 15)

PARTICIPANTS: 15,000 delegates and invitees from some 193 countries, including numerous heads of state for the final two days. Many would-be attendees were turned away. COP15 Observation: So these are the people we’re going to let run the world economy. NCPPR (National Center of Public Policy Research), 12/14/09.

It seems the geniuses at the United Nations selected a building site for the conference that holds 15,000 people, and then gave credentials to 45,000 people. So, naturally, at any given time, two-thirds of the people (almost all of whom used carbon-intensive energy to travel to Copenhagen) are unable to participate.

OBJECTIVE: In theory, the goal was an international agreement to combat the threat of manmade global warming (aka climate change). All that was actually expected, however, was a formula to keep the conversation going. The Haze of Copenhagen, Michael Reagan, Townhall.com, 12/17/09.

Thousands are now gathered in Copenhagen to embark on an aggressive plan to reach a framework for reducing carbon emissions, with the goal of instituting a more formalized, binding agreement within six months.

OTHER ISSUES: Air grievances, demand money, and embarrass “rich” developed countries (especially the United States). For some participants, including leaders from Bolivia, Iran, Venezuela and Zimbabwe, these issues seemed more important than the official objective. Consider the warm reception for Venezuelan President Hugo Chavez. Putting our economy in the hands of Chavez fans, Andrew Bolt, HeraldSun, 12/17/09.

But then he wound up to his grand conclusion – 20 minutes after his 5 minute speaking time was supposed to have ended and after quoting everyone from Karl Marx to Jesus Christ - “our revolution seeks to help all people…socialism, the other ghost that is probably wandering around this room, that’s the way to save the planet, capitalism is the road to hell....let’s fight against capitalism and make it obey us.” He won a standing ovation.

A sampling of the conference action follows – including items big and small. Clippings with red headers are from SAFE founder Bill Morris’s microblog tracking coverage of global warming and energy issues in the [Wilmington] News Journal.

12/7/09, A1, Climate treaty in reach, U.N. says [AP] - Hopes are rising for a CO2 deal at Copenhagen. However, China and India are not prepared to accept legally binding targets. Also, Congress has not approved emissions cut (17% from 2005 level) the U.S. president is expected to offer. Overall, based on all pledges for carbon dioxide reduction offered to date, "emissions will total some 46 billion tons annually in 2020. Emissions today are about 47 billion tons." U.N. Environment Program Achim Steiner is quoted that “we are within a few gigatons of having a deal.”

12/8/09, Copenhagen Climate Scam Conference, Washington Examiner – The conference began with a propaganda film about the perils of manmade global warming.

The planet will be ravaged and millions of people will die horrifying deaths as increasing temperatures in the Earth's atmosphere result in a monumentally devastating deluge of man-made floods, droughts, storms, and rising seas. At the end of the terrifying film, a sweet little girl plaintively begs the conference attendees to "please help save the world."

12/9/09, A6, Rich, poor nations argue over climate economics: Weather officials report evidence this may be the hottest decade ever recorded (AP) –Data were presented at Copenhagen by the World Meteorological Organization (aka the U.N.’s weather agency) “showing this decade is on track to be the hottest since records began in 1850, with 2009 [despite ‘cooler than average conditions in the U.S. and Canada’] the fifth warmest year ever.” WMO Secretary-General Michel Michel Jarraud characterized the data as evidence that “this is indeed globally the warmest period for more than 2,000 years.”

[Highly accurate measurements from orbiting satellites show that global warming has stalled in recent years. See, e.g., What happened to global warming? BBC News, 10/8/09, which reports 1998 (not 2007 or 2008) is the warmest year globally and “for the last 11 years we have not observed any increase in global temperatures.” As for the “more than 2,000 years” claim, it is based on an analysis that has been thoroughly discredited.]

12/10/09, A10, Tuvalu says without an aggressive climate pact, it’s sunk (AP) –

Tuvalu, consisting of mid-Pacific low-lying islands, and others requested even more drastic limitation of CO2 emissions. Saudi Arabia, China and India were opposed. Per the article, the IPCC predicts a sea level rise of one foot per century (two feet in its worst case scenario), a change that could seemingly be coped with over a period of three generations. [Tuvalu’s situation was discussed in Singer & Avery's book, "Unstoppable global warming". Authors said Tuvaluans may be looking for cash "reparations" for global warming.]

12/10/09, Copenhagen: George Soros says leaders are mining the wrong places for climate cash, Rowena Mason, UK Telegraph – Concerned that an impasse was developing over where the money demanded by the developing countries would come from, Soros hopped on a jet for Copenhagen to suggest some financial sleight of hand to raise it without apparent sacrifice by anyone. [Watch your wallets, everyone!]

12/12/09, A2, “At climate talks, the tough part just started” (AP) –The article refers to a draft proposal that would provide, among other things, that "all countries together should reduce emissions by a range of 50% to 95% by 2050, and rich countries should cut emissions by 25% to 40% by 2020, in both cases using 1990 as the baseline year."

[This is not to be taken seriously. If these people were serious, they would be pushing hard for installation of nuclear power. They might also demand evaluation of Edward Teller's suggestion for reflecting heat away from the Earth by injection of appropriate particles into the stratosphere - Wall Street Journal, 10/17/97.]

Realistically, says Muller, carbon emissions will continue rising rapidly due to increases by the developing countries. Cuts by developed countries could have only a marginal effect on the situation.

China's carbon intensity is now five times that of the U.S.; it is extremely carbon inefficient. By the time the Chinese cut emissions intensity by 45%, its yearly total will be over twice that of the U.S. And in the proposed Copenhagen dream scenario, by 2025 China's emissions will actually surpass those of the U.S. per capita.

12/13/09, A3, Protestors descend on summit (AP) – Tens of thousands marched in Copenhagen yesterday for “an ambitious global climate pact.” A picture shows protestors carrying signs such as "climate justice, now" and “_____ politics, not the climate.” The police moved in when some protestors began throwing cobblestones through windows. [Evidently, there are plenty of "true believers" willing to spend on a trip to Copenhagen.]

12/13/09, F6, "China casts big shadow over U.S. in solar race" [USA Today] – China leads the world in making solar cells, many of which are exported to the U.S. [There go those “green jobs” U.S. politicians have been talking about.] In addition, China reportedly plans to invest in solar power domestically as it "attempts to battle its greenhouse gas emissions, electrify its nation of 1.3 billion people and curb its massive pollution problem." The government is aiming for renewable energy “to account for 15 percent of its fuel by 2020.”[Whether or not the Chinese are concerned about global warming, they will play along with emission reduction measures to the extent compatible with their economic interests. Thus, coal power plants will continue to be built.]

12/15/09, A5, Developing countries stall climate talks for hours (AP) reports on a walkout that was started by African countries and joined by China and India. The apparent intent was to focus attention on the alleged obligations of developed countries vs. binding requirements for developing countries [which account for most of the projected growth in CO2 emissions], continuing the precedent set by the 1997 Kyoto Protocol [which was rejected by the United States].

12/16/09, The Copenhagen Shakedown, Wall Street Journal – The temporary walkout of the developing countries was ascribed to a demand for more money.

More than anything else, Monday's walkout [of the so-called G-77] revealed the real reason that the developing world is in Copenhagen in the first place: They see climate change as a potential foreign-aid bonanza, and they are at the table to leverage the West's environmental angst into massive transfers of wealth. *** The G-77 scoffed at a European offer of €7.2 billion ($10 billion) over three years. Instead, the Sudanese chairman of the group, Lumumba Stanislaus Di-Aping, suggested in an interview with Mother Jones magazine that something on the order of a trillion dollars, or more, would be appropriate.

12/16/09, A3, “Verifying Chinese cuts a sticking point (AP) reports continued jockeying between the delegates as they await the arrival of world leaders later in the week. The crucial point is said to be “whether Beijing will allow the world to check its books and verity promised cuts in greenhouse gas emissions.” [China has not committed to emission “cuts,” but only to a reduction in “carbon intensity.”]

12/16/09, America Wins Climate Award Three Days Straight, NCPPR – Video (4:58) taken by David Ridenour [bless him and his colleagues for their tenacity] shows the U.S. being honored with the “fossil award” by environmentalist critics.

Forget Climategate; all you need to know to be skeptical of the global warming theory is that the people starring in this ghastly Climate Action Network production believe in it.

They even have an anthem, which you can hear on the video if you can stand to watch it to the end

12/17/09, Blizzard dumps snow on Copenhagen as leaders battle warming, Christian Wienberg, Blomberg.com – We get it that a snowstorm is weather, not climate, but the timing was ironic nevertheless.

12/17/09, A11, "Obama won't take new offer to Copenhagen" (AP) predicts the president will not “cave in to pressure and deepen U.S. efforts to curb greenhouse gases” because he is “constrained by tough politics at home.” U.S. officials said he would stick to the previously announced goal of 17% reduction of greenhouse gases in 2020 from the 2005 level, although developing countries are reportedly seeking a 34% reduction. The planned commitment is said to mirror “legislation already before Congress, calling for 17 percent reduction in pollution by 2020 and 80 percent by mid-century.”

A recent AP-Stanford University poll indicates three-quarters of respondents “support action to address climate change.” However, “opinion polls have shown people have limits on how much they want to pay to solve the problem,” e.g., 59 percent “wouldn’t support any action if it meant electricity [on their monthly bills] would cost $10 more.” [The proposed energy bill would increase energy costs MUCH MORE than that.]

12/17/09, Copenhagen climate conference: Hillary Clinton backs idea for $100bn global fund, Louise Gray, UK Telegraph – Calling the manmade global warming theory “undeniable,” the U.S. secretary of state announced that this country would be willing to pay (along with other countries) into a global fund of $100 billion per year – a concept suggested in June by UK Prime Minister Gordon Brown – to be established by 2020 to help the “most vulnerable” of the developing countries. However, “transparent” actions on cutting emissions would be expected from China, India, et al. and there were no details as to where exactly the $100B per year would come from. [Perhaps the Soros plan would come into play?]

12/18/09, “Hypocrisy Offsets” offered to carbon-spewing climate conference attendees, NCPPR – Continuing its pattern of mockery, the NCPPR offered conscience-clearing “hypocrisy offsets to attendees, many of whom had “used substantial amounts of carbon-emitting jet fuel just to get to the conference.”

12/19/09, A1, "Summit falls far short of goals" –The U.S. president helped broker a deal with China, India et al. that "provides for monitoring emission cuts, but sets no overall global target for cutting greenhouse gases and no deadline for reaching a formal international treaty." [No deadline - we love it. The farther into the future, the greater the odds that skeptics will prevail and end this whole bizarre episode before the government does something really stupid.]

12/19/09, D.C. area hit by massive winter storm: most regions to see more than a foot of snow, Washington Times – More inclement weather awaited the president and others on their return to Washington, another reminder that the manmade global warming theory may be somewhat exaggerated.

A partridge – Policies and politics are not everything, especially this time of year, as we rather think some folks in Washington should realize. It is time to renew ties of family and friends, enjoy a bit of holiday cheer, and reflect on the finer things in life.

Tune in on January 4, 2010, when the next entry to this blog will be posted. In the meantime, happy holidays to all of you!

The last four entries were devoted to a review of the U.S. political system, ending with a discussion of the pros and cons of calling for a Constitutional convention. There were several thoughtful comments on this subject (see “read replies” to 12/7 entry), and it appears that the nays have it.

Turning to matters of more immediate concern, this entry will focus on the healthcare plan now being considered in Washington, which would expand government control of the healthcare system.

House: When we last wrote about GovCare (11/9 entry), the House of Representatives had just passed a 1,990-page bill (HR-3962) entitled the Affordable Health Care for America Act.

Shortly before midnight on Saturday, November 7, the House bill passed by a 220-215 vote. This underscores the need to take a hard look at GovCare now, lest it become the law of the land before the public fully appreciates the consequences.

Senate: Currently, the Senate is debating a 2,074-page bill (HR-3590) entitled the Patient Protection and Affordable Care Act. The Senate bill was taken up on the floor following a 60-40 vote (just enough!) to clear the way.

The 60th vote was paid for with a special break on Medicaid cost sharing for Louisiana (Senator Mary Landrieu, D-LA, said it was worth $300M), aka “the Louisiana Purchase.” After the motion carried, some observers felt the Senate bill was headed for inevitable passage. Deep into Saturday Night’s Healthcare Vote, Jillian Bandes, 11/21/09.

Several weeks have since been consumed in considering amendments to the Senate bill, most of which do not go to the basic substance of the bill. Here are some of them.

• Could federal funds be used to cover the expenses of abortions? Such a use of funds was blocked in the House bill by the Stupak amendment, but this contentious issue could resurface in conference unless a comparable provision is added to the Senate bill.

An amendment to restrict abortion funding was narrowly rejected, but Senator Ben Nelson (D-NE) has threatened to withhold support of the bill unless this result is reversed. Senate rejects Nelson amendment on abortion, Shailagh Murray, Washington Post, 12/8/09.

• The Republicans lack the votes to force any unwanted changes, but have offered various amendments. One was a proposal to reverse cuts in Medicare funding (whether or not these cuts would actually be made, they make the fiscal numbers look better). Senate Votes to Keep Medicare Cuts, Lori Montgomery, Washington Post, 12/3/09.

On a vote of 58 to 42, the Senate rejected a proposal by Sen. John McCain (R-Ariz.) to send the bill back to committee with orders to strip out the cuts, a move that would effectively have killed the measure. Two Democrats -- Ben Nelson of Nebraska and Jim Webb of Virginia -- voted with all 40 Republicans on the amendment.

• There have been amendments assuring coverage of various medical procedures, e.g., mammograms for women under 50 (cast into question by recent recommendations of a government panel appointed during the prior administration). Senate votes to safeguard mammograms, Ricardo Alson-Zaldivan, Washington Times, 12/3/09.

End game – To stop the seemingly endless flow of proposed amendments and force a vote on the Senate bill, the Democrats may seek to invoke cloture (requires 60 votes). Their leaders apparently want to act soon.

The president came to the Senate on Sunday, December 6. He addressed the 60 Democrat and independent members in a closed-door session (45 minutes, no questions taken), reportedly urging them to resolve smoldering disagreements and get the job done. Not everyone was persuaded by his “pep talk,” but they definitely heard it. Obama to Senate Dems: After fixing Bush “disasters,” healthcare is next step, Susan Ferrechio, Washington Examiner, 12/6/09.

"It would be very hard to listen to the president's speech and not be persuaded of the historic importance of what is being done here," Senate Budget Committee Chairman Kent Conrad, D-N.D., said. "It was a powerful speech."

On December 7, Senate Majority Leader Harry Reid (D-NV) decried the delaying tactics of Republican members of the Senate, comparing them to senators of yore who stalled action on slavery before the Civil War, female suffrage, and civil rights legislation.

Republican senators expressed shock and anger at these comments, and Saxby Chambliss (R-GA) suggested that Reid was starting to “crack” under the pressure of the healthcare debate. Reid Compares Opponents of Healthcare Reform to Supporters of Slavery, FoxNews.com, 12/7/09.

On the evening of December 8, a deal was announced to replace the controversial “public option” in the Senate bill with some new provisions (details to be provided after they have been “scored” by the Congressional Budget Office). Democrats choose alternatives to “public option,” Jennifer Haberkorn, Washington Times, 12/9/09.

• Americans lacking healthcare insurance (HCI) would be permitted to obtain it through a program administered by the Office of Personnel Management, which currently runs the federal employees healthcare program. Some see the OPM’s involvement as inconsistent with the professed intent of offering a “private option.” Through a looking glass on the Hill, Washington Examiner, 12/10/09.

Only in the nation's capitol could people pushing Obamacare keep a straight face while claiming that a new health insurance operation to be run by the same government agency that manages the federal bureaucracy is actually a private program.

• Some people in the 55-64 age bracket would be allowed to “buy into” Medicare. Given that Americans are living longer and may need to start retiring later in order to help put Social Security and Medicare on a sustainable fiscal basis, this strikes us as a move in the wrong direction or, to be blunt about it, a dumb idea.

It seems likely that the Democrats will try to force action on the Senate bill this week. If they cannot line up 60 votes, however, the matter may be held over until after the holidays.

Either way, the time has come for a decision. Consider the circumstances: two long and complex healthcare bills – same general thrust but with many differences in specifics – major changes could be made in conference if the Senate bill passes – little time likely to study the bill that would emerge from conference. In effect, people know about as much about GovCare as they ever will. That goes for the members of Congress, by the way, as well as John & Jane Q. Public.

Assessment – How to frame the issue without getting bogged down in the details? Our approach will be to focus on the major effects of GovCare, one plus and several minuses, and then make an overall judgment.

Congressional Budget Office (CBO) estimates cited are from: (a) 11/20/09 letter (revising 11/6/09 estimates) from CBO Director Douglas Elmendorf to Representative John Dingell (D-MI) for the House bill; and (b) 11/18/09 letter from Mr. Elmendorf to Senator Harry Reid (D-NV) for the Senate bill.

• Fewer Americans without healthcare insurance (HCI) - According to CBO estimates, the House and Senate bills would have the following effects on HCI coverage of nonelderly people:

Under either bill, the number of Americans without HCI would be reduced by over 30 million. About half of this gain would represent expanded enrollment in Medicaid and CHIP, with the remainder accounted for by gains in insurance issued through exchanges, i.e., the “public option” (or whatever might wind up replacing it in the Senate bill?).

The number of people with private sector HCI is projected as holding steady with the House bill or declining marginally with the Senate bill. Employer-provided HCI coverage might be lower than projected, however, with a corresponding increase in government-sponsored coverage. See Déjà vu: Scoring a healthcare bill [the Baucus bill], 10/12/09.

• Spending increases for new programs – According to CBO estimates, either the House or Senate bill would have a gross cost of roundly $1 trillion over the 10-year projection period. This understates the long-term impact of spending increases, however, because the new outlays would not begin for several years.

• Tax increases – On a net basis, both bills are scored as modestly reducing projected government deficits. It is projected that government spending increases would be outweighed by tax increases and spending cuts (see next heading).

Thus, the Senate bill provides an excise tax on high-premium (aka Cadillac) HCI plans, fees on various healthcare providers and insurers, and penalty payments for employers and individuals that opt out of applicable HCI mandates.

• Spending cuts for existing programs – In the main, projected spending cuts are not based on verifiable opportunities for efficiency gains – which could be considered a plus – but rather are arbitrary and perhaps illusory.

Under the House bill, for example, $396B is projected as being cut from Medicare, CHIP and Medicaid outlays over the 10-year period, primarily by reducing annual updates to fee for service rates applicable for Medicare ($228B) and Medicare Advantage ($170B).

The Medicare cuts are not seriously intended, apparently, but they would be reversed in separate legislation to avoid impacting the healthcare bill numbers. Dem’s slick fix: $210 billion of fiscal restraint, Byron York, Washington Examiner, 11/13/09.

As for Medicare Advantage, the indicated cuts would compromise the level of service currently being provided to seniors who participate in these plans – quite possibly resulting in higher overall costs to the government. Baucus Bludgeons Humana, Wall Street Journal, 9/23/09.

A new study from America's Health Insurance Plans, the industry trade group, finds that seniors on Advantage in California spent 30% fewer days in hospitals over fee-for-service patients, based on federal data. Democrats say that insurers are "overpaid," but the cuts—as Humana correctly noted—mean that seniors may lose this coverage.

• Skyrocketing healthcare costs – This prediction is based on several considerations, which we will cover briefly with references.

# Since the 1960s when Medicare and Medicaid were launched, healthcare spending has grown substantially faster than the economy as a whole. The healthcare sector now represents about 1/6 of the total U.S. economy, and the trend is projected to continue.

Some observers have inferred a cause and effect between government intervention in the healthcare sector and rising consumption/ prices, and we believe they are quite right.

In a nutshell, government policies have created the perception that healthcare (with the exception of HCI premiums and co-pays) is something that someone else pays for. Consumers are not price conscious, as a result, and some healthcare providers have taken advantage of the situation. A substantial amount of overconsumption in the healthcare system results. A “ready, aim, fire” approach to healthcare reform, 3/30/09.

# Healthcare costs on a per capita basis are considerably lower in other countries, yet average life expectancies are equivalent or higher. This suggests that the amount of money Americans spend on healthcare may be excessive, and that we would do well to adopt more healthy lifestyles. It might also be thought to bolster the case for a government-run system (which is what most of the comparison countries have).

With regard to the latter point, however, the cost of government-run healthcare is typically contained by limiting access to healthcare system, aka rationing. For 100 real life examples, taken from the UK, Canada, and elsewhere, see Shattered Lives, Amy Ridenour and Ryan Balis, The National Center for Public Policy Research, 2009 (PDF downloadable for free).

There’s no such thing as a free lunch, but the government keeps trying to sell us one anyway. And so it is with government-run health care. Sold to the public in the guise of “free,” it is in fact more costly than any private alternative, for its price tag is more than ﬁnancial. Those who chose to rely on government health care frequently pay not just in taxes, but in a more costly currency: pain, fear, suffering and death.

# To make the U.S. healthcare system more cost efficient, experts suggest eliminating barriers to innovation, encouraging more competition, and giving patients more meaningful choices. See the following books, both written by professors of the Harvard Business School.

The Innovator’s Prescription: A Disruptive Solution for Health Care, Clayton Christensen et al., McGraw Hill (2008).

The authors see government as part of the problem rather than the solution, and they single out the fee for service reimbursement model administered by Medicare/Medicaid for criticism. Indeed, Christensen suggests (p. 398) “we need to initiate changes in portions of the industry that are beyond Medicare’s reach rather than trying to change Medicare directly.”

Would GovCare further the recommendations of either author? To the contrary, GovCare would impose rigid standards for HCI coverage, require people to obtain HCI, expand Medicaid, and possibly even lower the eligibility age for Medicare. All of which would diminish the possibility for (a) disruptive change of the type Christensen advocates, or (b) the patient-driven healthcare system Herzlinger envisions.

• Undue complexity – Finally, there is plenty of room for error in attempting to ram through a once in a generation fix like this. Why not forget about GovCare and start on discrete healthcare issues, perhaps starting with an obvious problem like tort reform? Kill the bills, Charles Krauthammer, Townhall.com, 11/27/09.

The bill is irredeemable. It should not only be defeated. It should be immolated, its ashes scattered over the Senate swimming pool. Then do healthcare the right way -- one reform at a time, each simple and simplifying, aimed at reducing complexity, arbitrariness and inefficiency.

It is hard to know how this national debate on healthcare will end, but the outcome is not preordained.

We are not saying read the bills, who has time for that, but give some thought to the GovCare proposal. Then let your family, friends, and representatives in Congress know what you think.

How can the GRA disease be cured? We reviewed some ideas for reining in Congress last week, e.g., term limits and a balanced budget amendment. They seem promising, but would require Constitutional amendments – via one of the routes specified by Article V.

The Congress, whenever two thirds of both Houses shall deem it necessary, shall propose Amendments to this Constitution, or, on the Application of the Legislatures of two thirds of the several States, shall call a Convention for proposing Amendments, which, in either Case, shall be valid to all Intents and Purposes, as Part of this Constitution, when ratified by the Legislatures of three fourths of the several States, or by Conventions in three fourths thereof, as the one or the other Mode of Ratification may be proposed by the Congress; Provided that . . . no State, without its Consent, shall be deprived of its equal Suffrage in the Senate.

“Good luck with that,” wrote one reader, but it is not in our intellectual DNA to assume that the American people are incapable of demanding action that is needed to save the country. Also, for all the approvals required, a dozen amendments have been proposed and ratified in the past 100 years – including the Twenty-Second Amendment (1952) that established term limits for presidents.

All of these amendments were proposed by Congress and ratified by the states, but, as discussed last week, the members of Congress would predictably be unenthusiastic about curbing their own powers and prerogatives. To get balanced budget and term limits amendments, therefore, it might be necessary to convene (or at least threaten to convene) a Constitutional convention. Here are the steps prescribed by Article V:

By one account, there are standing calls from 29 states (including Delaware and Pennsylvania) for a Constitutional convention. It would supposedly take only 5 more states (or 2 if the rescission of prior calls by Alabama, Florida and Louisiana were challenged in court) to reach the 2/3 level and start the ball rolling.

The forgoing is stale news, it turns out. There have been two campaigns in living memory that fell short, the first seeking to overturn controversial Supreme Court decisions on voting districts and apportionment (1960s) and the second seeking a balanced budget amendment (late 1970s and 1980s). Although the state calls may not have been formally rescinded, they probably do not have continuing vitality.

Still, the idea of an Article V convention worries many conservatives. They suggest that Congress would pick the delegates (by who knows what process), and that the delegates could do whatever they wanted at the convention. The Battle to Stop the Constitutional Convention, Tom DeWeese, American Policy Center, 1/16/09.

The fact is, once 34 states petition Congress to convene a Constitutional Convention, the matter is completely out of the States' hands. There is absolutely no ability to control what the delegates do in the convention..

These points carry some weight, but on balance the fear of a runaway convention seems overblown. Suppose the convention decided to gut the Bill of Rights, for example, as foreseen by the American Policy Center. Bob Unruh, WorldNetDaily, 12/12/08.

Don't for one second doubt that delegates to a Con Con wouldn't revise the First Amendment into a government-controlled privilege, replace the 2nd Amendment with a “collective” right to self-defense, and abolish the 4th, 5th, and 10th Amendments, and the rest of the Bill of Rights. Additions could include the non-existent separation of church and state, the “right” to abortion and euthanasia, and much, much more.

We suspect the public reaction would be quite negative if such things happened, and that few state legislatures would ratify the convention’s handiwork.

Most Americans are currently satisfied with the Constitution, or at least do not favor tampering with it. The most common criticism of the Constitution is that it does not place enough limits on government power. 59% of voters say Constitution is just fine; 39% say it doesn’t restrict government enough, Rasmussen Reports, 7/3/08.

In the latest survey, only 14% of voters think the Constitution places too many restrictions on what government can do, while 39% say it is not restrictive enough and 38% say it’s about right as is.

If an Article V convention would involve risks for conservatives, moreover, it might also create opportunities. The Case for a Federalism Amendment: How the Tea Partiers can make Washington pay attention, Randy Barnett (professor of Constitutional law at Georgetown University), Wall Street Journal, 4/23/09.

As Professor Barnett notes, conservatives are not the only ones who would fear an Article V convention. If a growing number of states were calling for a convention, Congress might be stampeded into acting preemptively – as it has done before.

It was the looming threat of state petitions calling for a convention to provide for the direct election of U.S. senators that induced a reluctant Congress to propose the 17th Amendment [ratified in 1913], which did just that.

As for Barnett’s “federalism amendment,” it smacks too much of attempting to turn back the clock. Considering all that has changed since 1789, we doubt it would be feasible (or perhaps even desirable) to restore the original line of demarcation between federal and state powers.

The founders visualized that the activities of the federal government would be carried out pursuant to the powers given to Congress and the president by the Constitution, e.g., raising armies and fighting wars, regulation of commerce among the several states and with foreign nations, making treaties, coining money, borrowing money, raising taxes, etc., with all other functions of government reserved to the states. See Federalist Paper 45 on centralization or decentralization, authored by James Madison.

The powers delegated by the proposed constitution to the federal government, are few and defined. Those which are to remain in the state governments, are numerous and indefinite. The former will be exercised primarily on external objects, as war, peace, negotiation, and foreign commerce, with which last the power of taxation will, for the most part, be connected. The powers reserved to the several states will extend to all the objects, which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people, and the internal order, improvement, and prosperity of the state.

Then came the Tenth Amendment. “The powers not delegated to the United States by the Constitution, nor prohibited to it by the States, are reserved to the States respectively, or to the people.”

Years later, President Madison vetoed a bill providing for a federal public works program on grounds that – irrespective of the economic merits – “such a power is not expressly given by the Constitution.” His conclusion is elegantly expressed, and the logic seems impeccable. Veto message to the House of Representatives, March 3, 1817.

Fast-forward to today, when the federal government is involved in a great many public works and social programs that have little if anything to do with its enumerated powers (the Constitution does not mention social security, healthcare, agriculture, education, etc.). Under the Constitution as it is now interpreted, any legislation by Congress will be upheld unless a specific prohibition can be pointed to in the Constitution.

There are a few dissenters, such as Representative John Shadegg (R-AZ) and Senator Tom Coburn (R-OK), but they make their case as a matter of principle and do not expect to undo what has been done. Enumerated Powers Act Brings Constitution to Capitol Hill, Andrew Grossman, Heritage Foundation, 7/30/08.

In short, the enumerated powers doctrine is dead. Instead of trying to bring it back to life, fiscal visionaries should focus on opposing wasteful or ill-conceived programs at either the federal or state level using arguments such as does more harm than good, costs exceeds benefits, overlaps with programs of other agencies or governmental units, or could be better addressed by the private sector. See the Budget Discipline page of this Website, “where to cut” section, for some examples.

Another consideration that may point to an Article V convention is that the U.S. political system has been operating for 220 years with only modest changes (at least formally) to its governing document (the Constitution). Now, like an aging motor vehicle, the system may require a general overhaul as opposed to routine maintenance.

We have already talked about Congressional term limits and balanced budget amendments, which we favor, and a “federalism” amendment that seems dubious. Here are some other ideas that might be considered at an Article V convention?

• Repeal of the Sixteenth Amendment (authorizing a federal income tax) – Although Professor Barnett presented this proposal as part of his federalism amendment, it stands on a somewhat different footing. The idea would not be eliminating federal tax revenues, but collecting them in a different way. The Case for a Federalism Amendment, Randy Barnett, Wall Street Journal, 4/23/09.

Congress could then replace the income tax with a "uniform" national sales or "excise" tax (as stated in Article I, section 8) that would be paid by everyone residing in the country as they consumed, and would automatically render savings and capital appreciation free of tax.

As readers may recognize, such a switch would be consistent with the FairTax, which is a proposal to replace all federal income and payroll taxes with a national sales tax. An essential step in implementing the FairTax is said to be repealing the Sixteenth Amendment, so as to preclude any backtracking on elimination of the income tax.

SAFE believes the federal income tax system is inequitable and unduly complex. We view the FairTax as one of three ways to fix the system, the others being a flat tax or radical overhaul. See the Taxes page of this Website for discussion. Accordingly, the repeal of the Sixteenth Amendment seems like an appropriate agenda item for an Article V convention, but its approval does not seem essential.

• Reining in the executive branch – Many of our examples of Government Run Amok disease relate to the executive branch. Is this any way to govern a country? 11/16/09. Ergo, action may be required beyond shaping up Congress.

If the U.S. system of government was likened to a motor vehicle, Congress might be seen as the brakes. It can block proposed programs by declining to provide the required funding. It can also kill established programs by withdrawing funding, although this power has been exercised all too infrequently.

When it comes to new undertakings or changes in policy, on the other hand, Congress is not equipped to provide effective leadership. With 500+ principals and an unwieldy structure, it has great difficulty making and implementing decisions. No wonder cynics say there are two things one should never watch, making sausage and making legislation.

The executive branch can act as the motor of government because its members all report to the president. Thus, when David Walker (CEO of the Peterson Foundation, formerly U.S. Comptroller General) talks of the need for “committed and inspired leadership” to address the government’s long-term fiscal problems, he says such leadership could only come from the president. If you want good answers on healthcare, ask good questions! 2/11/08.

Fine, except that presidents do not invariably provide good leadership – as has been demonstrated time and again – and someone needs to hold them accountable. As we said in last week’s entry, after reviewing what happened after the Republican Party electoral comeback in 1994, “never place too much trust in any leader, group of leaders, or political party.”

We appreciate the advice of Alexander Hamilton in Federalist Paper 70 that “energy in the executive” is a hallmark of good government, and also that it is better to vest the executive power in one person (the president) than in a council. As Hamilton also says, however, the legislature plays a key role in setting as opposed to executing policy.

In the legislature, promptitude of decision is oftener an evil than a benefit. The differences of opinion, and the jarrings of parties in that department of the government, though they may sometimes obstruct salutary plans, yet often promote deliberation and circumspection; and serve to check excesses in the majority.

Who is in a better position to hold the president accountable on a regular basis than the members of Congress? True, the ultimate arbiters are the American people, but they only get to decide who will be president every four years.

Yet the current relationship between Congress and the president is not conducive to such a role for Congress, perhaps because of undue emphasis on the separation of powers.

# Presidential appearances before Congress are infrequent (State of the Union address, budget message, other subjects at the president’s initiative) and one-way (the president speaks, members of Congress listen).

In a September 9 address to Congress, for example, the president offered a litany of arguments in support of his healthcare plan. Most of the points had been made before, and some may not have been 100% accurate – including a statement that illegal immigrants could not get coverage under the plan. Obama’s speech was full of chronic deceptions, David Freddoso, Washington Examiner, 9/10/09.

As usual, the members of Congress had no opportunity to comment or ask questions. We have no wish to condone the outburst by Representative Joe Wilson (R-SC), who has quite properly apologized for the incident, but can appreciate the sense of frustration that may have triggered it. Here is how things went according to the transcript.

[President Obama] Now, there are also those who claim that our reform efforts would insure illegal immigrants. This, too, is false. The reforms -- the reforms I'm proposing would not apply to those who are here illegally.

[Mr. Wilson]: That's a lie. [Elsewhere reported as “you lie,” we do not know which was actually said.]

And one more misunderstanding I want to clear up: under our plan, no federal dollars will be used to fund abortions, and federal conscience laws will remain in place.

# Presidents and key advisers can claim “executive privilege” to withhold information from Congress or other bodies on many matters, including policy discussions and state secrets. While the privilege is not absolute, the courts have generally upheld it. Background on Executive Privilege, Aziz Huq, NYU School of Law, 3/23/07.

# Presidents retain advisers (aka “czars”) who not only provide advice but also perform administrative functions. Most of them are not approved with the advice and consent of the Senate. This approach sometimes creates confusion about who is in charge of a given functions, and it also undermines the effectiveness of Congressional oversight. Examining the History and Legality of Executive Branch Czars, Matthew Spaulding, Senate Judiciary Committee testimony, 10/6/09.

As the number of czars expands, and the President's policy staff grows, and there are more and more individuals acting more and more as administrative heads rather than advisors, Congress should raise questions as to whether those individuals should be subject to executive privilege or can be compelled to testify before Congress. The President cannot have it both ways.

Now granted, Congress and the president communicate in many ways. The president and/or advisers go to Capitol Hill for discussions, or stay in touch by telephone or electronic devices with legislators, and Congressional leaders may be invited to the White House. But the president can set the ground rules and limit participation as desired, so such communications are of limited help in testing the president’s thinking or holding him/her accountable.

One way to publicly test the president’s thinking – which is certainly not accomplished by the screened, if not scripted, questions at town hall meetings and press conferences – would be to adopt a parliamentary system of government like the one used in the United Kingdom.

But a parliamentary system has problems too; perhaps a less sweeping change should be considered. How about a Constitutional amendment providing for monthly sessions in Congress at which the president would respond to questions from members? Such sessions would be informative, and they might result in better decision-making as well. Bipartisanship or Groupthink? David Stokes, Townhall.com, 2/1/09.

I think we would have better leaders, if they had to actual[ly] debate their stuff directly with Congress – at least on occasion. Photo-ops and handshakes aside, I wonder how much better a good, heated, executive-legislative argument might be for our national political health.

Consideration might also be given to a Constitutional amendment limiting “executive privilege” to state secrets. So long as national security is not jeopardized, why shouldn’t the president et al. have to explain how policy decisions were arrived at, who was involved, and any issues that arose in implementation?

An Article V convention would entail risks as well as opportunities. It is not clear that one should be called for, nor what the results would be.

Nevertheless, as discussed in the four-part series that concludes with this entry, (a) there are serious problems with the U.S. system of government, (b) it is hard to see them being addressed without Constitutional amendments, and (c) the amendments would be hard to get via the Congress proposes/state legislatures ratify route.

Sometimes it is necessary to take chances in life, e.g., to break a completed side of a Rubik’s Cube in order to solve the overall puzzle.

We would love to know your views on calling for an Article V convention. Please respond to ww3@atlanticbb.net.

I'm not in favor of having a Constitutional Convention. My biggest concern is that it would afford the opportunity for mischief to those who wish to turn the Constitution into a wish list. The "Writers" provided a wherewithal for amending the Constitution that has served us well these many years. – Alex F. Wysocki, Conservative Caucus of Delaware

I fully support the idea of Congressional term limits, but can see no hope for making it happen unless the members voluntarily limit themselves or the voters limit them. A Cons. Conv. with the present Congressional make-up could be a real disaster! - SAFE director

Given who holds the reins of the power structure at the moment, we could be in a lot of trouble calling a Constitutional convention. It could be re-written in a manner that we would not like. - SAFE director

Let the revolution begin, again...no more taxation, without representation...throw the bums out. - SAFE member, Arizona

OK, OK, it was just a thought. But remember the adage, “nothing ventured, nothing gained.” Publius

Lest SAFE be viewed as a bunch of alarmists, here is one more analysis suggesting the disease could be life threatening. The general theme: opportunities to avert or minimize problems in the pipeline, such as surging energy prices, sharply higher interest rates, and massive tax hikes, are being ignored in favor of secondary issues – and it will not be pretty when the problems hit in full force. We ain’t seen nothing yet, Victor Hanson [Hoover Institution], Washington Times, 11/28/09.

As these storm clouds gather, Congress bickers on Saturday nights about borrowing even more money for health care reform, yet another federal entitlement.

Now on to this week’s topic, suggesting a cure for GRA. We will begin with Congress.

Throw the rascals out – A mid-term election is coming up next November, and the voters can send some new legislators to Washington if they have a mind to do so.

Judging from a recent Rasmussen poll, there could be some big changes. Indeed, the poll indicated that 57% of the voters would be disposed to fire all the members of Congress and start over. A 2008 poll (taken at the time of the financial bailout bill, aka TARP) yielded similar results, as shown in the following table.

But these results are fanciful, because voters do not vote for Congress as a body – they vote for the representative from their Congressional district and the senators from their state. Regardless of what people around the country may think of House Speaker Nancy Pelosi, for example, voters of the ultraliberal 8^th District of California (most of San Francisco) have kept her in office since 1987 and will likely continue to do so. Many other members of Congress will not be at risk in 2010 due to occupying safe seats or, in the case of 2/3 of the senators, not having to run at all.

Still, the stakes will be high in 2010, with the parties fighting to maintain or improve their position. The Republicans, in particular, will be hoping to replicate their mid-term victory in 1994 when their House candidates subscribed to a Contract with America that was supposed to bring about “the end of government that is too big, too intrusive, and too easy with the public's money.”

The Contract with American commitments were clearly and fully expressed, and if all of them had been implemented the impact could have been tremendous. Take the proposed Fiscal Responsibility Act:

A balanced budget/tax limitation [3/5 vote in each house for a tax increase] amendment and a legislative line-item veto to restore fiscal responsibility to an out- of-control Congress, requiring them to live under the same budget constraints as families and businesses. (Bill Text) (Description)

The House of Representatives passed the balanced budget/tax limitation amendment after the 1994 election, but it fell one vote short of the 2/3 vote required in the Senate.

A legislative line-item veto (exercisable by the president, subject to override by both houses of Congress) was enacted later, but to no avail because the U.S. Supreme Court held it violated the Separation of Powers doctrine. High Court Strikes Down Line-Item Veto, Richard Carelli, Washington Post, 6/25/98.

Not that this effort was unproductive, because with all the talk about balancing the budget – plus the dynamic of competition between the parties and a booming economy – the job actually got done during the closing years of the Clinton Administration.

Without structural support for a balanced budget, however, the tide of red ink soon resumed. Some people blame the tax cuts after the Republicans regained the White House in 2001; others (including us) would place more stress on the failure to control spending. Either way, it is hard to square the Republicans’ approach during these years with their traditional advocacy of limited government and fiscal discipline. Could it be the “Grand Old Party” was seduced by the lure of using big government for its own purposes? Leviathan on the Right, Michael Tanner, Cato Institute (2007), p. vii.

. . . no factor has been bigger than the rise of a new brand of conservatism – one that believes big government can be used for conservative ends. It is a conservatism that ridicules F. A. Hayek and Barry Goldwater while embracing Teddy and even Franklin Roosevelt. It has more in common with Ted Kennedy than with Ronald Reagan.

Will there be a Contract with America 2.0 in 2010? Former House Speaker Newt Gingrich has been discussing the subject with Michael Steele, Director of the Republican National Committee, and he shared some of their thinking at C-SPAN’s Cable Center Class, 11/13/09. Video (3:32)

Whatever the name (Steele favors a First Principles label), there would be a series of proposals on jobs, energy, healthcare, education, etc. intended to help the Republicans make the transition from opposition party to alternative party.

The actual “contract” would be announced around September 2010, close enough to the election to reflect the circumstances then applicable, but with enough time for voters to reflect on the Republican commitments and make a reasoned decision.

Maybe Contract with America 2.0 (or First Principles) is a great idea, maybe not, time will tell. It would help to know what circumstances will exist next September, e.g., will GovCare have gone through or been turned back, what will the jobless rate be, etc. Also, one would want to study the specific Republican proposals (and any Democrat responses).

But one point was amply demonstrated after the Republican comeback in 1994. Never place too much trust in any leader, group of leaders, or political party.

Gains achieved through a spirited campaign and purging of some of the less effective/reliable/honest incumbents in 2010 and 2012 (when the presidency will also be at stake) could prove temporary. Durable progress requires structural changes.

Term limits – The longer politicians stay in Washington, the more likely they are to fall under the spell of promoters of this, that or the other government program. Campaign cash is one inducement; another is the delight of being courted and praised. The only requirement is a willingness to spend other people’s money for arguably good causes. Potomac Fever, Chris Edwards, Cato Institute, 12/12/05.

The spending impulse of [legislators] is reinforced at every turn in Washington. Congressmen are bombarded with funding requests during visits from constituents, at receptions, in phone calls to campaign contributors, in meetings with lobbyists, in discussions with other members, and in news articles.

Congressional hearings add to the pro-spending climate. Rather than being like court proceedings, where a balance of views is heard, hearings are dominated by witnesses who favor more spending. Witnesses skillfully flatter members for their wise support of supposedly vital programs.

OK, ban the lobbyists, some people may say, but we doubt this is feasible. The United States is a free country, after all, and the First Amendment guarantees the right to “petition the government.”

A more practical answer might be to limit the time that members of Congress can spend in office, with the hope that they will leave before Potomac Fever sets in. To this end, a Citizen Legislature Act (limiting senators to two terms, and limiting representatives to either three or six terms) was included in the Contract with America.

Packaged as a Constitutional amendment, the CLA did not receive the required 2/3 vote in the House and lacked sufficient support in the Senate as well. Term Limits: The Fight Dies Hard, Time, 6/5/95.

To win the two-thirds of both Houses needed to send a constitutional amendment to the states for approval, backers would have to replace or win over 63 House members and, at last count, at least 24 Senators.

Having taken office expecting the Contract with America promises to be taken seriously, freshman Congressman Joe Scarborough (R-Florida) became disillusioned when GOP leaders developed “collective political amnesia” about the promises that had been made. Rome Wasn’t Burnt in a Day, Joe Scarborough, HarperCollins (2004), page 21.

Weeks after his stunning ascension to majority leader in November 1994, Dick Armey suggested that since Republicans were now running Congress, term limits were no longer necessary. As columnist Bob Novak noted, “The House roll call votes on term limits were rigged so that every Republican had a change to vote for one version of term limits while no version actually received enough votes to pass. Hypocrisy was the watchword.”

Would another run at term limits make sense now? The scourge of Potomac Fever remains alive and well, and other arguments carry weight as well. Here are several from Cato Institute’s Handbook for Policymakers, 7^th edition.

• In a June 2008 poll by Gallup, only 12% of respondents expressed confidence in Congress. [This was unusually low; the current approval rating is in the mid twenties.]

• Nearly half of the states have term limits for their legislatures, and attempts to eliminate such limits (e.g., a California ballot initiative in 2002) have generally been rebuffed.

• National polls have shown strong national support for term limits, e.g., 67% per an NBC/Wall Street Journal poll in 2003.

• Term limits might encourage leaders from the private sector to take time out from their careers to serve as citizen legislators, especially if (as Cato advocates) a three-term limit was set for members of the House.

Term limits would also have some potential drawbacks, in our opinion, which should be taken into account.

• Some Congressional functions are complex and require specialized knowledge, e.g., oversight over national intelligence or tax policy. And while many “old timers” in Congress deserve to be retired, there are some whose leadership and expertise would be missed.

To appreciate the potential impact of term limits, check out the House and Senate seniority lists on Wikipedia.com. They show that (1) many members of the current Congress have served far longer than would be possible with the proposed term limits, and (2) a mass retirement would result unless current officeholders were exempted (defeating the purpose of the exercise).

House of Representatives: With a 6-term limit, over half the membership would be barred from seeking reelection in 2010 – including 60+ members with 20 years in office or more. Anyone elected in 2004 or earlier would be excluded with a 3-term limit, raising the attrition rate to over 70%.

Senate: Nearly two-thirds of the members would be ineligible to seek reelection when their current terms expire.

• By reducing the level of Congressional experience (and in some cases competence), term limits would tend to weaken the influence of Congress vis-à-vis the executive branch. Other changes in the system might be needed to preserve a proper balance.

• Term limits would not necessarily upset the cozy way in which business is done inside the Beltway. Many members of Congress remain active after leaving office, often continuing to participate in the legislative process as high-paid lobbyists. National Suicide, Martin Gross, Berkley Books (2009), pp. 198 et seq.

In all, there are now 68 former members of the House who, from 1998 to 2005, moved just a mile away to K Street in Washington as lobbyists, with a raise in pay from $165,000 to upwards of $500,000 or even a million a year. A study by Public Citizen of the swift movement from Congress to Lobby-land shows that 43% of the eligible Congressmen who left Congress have become registered lobbyists. The percentage in the Senate was even higher, some 50%, or 18 out of 36 senators, a statistic that should shock sleepy citizens.

On balance, we believe term limits would be a good thing. But they would not be an unmixed blessing, and we would be inclined to favor a six-term (not three-term) limit for the House. It is also unclear how such limits would be imposed.

• Obtaining 2/3 approval of both houses of Congress for a Constitutional amendment could prove difficult. Indeed, the Cato Handbook (page 92) flatly states that “a Congress controlled by career politicians will never pass a term limits amendment.”

• Establishing Congressional term limits under state law has been tried. No dice; such an approach was disapproved by a 1997 decision of the U.S. Supreme Court.

• Another approach would be asking Congressional candidates to pledge they will not run for more than a specified number of terms. No Constitutional amendment or even legislation would be required, and the Cato Handbook (page 93) says “self-limiters” have served their constituents well and felt free to vote in a fiscally responsible manner.

Maybe, but the voluntary pledge approach seems perversely selective. Why should citizen legislators limit their time in office, e.g., Joe Scarborough who chose to resign and return to private life in September 2001, while political hacks serve term after term? If term limits are to be, we think they should apply to all members.

There is one approach left that might serve to get term limits, and perhaps a balanced budget amendment and other constructive changes as well, namely a Constitutional convention. But no such a convention has taken place since 1787, and convening one now would entail risks as well as opportunities.

It was previously suggested that the U.S. political system is faltering due to crucial issues ignored, bad ideas entertained, proposals presented deceptively, and dissent dismissed. Is this any way to govern a country? 11/16/09.

Now we will review some possible causes of the disease, call it “government run amok,” which in our view threatens this country’s prosperity and standing in the world.

Partisan gridlock – One explanation that has been offered for the mediocre results of the political system is a lack of bipartisan cooperation, which more often than not is blamed on the opposition party.

Thus, Democratic leaders had some suggestions to offer after the party switch of Senator Arlen Specter (now D-PA) in April. Pelosi’s advice to Republicans, San Francisco Chronicle, 4/30/09.

"I say to Republicans in America, take back your party," said House Speaker Nancy Pelosi, D-San Francisco. "The party of protecting the environment, the party of individual rights, the party of fairness."

Picking up the refrain, former Secretary of State Colin Powell opined that Republicans should stop “repeating mantras of the far right” and develop a more positive message. Powell Says Shrinking GOP Should Return to the Center, Chris Strohm, National Journal.com, 5/5/09.

As for what the general public thinks, the growing number of Americans who identify themselves as “independents” or “unaffiliated” may indicate a desire for politicians to take a middle of the road approach.

According to a Pew Research poll, independents represented 39% of the electorate in April versus 33% Democrats and 22% Republicans (“the lowest level of professed affiliation with the GOP in at least a quarter century”). [These numbers leave 6% of respondents unaccounted for.] Independents Take Center Stage in Obama Era, 5/21/09.

Other polls report somewhat more support for the established parties, especially on the Republican side, but confirm a surge in independents. Thus, Rasmussen reported the following split in October: Democrats 38%; Republicans 32%; unaffiliated 30%. Democrats Inch Up in Partisan ID in October, GOP Slips, 11/2/09.

It is commonly perceived that the parties are not working together on key issues (e.g. healthcare), and understandably so. After all, Democrats have stoutly resisted inputs on such issues, while Republicans have voted overwhelmingly against the Democrats’ proposals. Few Perceive Sincere Bipartisan Efforts in Congress, Gallup, 9/18/09.

Nevertheless, we are not prepared to attribute the malfunctions of the political system to excessive partisanship.

For one thing, partisan rivalry has existed from the start of this nation. For an insightful analysis of “factions,” see Federalist Paper No. 10 by James Madison:

As long as the reason of man continues fallible, and he is at liberty to exercise it, different opinions will be formed. As long as the connection subsists between his reason and his self-love, his opinions and his passions will have a reciprocal influence on each other, and the former will be objects to which the latter will attach themselves.

• the most important reason for factions is “the various and unequal distribution of property”

Those who hold, and those who are without property, have ever formed distinct interests in society. Those who are creditors, and those who are debtors, fall under a like discrimination. A landed interest, a manufacturing interest, a mercantilist interest, with many lesser interest, grow up of necessity in civilized nations, and divide them into different classes actuated by different sentiments and views.

• and instead of trying to brush the existence of factions under the rug, an enlightened government should strive to mitigate their effects.

The regulation of these various and interfering interests forms the principal task of modern [as of 1787] legislation, and involves the necessary and ordinary operations of government.

Moreover, bipartisan cooperation can morph into the blind acceptance of ideas that deserve to be vigorously debated. Notice how quick the advocates of an ever-expanding role for government are to class dissenting views as of no consequence. Hey, they might even be talking about us!

Thus in September, a White House official characterized participants in the March on Washington as a “fringe element” that did not understand the president’s healthcare proposal. “Tea Party” protestors “wrong,” Sean Lengell, Washington Times, 9/13/09.

"I don't think it's indicative of the nation's mood," David Axelrod, the president's top adviser, said on CBS' "Face the Nation." "My message to them is, they're wrong."

True, the president lauded political free speech during a talk to a student group in China, but he has exhibited a rather different view in other contexts. Obama’s Doubletalk on Political Dissent, Michelle Malkin, Townhall.com, 11/18/09.

While [his] press shop feeds paeans to free speech into Obama's globetrotting teleprompter, the White House is still waging war on vocal foes at home. Obama has lectured his critics in Washington to stop talking and "get out of the way." He has stacked his carefully staged town halls with partisan stooges and campaign plants throughout the year. The president recently derided limited-government activists ***

So while there is much to be said for decorum and civility, we see no reason why the parties should be of the same mind on everything – or pretend to agree if they don’t. If anything, it seems to us, the causes of the government run amok disease lie at the other end of the spectrum.

Groupthink – David Stokes, an educator and talk show host, observes that complaints about partisanship tend to be in the eye of the beholder. “It’s bipartisan if you agree with me. It’s partisan if you don’t.” And in the long run, he suggests, vigorous political debate is healthy, while artificial subordination of differences of opinion (or groupthink) can have unfortunate, sometimes even catastrophic consequences.

What causes groupthink? Watch out for illusions of invulnerability, the presumed morality or superiority of certain segments of society, and the devaluation of dissenting opinions. Also, remember that no one is immune. Bipartisanship or Groupthink? David Stokes, Townhall.com, 2/1/09.

Groupthink is an equal opportunity problem. It is not reserved solely for democrats, republicans, or independents. It rears its ugly head any time a group takes over, or gets comfortable in power, and loses the capacity for objectivity. And when there is a “we won/it’s our turn” mindset, groupthink is usually in the air. It is a most subtle and self-deceptive toxin.

The nation’s founders seem to have been well aware of such problems, for the Constitution was painstakingly crafted to balance political power.

• The federal government was given certain enumerated powers, notably national defense, international diplomacy, and the regulation of interstate commerce, but it was visualized that the state governments would continue to call the shots in all other areas. Overall, Madison predicted in Federalist Paper No. 45, the states would hold their own.

The powers delegated by the proposed constitution to the federal government are few and defined. Those which are to remain in the state governments, are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation and foreign commerce; with which last the power of taxation will, for the most part, be connected. The powers reserved to the several states will extend to all the objects, which, in the ordinary course of affairs, concern the life, liberties and properties of the people; and the internal order, improvement, and prosperity of the state.

• The power of the federal government was vested in three co-equal branches, with built-in “checks and balances.” Moreover, the legislative branch, which alone had access to “the pockets of the people,” was comprised of two houses, one elected based on population and the other on the basis of giving each state an equal say.

Sounds like an effective design to discourage groupthink, but modern day observers note that there have been concerted efforts to reinterpret the Constitution. The objective, or at least result, has been expansion of the federal government’s power.

Thus, Thomas Sowell of the Hoover Institute deplores the appointment of judges on the basis of their political leanings. “Empathy” versus Law: Part IV, Townhall.com, 5/8/09.

For more than a century, believers in bigger government have also been believers in having judges "interpret" the restraints of the Constitution out of existence. They called this "a living Constitution." But it has in fact been a dying Constitution, as its restraining provisions have been interpreted to mean less and less, so that the federal government can do more and more.

To which, U.S. Supreme Court Justice Clarence Thomas adds that there are basically two ways to interpret the Constitution – “try to discern as best we can what the framers intended or make it up.” How to Read the Constitution, Wall Street Journal, 10/20/08.

On the legislative side, Chris Edwards of the Cato Institute criticizes the members of Congress for assuming that the federal government has carte blanche to expand into any area it chooses. Downsizing the Federal Government, 2005, p. 25.

Members of Congress should start taking seriously their oaths to uphold the Constitution. Too often Congress ignores the Constitution or inserts boilerplate language into legislation to claim authority. Instead, when a questionable program comes before them, members of Congress should ask whether there is Constitutional authority for it and vote against it if they believe it violates the fundamental law of the land.

To use a current example, consider the proposal that people be required to obtain government-approved healthcare insurance [HCI]. Would such a mandate be Constitutional? Beware the health[care] insurance police, Donald Lambro, Washington Times, 11/2/09.

Congress has never before required Americans to buy a product or service under penalty of law. Yet that's precisely what the healthcare bills pending in the House and Senate would do in the age of Obama, despite compelling arguments that the Constitution gives lawmakers no power to do so.

House Speaker Nancy Pelosi’s “not a serious question” response was noted last week.

Senator Jack Reed (D-RI) suggests that requiring HCI would be akin to imposing a draft as an incident to raising an army. Fine, except the Constitution empowers Congress “to raise and support armies,” while saying nothing about healthcare. History.com, 11/12/09.

Others cite mandatory auto insurance as a precedent for an HCI mandate, overlooking the fact that it is the states, not the federal government, which mandates auto insurance. Is Obamacare Like Mandatory Auto Insurance? Andrew Tallman, Townhall.com, 11/17/09.

Now, obviously, if we were debating whether individual states could mandate health coverage, at least the levels of government being analogized would be the same. But the leap from what states do to what Congress can do betrays vistas of ignorance concerning our system of government. A college freshman would be embarrassed to make such a weak argument, yet members of Congress have said precisely this.

All things considered, the phenomenon of groupthink seems rather descriptive of the problems with the U.S. system of governance with which we began. Furthermore, there is much evidence of the Constitution being reinterpreted in a manner that expands the ambit of the federal government.

So perhaps we have found the cause of the problem, or at least one of them, but there is another point that needs to be considered.

Limited attention span – Remember Pogo’s quip that “We have met the enemy and he is us.” Before placing the blame for a malfunctioning political system on conniving politicians, activist judges who have misinterpreted the Constitution or whoever, perhaps everyone should look in the mirror.

Many Americans are poorly informed about policy issues, proposed legislation, and the like, and this is surely not due to a lack of information.

There was a time when the printing press was a revolutionary development, leveling the playfield between the upper classes and ordinary people. Then came telegraph, the telephone, radio and television. Now we are in the Internet age, with Web pages, e-mails, blogs, micro blogs (e.g., Twitter), and social networking sites, all increasingly accessed by cell phones and other handheld devices.

The following video (4 minutes) provides a hard-hitting series of observations about the revolution that is in process, including these. By 2010, Gen Y [aka Millennials] will outnumber Baby Boomers. There are over 200 million blogs on the Internet. It took 38 years for radio to build an audience of 50 million people; Facebook acquired 100 million users in 9 months. And we no longer search for the news, it finds us.

But with so much content available, people quickly reach the overload point. Most videos that are over 2 minutes long will not be watched. A message must be boiled down to 140 keystrokes or less for posting on Twitter. If viewers do not like what someone is saying on television, they will simply change the channel.

Perhaps an analogue of Gresham’s Law (cheap money drives dear money out of circulation) is at work, whereby breaking news and trivia trump important information. Or to paraphrase an old joke, people may wind up knowing more and more about less and less until they know everything about nothing.

We get it that the public is hungry for political leadership, but there is a dismaying lack of clarity about the specifics. The Permanent Tea Party, Daniel Heninger, Wall Street Journal, 11/5/09.

Independent voters across the U.S. have become like the massive cattle herd John Wayne drove from Texas to Kansas in "Red River." These voters are spooked and on the run, a political stampede that veered left in November 2008 and now right a mere year later. They will keep running—crushing incumbents, candidates and political models of the left and right—through November 2010 and onto 2012 until they find a person or party capable of leadership appropriate to our unsettled times. And yes, Virginia, the possibility of a man on a white horse in 2012 is not out of the question.

But wait a second, didn’t these same voters elect the leaders who are currently in office? Seems to us that they should accept some of the blame. Also, why in the world should the country be looking for a “man on a white horse” (or dictator)?

So let’s chalk up a short public attention span as another source of the government run amok disease.

Next week – We know the U.S. political system is malfunctioning, and at least some of the causes. The final entry in this series will evaluate some potential solutions.

Underlying the disputes in Washington about healthcare “reform” and other proposed initiatives, one senses that something is amiss with the body politic. However the malady may be perceived (e.g., government run amok), it has fueled the Tea Party movement and the surging popularity of conservative commentators like Rush Limbaugh and Glenn Beck. Tea Party leaders are wasting chance to replace Congress, Mark Tapscott, Washington Examiner, 9/3/09.

Most Americans are fed up with business-as-usual in Washington and they want real change, not more of the Democrats' power-grabbing slogans, or the "Me-Too" timidity of Republicans who talk the reform talk, but love the perks of power too much to actually walk it.

This week’s entry will illustrate four aspects of the current political landscape with examples drawn from various policy areas.

1. Crucial issues ignored – Like an ostrich that sticks its head in the sand, a country that fails to address its most pressing problems is asking for trouble – particularly when these problems reflect the failings of its governing institutions.

• Consider the federal government’s chronic budget deficit, which after decades of poor fiscal management is spiraling out of control. In past entries, this issue has been much discussed. See, e.g., Two cheers for the Fiscal Wake-Up Tour, 11/5/07; State of the budget: a 40-year slump, 1/28/08; Plot thickens, as the Peterson Foundation cranks up, 7/14/08; Fiscal Wake-Up Tour message goes nationwide [release of I.O.U.S.A.], 8/25/08; First things first: time to clean up the fiscal mess, 11/24/08; A tale of two summits [on fiscal responsibility and healthcare, respectively], 3/16/09.

Yet for all the efforts of fiscal visionaries, there has been no corrective action. And although the president may be considering a bipartisan commission to review the situation, look for lots of bickering about the shape of the conference table. Democrats Push for Plan to Cut Deficit, Jackie Calmes and Carl Hulse, New York Times, 10/31/09.

But even the idea of a panel to bridge the partisan divide has run into partisan objections. Many Democrats, including in the White House, are loath to cede such far-reaching decisions to a commission and doubt Republicans’ willingness to compromise. And most Republicans remain adamantly opposed to tax increases, leaving the prospects for any bipartisan approach limited at best.

• Government restrictions on the development of U.S. petroleum reserves have been tolerated for too long, resulting in higher than necessary fuel prices and a dangerous degree of dependency on imported oil. To drill or not to drill; that is the question, 7/7/08.

No one is about to tell American motorists that they should stop driving their vehicles, gasoline will be the predominant motor fuel for the next 20 years or so, and that gasoline will be refined from oil produced somewhere around the globe. ***The real issue is not drilling vs. not drilling; it is who will do the drilling and how much the resulting oil will cost. Clearly, there is no reason for the United States to pay any more money to import oil than it has to, particularly when much of the money goes to regimes that are disposed to create problems for us.

The bans on drilling in vast offshore areas were rescinded or allowed to lapse in 2008 due to public angst about a $4+ per gallon price for gasoline, but the new Administration has ordered further studies. Bush-era offshore drilling plan is set aside, MSNBC, 2/10/09.

Jack Gerard, president of the American Petroleum Institute, which represents the large oil companies, said [Energy Secretary Ken] Salazar's announcement "means that development of our offshore resources could be stalled indefinitely."

Subsequent steps can be expected to delay and burden domestic petroleum production. Five Things Congress and the President Are Doing to Bring Back Sky-High Gas Prices, Ben Lieberman, Heritage Foundation, 8/13/09.

Discouraging domestic oil supplies with access restrictions, regulations, fees, and taxes will add to the future price at the pump, while streamlining these impediments to increased production will do the opposite. Congress and the President should be enacting measures that allow oil and gasoline to be as plentiful and affordable as possible to meet the nation's energy needs. Instead, they are doing the opposite.

• Other long neglected problems include illegal immigration, a gold-plated school system that achieves mediocre results, a failed “war on drugs,” overlapping programs (e.g., 160 job training programs costing a total of some $20 billion per year), inefficient government operations (attributable among other things to the great difficulty in discharging poor employees), and pork barrel spending (aka earmarks).

For discussion, see National Suicide: How Washington Is Destroying the American Dream from A to Z, Martin Gross, Berkley Books (2009).

2. Bad ideas entertained – There is no such thing as a perfect defense. If enough bad ideas are proposed, some will survive the screening process and get implemented. And although many of the bad ideas are not new, we cannot remember ever seeing so many in play at the same time. They fall into two basic categories.

• One type of bad idea is a poor solution to a real problem, such as the theory popularized by economist John Maynard Keynes in the 1930s that deficit spending can be helpful in combating an economic recession.

Deficit spending did not get America out of the Great Depression, and this technique for stimulating the economy has failed in other countries as well. Nevertheless, it was a key element of the economic stimulus bill pushed through in February. Steve Forbes, 2/2/09, Forbes Magazine.

The blunt truth is that government spending is a poor substitute for private business and consumer investing and spending. Were it otherwise, the Soviet Union would have won the Cold War, and Japan, which had numerous Obamaesque stimulus packages in the 1990s, would have boomed instead of remaining dead in the water in what was a 12-year recession.

Given the rise in unemployment since February and a sluggish uptick in private sector demand, it would be a stretch to consider the stimulus bill a success. The only thing this legislation clearly accomplished was to run up the deficit. Washington and the Job Market, Wall Street Journal, 11/7/09.

It's hard to imagine a more complete repudiation of Keynesian stimulus than the evidence of the last year's job market. We've now had two examples of such stimulus—President Bush's $160 billion effort in February 2008 and President Obama's mega-version [$787 billion] a year later—and neither has made even the smallest dent in employment. As the nearby chart shows, Mr. Obama's economic advisers sold the stimulus by saying it would keep the jobless rate below 8%. Actual results may differ [jobless rate hit 10.2% in October], as they say.

• Equally bad is a proposed solution for a problem that does not exist or has been greatly exaggerated. Take the manmade global warming scare. It is uncertain that a warming trend will continue (it has been in remission for the last 10 years), the contribution of human activities to global temperatures has not been clearly established, and an abrupt switch to renewable energy sources would be immensely expensive and disruptive. See the Energy page of this Website and the blog entries listed thereon.

Global warming alarmists have traditionally advocated reducing the volume of carbon emissions (CO2, etc.) so that CO2 would stop building up in the Earth’s atmosphere (it is currently some 390 parts per million, versus 280 parts per million in 1800).

Now some environmentalists have upped the ante, saying the level of atmospheric CO2 must be reduced to no more than 350 parts per million. Cost and/or technical feasibility are beside the point in their view.

Two years ago, after leading climatologists observed rapid ice melt in the Arctic and other frightening signs of climate change, they issued a series of studies showing that the planet faced both human and natural disaster if atmospheric concentrations of CO2 remained above 350 parts per million.

Everyone from Al Gore to the U.N.’s top climate scientist has now embraced this goal as necessary for stabilizing the planet and preventing complete disaster. Now the trick is getting our leaders to pay attention and craft policies that will put the world on track to get to 350.

3. Proposals presented deceptively – In selling a product or service, there is a natural tendency to emphasize the expected benefits while saying as little as possible about uncertainties, cost, etc. Not for nothing does the law require “truth in advertising” from business firms.

There are no comparable safeguards, however, when it comes to government policies or programs. Consider the deceptive sales pitches for the economic stimulus bill, the president’s healthcare plan, and proposed energy legislation (cap and trade plus). “Happytalk” blossoms in the nation’s capital, 7/6/09.

There has been a willingness to shade the truth at the highest levels, as for example when the president suggests that his healthcare proposal could be implemented without adding to the government’s fiscal woes or raising costs/degrading coverage for people who currently have healthcare insurance. Providing HCI coverage for, say, 30 million more people would be costly, and it is unclear how offsetting savings could be achieved without government-imposed rationing (which has not been talked about). Trick or treating with healthcare reform, Kristine Iverson, Washington Examiner, 11/8/09.

The President asserts that we spend so much money on healthcare "that doesn't make us any healthier" that he can finance most of the reform plan with the savings, but he never says what he believes is wasteful. People going to the doctor too much? Doctors doing too many tests? The only way his health reform proposal can achieve these savings is by telling people when they can go to the doctor and telling doctors how to treat patients.

Surrogates and advocacy groups also contribute to the confusion. Consider the claim of the International Energy Administration that global energy prices will double unless a deal to limit carbon emissions is reached at the December meeting in Copenhagen. IEA says no emissions deal will double bills, Rowena Mason, UK Telegraph, 11/10/09.

The independent body said the huge price of tackling climate change will eventually be overtaken by the cost of remaining dependent on fossil fuels, which are becoming more difficult and expensive to extract. It estimates that Europe's annual energy bill will more than double to $500bn (£300bn) by 2030, as the oil price is likely to reach $100 per barrel by 2015 and $190 by 2030.

Actually, as this article seems to acknowledge, government-dictated constraints on the use of fossil fuels would drive up energy prices versus the status quo.

As for the world being fated to run out of petroleum reserves fairly soon, this view is belied by, among other things, new techniques for extracting natural gas from shale deposits. Interestingly, the shale gas breakthroughs occurred in this country, and they represent a triumph for the private sector. America’s Natural Gas Revolution, Daniel Yergin and Robert Ineson, Wall Street Journal, 11/2/09.

Preliminary estimates suggest that shale gas resources around the world could be equivalent to or even greater than current proven natural gas reserves. Perhaps much greater. But here in the U.S., our independent oil and gas sector, open markets and private ownership of mineral rights facilitated development.

4. Dissent dismissed – The purposeful avoidance of meaningful discussion is not conducive to developing the best government policies. It is also infuriating to the people who feel they are being ignored. Here are some recent examples.

The opposition party has had a very limited opportunity to influence important legislation this year, starting with the economic stimulus bill. Although the president invited Congressional leaders of both parties to the White House in January, he was reportedly unreceptive to suggestions about the size or makeup of the stimulus package. Obama to GOP: “I won,” Jonathan Martin and Carol Lee, politico.com, 1/24/09.

President Obama listened to Republican gripes about his stimulus package during a meeting with congressional leaders Friday morning - but he also left no doubt about who's in charge of these negotiations. "I won," Obama noted matter-of-factly, according to sources familiar with the conversation.

We do not recall reading of participation by opposition party leaders in subsequent White House meetings of this nature, i.e., the president typically confers with the Congressional leadership of his own party only.

In Congress, opposition party members have been excluded from bill drafting sessions and asked to vote on major bills without adequate time to read them. To be complete, their party is said to have used similar tactics when the shoe was on the other foot. The Death of Deliberative Democracy, Michelle Malkin, Townhall.com, 11/6/09.

In June, Pelosi's Imperial Congress severely curtailed debate on the House cap-and-tax bill and rammed a 309-page manager's amendment through the legislative grinder at 3 a.m., which no one read before the vote just hours later. As GOP Rep. Mike Pence pointed out on the House floor, the "debate" was a "travesty." So much for procedural fairness: 224 GOP amendments were denied by the majority.

At the same time and somewhat inconsistently, the opposition party has been accused of lacking ideas and failing to offer alternatives. See, e.g., GOP takes “targeted” healthcare approach, Jennifer Haberkorn, Washington Times, 9/29/09.

"All the amendments today are not [a] health reform plan, but rather they're attacking this, attacking that, something here, something there," said Finance Chairman Max Baucus, Montana Democrat, during the committee's markup session last week. "I don't know what the Republican alternative is. ... I don't see a massive or a big, large proposal on the other side for an alternative. I don't see one."

Actually, the opposition party has offered its own healthcare reform bill. They even got it scored by the Congressional Budget Office. But no matter, as the party in power was not of a mind to discuss it. CBO: Republican health[care] plan would reduce premiums, cut deficit, Susan Ferrechio, Washington Examiner, 11/5/09.

"Here's the Bottom line - Americans lose and Insurance companies win under the Republican plan," Pelosi spokesman Nadeam Elshami said. 

Criticism or questions have not been welcomed from sources outside the political establishment either. For example:

• Tea party participants have been dismissed as an angry mob, organized by the opposition party. Check out this video, which was sponsored by the Democratic National Committee in August.

The charge was well wide of the mark. Apparently, roughly 60% of the country is part of an “extremist mob,” Mary Katharine Ham, Washington Examiner, 8/5/09.

It's utterly probable that some—even many— of the concerned folks showing up at health-care town halls are the kind of older, white, Middle America Democrats Obama went to great pains to woo. The rows of VFW ballcaps and suspiciously well-dressed protesters bespeak a contingent of Hillary Democrats and even the ballyhooed Obamacans, convinced by Obama's moderate shtick and now left wondering what they got themselves into. And, if such folks are not in those crowds, they are in the 60 percent of voters who identify with them, as are the all-important Independents.

• Unfavorable media coverage has been dismissed as obstructionist rant and/or attributed to the opposition party. White House Escalates War of Words With Fox News, FoxNews.com, 10/12/09.

"What I think is fair to say about Fox -- and certainly it's the way we view it -- is that it really is more a wing of the Republican Party," said Anita Dunn, White House communications director [since departed], on CNN. "They take their talking points, put them on the air; take their opposition research, put them on the air. And that's fine. But let's not pretend they're a news network the way CNN is."

• Industry groups expressing contrary opinions have been dismissed as motivated by self-interest. W.H. makes “enemies” of Bush allies, Jon Ward, 10/22/09.

"When you're on their side, it's all OK, but if you're not, they rain hell down on you," said R. Bruce Josten, executive vice president of the U.S. Chamber of Commerce, bemoaning the administration's bellicose response to differing opinions on health care and financial regulatory reform proposals.

• Meanwhile, there has been little apparent willingness to engage in substantive discussion. Consider the Speaker of the House’s response to a question that seems entirely legitimate to us (in fact, we asked it rhetorically in last week’s entry): What provision of the Constitution empowers Congress to require people to buy healthcare insurance? A Minority View: Constitutional Contempt, Walter E. Williams, Townhall.com, 11/11/09.

At Speaker Nancy Pelosi's Oct. 29th press conference, a CNS News reporter asked, "Madam Speaker, where specifically does the Constitution grant Congress the authority to enact an individual health[care] insurance mandate?" Speaker Pelosi responded, "Are you serious? Are you serious?" The reporter said, "Yes, yes, I am." Not responding further, Pelosi shook her head and took a question from another reporter. Later on, Pelosi's press spokesman Nadeam Elshami told CNSNews.com . . . "You can put this on the record. That is not a serious question. That is not a serious question."

Really? Don’t try telling that to veteran newspaperman Seth Lipsky, who has studied the Constitution over the years and is fond of asking “Where does the Congress get the power to do that?” or the equivalent. Our “Constitutional” Moment, James Taranto, Wall Street Journal, 11/14/09.

Crucial issues ignored, bad ideas entertained, proposals presented deceptively, dissent dismissed. Somehow, this does not sound like the way to arrive at good answers.

If not, what needs to be done about it? Tune in next week for further discussion.

Before trying to fix a machine, one needs to understand how it works. The same goes for complex systems like healthcare, and it behooves all of us to look into the “reforms” being proposed rather than accepting them at face value.

The facts are complicated, but the basic difference of opinion between the supporters and opponents of government-run healthcare (GovCare) turns out to be simple.

Some observers see healthcare as an economic commodity, with prices and availability determined by supply and demand. We would call them realists.

Others see healthcare as a human right, which can be provided without regard to ability to pay because everyone wants to help. Call them idealists.

And then there is Regina Herzlinger of the Harvard Business School, who seems to want to have it both ways. The resulting tension is palpable in her book, Who Killed Health Care, McGraw-Hill (2007), which demonstrates that government-run healthcare will not work but does not necessarily identify a viable alternative.

Present top-down system – Many observers of the healthcare system use a story to express their conclusions in human terms; Professor Herzlinger is no exception. She tells of Jack Morgan’s premature death from kidney disease, which is a composite based on elements from various actual situations. And when it happened, that “was the day I knew our healthcare system had died along with him.”

Jack Morgan was a self-employed restaurateur, middle-aged, with healthcare insurance (HCI) of the managed care type. He developed kidney disease and underwent years of dialysis. A transplant became necessary, and a daughter wanted to provide a healthy kidney, but Jack did not get the surgery in time. He contracted an infection and died, a victim of “an inept, malfunctioning, costly healthcare system.” Herzlinger, pp. 17-26.

Everyone involved was to blame, as the author tells the story, other than doctors and the patient.

• The HCI provider’s approval procedures for a kidney transplant were bureaucratic and slow – reflecting a bias against covering major expenditures.

Such a situation is far from unique. California-based healthcare insurer/provider Kaiser Permanente (a pioneer in providing integrated healthcare on a long-term basis) had more than 100 people die while waiting for kidney transplants in 2005. The problem developed after Kaiser decided to treat kidney transplant patients in its own hospitals rather than referring them out, without providing the staffing necessary to make the program function properly. Kaiser was forced to shut down the in-house transplant program. Herzlinger, pp. 32-36.

• Hospitals had become so inefficient and expensive that Jack Morgan did not have the option of giving up on the HCI provider and paying for the transplant operation himself. Herzlinger, p. 88.

U.S. hospitals hide their prices, so Jack was not sure how much it would cost; but he knew it would be a hundred thousand dollars or more. Jack also knew that if he went to the hospital as a self-paying uninsured patient, they would likely charge him their very highest price, and if he could not pay, they would hound him, taking everything he had worked so hard to acquire and bankrupting him in the process. It did not matter if the hospital was nonprofit or carried a religious name.

• Although Jack Morgan was self-employed, U.S. employers fostered a mindset that contributed to his death by providing HCI coverage for their employees and turning the plans over to human resources to manage. Herzlinger, pp. 111-112.

Faced with rising healthcare costs and with federal requirements and subsidies, encouraged by the academics about Kaiser, and influenced by the HR crowd, companies began to restrict those policies to ones that managed care. But the new version of managed care that they selected bore scant resemblance to the early incarnation of Kaiser. Those new versions were managed by tough businesspeople who understood that a good way to make a buck was to tightly manage the use of healthcare services for the sick and disabled.

• Congress passed 1972 legislation providing public funding for the victims of kidney disease, which was accompanied by rigid rules as to how the money should be spent. As a result, Jack Morgan underwent a course of treatment that was far from ideal for his case. Herzlinger, pp. 115-129.

. . . many experts disagree with the Congressional remedy. A number of nephrologists believe the victims of kidney disease need more dialysis, perhaps daily. Nevertheless, Congress, with its relentless eye on the Epogen meter [ a gold mine for Amgen], instead chose to continuously increase those expenditures, despite mounting evidence that the higher doses of epo are bad for your health. *** Suppose Jack Morgan [had been] given the $65,000 or so [per year] that Congress spent on his dialysis. Do you think that some entrepreneurs would have offered him kidney care bundled into one package of doctors, dialysis, and drugs? Do you think he might have opted for less epo and more dialysis? Less epo and more physician visits? Less epo and more preventive care?

• Academics contributed by pushing for government-run healthcare, or failing that managed care or pay for performance (anything but patient choice and competition), thus providing intellectual cover for the mistakes others have made. Herzlinger, pp. 131-137.

Motive: “Academics favor the single-payer solution for many reasons; but surely one of them, acknowledged or not, is that it puts them, as advisors to the government, in charge of spending $2 trillion.”

Mistakes: (1) Excessive reliance on statistical analysis, which “can cause a smart person to believe that she can detect things that the experienced practitioner in the field misses.

(2) Unjustified stress on “the shortcomings of business as opposed to nonprofits, governments, and nongovernment organizations (NGOs).”

Lack of vision: Dr. Joe Murray and associates performed the first successful kidney transplant, an accomplishment for which he received a Nobel prize in 1990, but this procedure was much criticized initially and took decades to be widely replicated. Will others emulate Murray’s example “in today’s environment, in which an Ivory Tower academic establishment continually denigrates the professional judgment and economic ethics of the doctors who actually practice medicine”?

Proposed consumer-driven system – Herzlinger recommends that the healthcare system be reorganized to place the resources currently spent on group coverage at the disposal of patients acting on the advice of their doctors. Then HCI providers, hospitals, clinics, drug companies, etc. should be freed to compete for the available business.

The prospective payoff: innovative new services, greater efficiency, lower prices, and greater consumer satisfaction. Maybe it would no longer be necessary to go to Thailand for a hospital that looks like a Four Seasons hotel, has an efficient and attentive staff, and provides first class medical care at a fraction of the U.S. price.

Absent such adjustments, more and more consumers may decide to go abroad for major medical procedures. Herzlinger, pp. 85-88.

If U.S. hospitals are not radically restructured, future Jack Morgans may simply hop a jet to avoid the expense, the wait, and the horrible possibility that their illnesses may kill them before they obtain the care they need. Already, insurers like the brilliantly managed Blue Cross Blue Shield of South Carolina are investigating this option for their members. Our big, greedy hospitals and their overpaid, politically manipulative executives may find themselves with big empty waiting rooms and depleted bank accounts.

Albeit market-based, the new healthcare system would hardly be government-lite. Here is the basic framework (Herzlinger, pp. 247-258):

• Individuals required to obtain individual/family HCI. Employers who currently provide HCI coverage turn over the cash to their employees; the cash is tax-free so long as it is used to buy HCI. Self-employed individuals receive a tax deduction for money used to buy HCI. The government subsidizes HCI coverage or provides a government plan for individuals who otherwise could not afford HCI. (The Massachusetts healthcare system, which was being implemented as the book was being written, is cited with approval.)

• Sick people pay the same price for HCI as healthy people, with coverage quoted on a risk-adjusted basis. This means that insurers with relatively healthy clients (on average) must divert a portion of their revenues to insurers that have taken on more health risk. (The Swiss healthcare system uses such a procedure.)

• Healthcare providers bundle care as they see fit and quote their own prices, thereby facilitating market-based pricing. The government requires publication of accurate data on the prices and performance of all healthcare providers so the market will function efficiently.

Discussion – Consider the case being made for GovCare. Nearly everyone will get HCI – only way to bring healthcare costs under control – waste and abuse will be curbed – more money invested in preventive care – if you like your HCI, you can keep it – crack down on insurance company abuses – a public option (if included) will compete with the private insurers and keep them honest.

According to Herzlinger, however, healthcare providers (including doctors, in our opinion, although she exempts them from scrutiny) operate inefficiently and provide unnecessary services due to economic incentives spawned, to a large extent, by government policies. Piling rules on top of the existing rules and increasing the size of government spending programs (e.g., Medicaid) would be more likely to inflate costs than to lower them. Real cost reduction can only be achieved by putting consumers in charge. Herzlinger, p. 1.

A system controlled by the insurance companies or hospitals or government will kill us financially and medically – it will ruin our economy, deny us the healthcare services we need, and undermine the important genomic research that can fundamentally improve the practice of medicine and control its costs.

We agree. People should be empowered to make their own healthcare decisions – with input from doctors and family members – rather than viewing these matters as mysteries that only managed care administrators (whether employed by insurance companies or the government) should address. And experience with Medicare and Medicaid over the past 40+ years has amply demonstrated that government-run healthcare does not work well.

But if one believes in a free market, there is no good reason to provide a tax incentive for the consumption of healthcare. Accordingly, SAFE would cure the current inequity in the tax law by taxing employer-provided healthcare benefits, not by creating a tax benefit for those who buy HCI on an individual basis.

Requiring people to obtain HCI raises questions as well? What provision of the Constitution justifies such an infringement of personal liberty? Wouldn’t this necessarily get the government involved in defining “acceptable” HCI coverage? Kiss Your Money and Freedom Goodbye, Mark Hillman, Townhall.com, 10/16/09.

From a practical standpoint, the requirement to purchase health insurance will start badly and grow even worse. That's because the choice of what kind of insurance to purchase will no longer belong to consumers but to politicians and bureaucrats, relentlessly pressured by lobbyists to add to every conceivable screening or procedure in the nanny-state's wish list to your mandatory policy.

Also, some people might flout the HCI mandate. What would happen to them? In Massachusetts, a couple is being fined $1,000 per year because, for perfectly rational reasons, they prefer a higher deductible policy than the state wants them to have. Paying the Health[care] Tax in Massachusetts, Wendy Williams, Wall Street Journal, 10/15/09.

The state requires that health plans cap out-of-pocket expenses for individuals (not including monthly premiums) at $2,000 a year. Our plan's cap is $2,500. Today, we pay about $300 a month for catastrophic care. If we went with the next step up in plans offered to us by IBM (a former employer), our monthly premium would increase to $800. We simply don't need to pay that kind of money for the amount of health care we actually consume.

Under the House bill, it is said, someone who refused to get the required HCI coverage or pay the prescribed fine might be sent to prison. Pelosi: Buy a $15,000 Policy or Go to Jail, Press release: Representative Dave Camp (R-MI), 11/6/09.

While it is easy to agree in principle that the government has some degree of responsibility to ensure healthcare for the poor, there are obvious problems in deciding where to draw the lines. Who should be considered poor, what is the minimum acceptable level of healthcare, and how much should the government spend in total?

Tough questions, and there is little reason to think that mandated HCI coverage would help to answer them. The Price of RomneyCare, Wall Street Journal, 7/29/08.

. . . only about 18,000 people -- or 5% of the newly insured -- have taken advantage of the "connector," which was supposed to be the plan's free-market innovation linking individuals to private insurers. Most of [the] growth in coverage has instead come via a new state entitlement called Commonwealth Care. This provides subsidized insurance to those under 300% of the poverty level, or about $63,000 for a family of four.

In summary, SAFE believes GovCare would represent a step in the wrong direction, and we are far from alone. Several conservative publications have made the point admirably in their editorial columns. See, e.g., The Worst Bill Ever, Wall Street Journal, 11/1/09.

In a rational political world, this 1,990-page runaway train would have been derailed months ago. With spending and debt already at record peacetime levels, the bill creates a new and probably unrepealable middle-class entitlement that is designed to expand over time. Taxes will need to rise precipitously, even as ObamaCare so dramatically expands government control of health care that eventually all medicine will be rationed via politics.

Even the [Wilmington] News Journal rejected the House bill in an 11/7/09 editorial.

It will bring health insurance to more people, and that is a good thing. But the bill, as it is written, will not reform how healthcare is done in the country and it most certainly will not lower the system's costs. In fact, many of the savings the bill supposedly will bring are chimerical.

With unemployment now standing at over 10% and still headed up, it would be hard to imagine a less appropriate time to try and ram through a new government entitlement program that would add to the economic pressures on employers that must decide whether to start rehiring on not.

Moreover, the case that has been made for GovCare is exceedingly thin. At bottom, the proposal is based on faux logic and wishful thinking – not reasoned analysis about how the healthcare system actually works and can be made to function better.

If you do not believe us, read “Who Killed Healthcare” or one or more of the other excellent books that are available on this topic.

• The Innovator’s Prescription: A Disruptive Solution for Health Care, Christensen, Grossman and Hwang, Harper-Collins (2008) – Innovator’s Prescription

• Who Killed Health Care? Regina Herzlinger, McGraw-Hill (2007). – Who Killed Healthcare

• The Cure: How Capitalism Can Save American Health Care, David Gratzer, M.D., Encounter Books (2006) – http://tiny.cc/ZhHs1

• The End of Medicine: How Silicon Valley (and Naked Mice) Will Reboot Your Doctor, Andy Kessler, Harper-Collins (2006) - http://tiny.cc/4gvFE

• The Last Well Person: How To Stay Well Despite the Health-Care System, Nortin M. Hadler, M.D., McGill-Queen’s University Press (2004) – Last Well Person

In closing, remember this. Just as war is said to be too important to leave to the generals, healthcare is too important to be left to the politicians!

As previously reported (10/26/09 entry), one of the primary arguments for creating a government-backed entity to offer healthcare insurance has been the alleged shortcomings of private HCI providers – callous behavior to maximize profits, inefficiency, and limited competition.

This week, we will review some of these claims. But first, a quick update on Congressional maneuvering over whether there should be a “public option.”

Update – Support for a public option is strong in the House of Representatives, ostensibly in order to foster competition in the HCI market and provide consumers with more choice. Indeed, why not call it a “consumer option” or “competitive option”? “Public Option” Needs New Name, Pelosi Says, cb5.com, 10/26/09.

Sure enough, there was a public option in the House bill unveiled on October 29 – but it had been toned down to defuse criticism about paying healthcare providers based on the niggardly Medicare reimbursement rate schedule. Battles over cost, taxes, Medicare loom for House health[care] plan, Jennifer Haberkorn and Kara Rowland, Washington Times, 10/30/09.

The final House draft -- a merging of three committees' work over the past months -- does not have the so-called robust public option, which was favored by liberal Democrats and would have reimbursed doctors based on Medicare rates plus a 5 percent premium. The more moderate version would allow the Department of Health and Human Services to negotiate rates with providers, as private insurers do.

According to a preliminary analysis of the Congressional Budget Office, utilization of the public plan would not drive out private HCI coverage. Of the 30 million people enrolled in insurance exchange plans (21M on an individual basis, 9M through employer plans) by 2019, only about 20% (or 6M) would be in the public plan.

Maybe, but the underlying assumptions sound rather speculative, and they could easily be invalidated by adjusting the details of the proposal. CBO letter to Representative Charles Rangel et al., 10/29/09, page 6. (Letter is accessible through the CBO blog link below.)

That estimate of enrollment reflects CBO’s assessment that a public plan paying negotiated rates would attract a broad network of providers but would typically have premiums that are somewhat higher than the average premiums for the private plans in the exchanges. The rates the public plan pays to providers would, on average, probably be comparable to the rates paid by private insurers participating in the exchanges. The public plan would have lower administrative costs than those private plans but would probably engage in less management of utilization by its enrollees and attract a less healthy pool of enrollees. (The effects of that “adverse selection” on the public plan’s premiums would be only partially offset by the “risk adjustment” procedures that would apply to all plans operating in the exchanges.)

Meanwhile, Senate Majority Leader Harry Reid (D-NV) has announced that the healthcare bill to be introduced on the Senate floor will, unlike the bill cleared by the Finance Committee, contain a public option – albeit one states could “opt out” of.

Details are yet to be provided, but the opt-out provision would apparently only apply to the benefits involved and not to the duty of paying for them. I’ll Pass on “Opting Out,” Ann Coulter, Townhall.com, 10/28/09.

It's like a movie theater offering a "money back guarantee" and then explaining, you don't get your money back, but you don't have to stay and watch the movie if you don't like it.

Several senators who oppose a public option are underwhelmed, and 60 votes may not be available. If the Senate bill stalls, adjustments will be considered – including an approach favored by the senior senator from Delaware. No momentum in Senate for Reid’s public option plan, Susan Ferrechio, Washington Examiner, 10/28/09.

Sen. Tom Carper, D-Del., is waiting in the wings with a plan that would create a national insurance program, operated by a nonprofit board, that would be put in place with a trigger but would also allow states to both opt in and opt out under certain circumstances. * * * "I call this the 60-vote option," he said.

The controversy about the public option seems overdone, perhaps by design. As political strategist Dick Morris notes, an extended debate about this feature of the Senate bill could divert attention from other issues. Reid’s Bait and Switch Tactics, Dick Morris and Eileen McGann, Townhall.com, 10/28/09.

By making such a fuss over the public option, with the connivance of the liberals, [Senator Reid] keeps the spotlight away from the Medicare cuts, the end of Medicare Advantage, the inevitable rationing of health care, the taxes on the uninsured and the sick, and the cuts in medical reimbursement. A bill with all these provisions -- even without a public option -- is pernicious enough!

And even if a public option was stripped out of the Senate bill, it could readily be reinstated in the conference to reconcile differences with the House bill.

Greedy insurers – There are many stories of HCI providers denying healthcare to patients who desperately needed it, thereby causing serious harm or death. Here is one that former trial lawyer John Edwards used on the campaign trail.

Just 17 years old, afflicted with leukemia, [Nataline Sarkisyan] needed a liver transplant, but the insurance company Cigna refused to cover the surgery. After being picketed by nurses and the family, the insurer relented, but too late: She died that same day.

It is implied that Cigna’s decision to deny a liver transplant was made simply to safeguard its bottom line, but the situation was more complicated.

Dr. Goran Klintmalm, head of the Baylor Regional Transplant Institute in Dallas, told The Los Angeles Times the surgery was "very high-risk" and "on the margins." Even on the best prognosis, [Nataline] stood a one-in-three chance of dying -- after undergoing a very expensive operation and taking a liver that might otherwise have gone to someone with a better chance of survival.

Perhaps Cigna erred in this case, but the same decision might well have been made in a government-run healthcare system. Consider that Americans currently get far more liver transplants per capita than residents of Canada, France and the UK. Creators Healthcare Delusions, Left and Right, Steve Chapman, Townhall.com, 10/25/09.

To bolster the impression that HCI providers are miserly, it has been claimed that their profits have skyrocketed, they earn “obscene profits” while “the bodies pile up,” etc. Actually, their profits are pedestrian in comparison to those earned in other industries. Health[care] insurer profits not so fat, Calvin Woodward, myway.com, 10/25/09.

Health insurers posted a 2.2 percent profit margin last year, placing them 35th on the Fortune 500 list of top industries. As is typical, other health sectors did much better - drugs and medical products and services were both in the top 10.

HCI providers do seek to earn a profit, however, and young, relatively healthy individuals are cheaper to cover than people who are older or have serious health problems. To the extent that HCI coverage is provided on the basis of individual health risk, it will invariably be more expensive for people in the latter category – just as automobile insurance costs a lot for young, male drivers.

Inefficiency – Some observers claim HCI companies have excessive overhead, e.g., 30% versus 3% for Medicare. The reasons are said to include a “practice of encouraging their employees to revoke sick people’s health[care] coverage.” Real people for real health[care] reform, JoAnne Cabry [Democracy for America], News Journal, 10/17/09.

Were this 10:1 overhead ratio valid, it would be hard to oppose a public option, but the claim seems dubious for reasons on both sides of the equation.

• The 30% overhead factor for private HCI providers is overstated. Thus, Selling, General and Administrative Expense is running about 15% of revenues at WellPoint, one of the industry leaders.

Some HCI provider CEO’s may be overcompensated, but not to an extent that would have a material impact on overall costs. Thus, Ronald Williams of Aetna had a $24 million compensation package in 2008 per the company’s proxy statement, versus total selling, general and administrative expense of $5.8 billion.

• The 3% overhead factor for Medicare is understated. Medicare’s Hidden Administrative Costs: A Comparison of Medicare and the Private Sector, Council for Affordable Health[care] Insurance, Merrill Matthews, 1/10/06.

. . . private sector insurers must track and divulge their administrative costs, while most of Medicare’s administrative costs are hidden or completely ignored by the complex and bureaucratic reporting and tracking systems used by the government. This study, based in part on a technical paper by Mark Litow of Milliman, Inc., finds that Medicare’s actual administrative costs are 5.2 percent, when the hidden costs are included.

Furthermore, the government is reportedly paying some $60 billion per year in bogus Medicare claims, apparently due to lax review and verification of claims. Fraud plagues government healthcare, Washington Examiner, 10/27/09.

One of the criminals explained [in a 60 Minutes broadcast] that Medicare management was so lax that he got $150,000 by claiming reimbursement 10 times for a "gas-powered prosthetic arm." The same criminal said there are "thousands" of companies in the Miami area being paid for such fraudulent claims every day. A lawyer with extensive experience defending those accused of Medicare scams told "60 Minutes" that Medicare fraud is bigger than the drug trade in South Florida.

Attorney General Eric Holder told "60 Minutes" the government needs a bigger budget and more employees before it can stop the fraud. But HHS has worked for more than two decades to clean up Medicare fraud and currently has more than 63,000 employees. If, after working all those years -- with the Justice Department, FBI and state authorities -- HHS still can't stop Medicare fraud, why is hiring more people and fattening up the department's budget going to do the trick?

Lack of competition – It is said that HCI providers are not subject to enough competition in the state markets they serve. Here is the situation in Delaware, for example, according to the “Real people for real health[care] reform” column.

We reminded Sen. Carper that insurance companies are not subject to federal anti-trust laws, and consequently 47 of our states have three or fewer insurance companies. We used Dover as an illustration, showing that Blue Cross has 55 percent of the market and Coventry has 25 percent. When we asked the senator to explain how any entity other than a publicly managed insurance plan could compete in Dover when 80 percent of the market is controlled by two companies, he had no answer.

The long-standing exemption of insurance companies from the federal anti-trust laws is based on their activities being subject to state regulation. Notwithstanding recent statements to the contrary, said exemption has had little effect on the competitiveness of the HCI markets. Competition and Health[care] Insurance, Wall Street Journal, 10/21/09.

Also, the quoted statistics are inconsistent with information (2006 data) posted by the Delaware Insurance Commissioner, which indicate that three (not two) companies dominate the HCI market in this state.

*Apparently does not include revenues from administering the DuPont Company healthcare plans for thousands of employees and retirees who live in Delaware, else Aetna’s market share would be higher than 4%.

All things considered, it is not apparent to us that the HCI market in Delaware is excessively concentrated. Perhaps the lack of competition in other states is also less serious than has been claimed.

But there is inadequate competition in another sense, namely products offered versus the number of competitors. To foster lower prices and innovation in the healthcare industry, HCI providers need to diverge from the traditional HCI model. The reason is simple – and has been borne out repeatedly in other industries. Who Killed Health Care, Regina Herzlinger, McGraw-Hill (2007), p. 53.

Productivity gains arise primarily from innovations driven by entrepreneurs. Productivity arises organically, not technocratically. We celebrate Thomas Edison, Henry Ford, and Sam Walton because they transformed how energy was used, cars were manufactured, and goods were sold. We do not celebrate them because they muscled down their suppliers’ prices and barred consumers from needed goods. Entrepreneurs, not bureaucrats, create the innovations that increase productivity.

Traditional HCI covers essentially all healthcare outlays (subject to a low deductible and modest co-pays), giving consumers little incentive to control demand while putting pressure on HCI providers to do so for them. The predictable result: soaring HCI premiums and continuous friction between HCI providers and their clients.

Dominance of the traditional model has resulted from several factors, including the tax subsidy for employer-provided HCI plans, state-imposed requirements as to what healthcare services must be covered by an “acceptable” HCI plan, and barriers to buying HCI from out of state. But still, there have been some success stories, such as this one. Who Killed Health Care, p. 217.

Definity Health, a venture-capital-backed business, designed a new policy that offered insurance only for catastrophically expensive healthcare, usually coupled with tax-supported health savings or reimbursement accounts whose funds can be used to pay for uninsured medical needs and 100 percent of preventive care. The policy was up to 40 percent cheaper than traditional ones. The results? Only a few years after the policies were first offered, by Definity and others, more than 9 million Americans had enrolled. As for Definity, it did well while it did good – the firm was purchased a few years after its founding by United Health Group for approximately $340 million in 2004.

The healthcare system desperately needs more such innovation. Do not expect it to be facilitated, however, by the provisions of the monstrous healthcare bill (House version reportedly runs 1,990 pages) that is in the making.

Also, if HCI providers are not single-handedly to blame for the shortcomings of the current healthcare system, who else may be contributing to the problem? Tune in next week for a review of some of the other suspects.

As of two months ago, we concluded that none of the healthcare “reform” plans under active consideration were worthy of support – including a Senate Finance bill without a “public option.” Healthcare: deal or no deal? 8/24/09. Subsequent events have confirmed our opinion, as will be discussed in this entry.

To set the stage – Here is a brief recap of the proposed healthcare plan (referred to for convenience as “GovCare”).

• GovCare focuses on the wrong problem, namely reducing the number of people without healthcare insurance (HCI) versus reining in the soaring cost of healthcare (roundly 50% of which is paid for by the federal and state governments, or ultimately by taxpayers). A “ready, aim, fire” approach to healthcare reform, 3/30/09.

• The details are poorly defined, with several alternative bills in play and much uncertainty about several key provisions. Look for continued delays in publishing the text of draft bills down the GovCare home stretch. No, you can’t read the legislation: Democrats try to sneak through unexamined health bills, Washington Times, 9/25/09.

When major legislation is completed, it is the result of negotiations that can be years in the making, with many last-minute changes. Hundreds of pages can get jammed into bills in the middle of the night with only a few staffers knowing what's in them.

Even if the “legislative language” was made available on a timely basis, who would read and understand it? Not many, suggests one senator, who finds it more practical to work with the “plain English” version of major bills. Finance Committee Democrat Won’t Read Text of Health Bill, Nicholas Ballasy, CNSNews.com, 10/2/09.

Sen. Thomas Carper (D.-Del.), a member of the Senate Finance Committee, told CNSNews.com that he does not “expect” to read the actual legislative language of the committee’s health care bill because it is “confusing” and that anyone who claims they are going to read it and understand it is fooling people.

• GovCare would be expensive, and the cost would predictably be imposed on taxpayers and healthcare consumers. No Free Lunch: The True Cost of ObamaCare, Matt Patterson, National Center for Public Policy Research, October 2009.

. . . the main health care proposals working their way through Congress would in fact come at a painful price - higher insurance premiums, more and higher taxes, fewer jobs, lower wages, a reduced standard of living and an erosion of privacy and individual liberty.

Congressional Budget Office cost estimates for the various versions of GovCare are on the order of a trillion dollars over the next 10 years, and – despite the yeoman efforts of the CBO – these estimates are probably underestimated. Déjà vu: Scoring a healthcare bill, 10/12/09.

As an example of the budgetary games being played, consider the “Doctor Fix” – a moratorium on the “sustainable growth rate” (SGR) formula that could otherwise result in mandated cuts in Medicare payments to doctors. Congress has waived the application of the SGR provision on an annual basis, and will no doubt continue to do so, but the Senate Finance Committee (Baucus) bill numbers were sweetened by assuming a Doctor Fix only in the first year of the 10-year projection period.

When the American Medical Association lobbied for a permanent Doctor Fix, it was packaged in a separate bill to avoid raising the apparent cost of the Baucus bill. Defecting Democrats derailed the separate bill, but this outcome is not necessarily final. Temporary Beltway Sanity, Wall Street Journal, 10/22/09.

Yesterday saw some rare good news on the health-care front, with the stealth Democratic plan to move $247 billion in ObamaCare costs off the books collapsing in the Senate on a procedural vote of 47 to 53. Maybe there's more anxiety among Democrats about a huge permanent increase in government health spending than the White House is willing to let on.

• GovCare would be unaffordable. The government is already in a huge fiscal hole. While an additional $1 trillion in spending over the next 10 years could be covered by additional taxes, this would reduce the resources available to cover the deficits that are already projected. We reminded the member of Congress of this point in July.

Forget about raising taxes to pay for new spending programs, e.g., the healthcare bill. There is just so much people are willing to pay in taxes, and whatever tax increases may wind up being imposed will be needed to balance the budget. Instead, try eliminating wasteful government spending and government regulations that serve no useful purpose; there are many opportunities.

For the foregoing reasons, Congress should acknowledge error and hit the reset button on healthcare.

We are not alone, but . . . In a Rasmussen poll taken in August, 54% of voters preferred “no healthcare reform passed by Congress this year” to “passage of the bill currently working its way through Congress,” while 35% said the opposite.

The percentage of voters preferring GovCare to nothing has reportedly risen to 42% since August, with corresponding shrinkage in the undecided. The percentage of voters in opposition remains at 54%, which would hardly suggest that GovCare has gained general acceptance.

If the president and his party want to force GovCare through, however, they have the votes to do so. Presumably factoring in this political reality, 65% of voters “expect the healthcare plan that emerges from Congress to be mostly what Democrats want.” Most Voters Say They Know Healthcare Bill Much Better Than Congress, Rasmussen Reports, 10/20/09.

The cost of dissent – Most people want to be on the “winning side” rather than taking a lonely stand on principle – even though everyone may lose as a result. Or as economist John Maynard Keynes famously said, “it is better to fail conventionally than to succeed unconventionally.”

Those who oppose GovCare risk being seen as obstructionists. Thus, per the aforesaid Rasmussen poll, 42% of voters “attribute nearly unilateral Republican opposition to partisan politics rather than questions about the details of the plan.”

The sentiment is understandable, as healthcare is a highly politicized topic. But why single out only one party, when both parties are motivated by partisan considerations?

Furthermore, the opposition party has offered a good deal of feedback on GovCare that parallels SAFE’s strictly nonpartisan views. Consider a 7/15/09 press release by Senator Mitch McConnell (R-KY), which includes statements such as the following.

As Republicans and Democrats debate the best way to reform health care, Americans are increasingly concerned about the price tag, and about who gets stuck with the bill. The federal deficit suddenly stands at more than a trillion dollars for the time in history, and so far this year we’re spending about $500 million a day in interest alone on the national debt. *** And now the advocates of a government takeover of health care are talking about spending trillions more.

No emerging consensus – Some people may believe that the battle over healthcare will end in a compromise that represents the best practicable outcome, but count us as skeptical.

Currently, the president’s party seems to be moving in the direction of imposing the most extreme version of GovCare that they think the American people will stand for – namely a public option that would pave the way for a “single payer” system within a few years. “The Public Option Comeback, Wall Street Journal, 10/22/09.

The public option's renewed momentum is mostly the product of the raw ideological willfulness of the progressive left. Led by Speaker Nancy Pelosi, they're not about to let a once-in-a-generation opportunity pass without a fight, and they view the public option as a down payment on single-payer health care.

The idea of a public option is said to be gaining traction with voters – and indeed to be supported by a healthy majority. Public option gains support, Dan Balz and Jon Cohen, Washington Post, 10/20/09.

On the issue that has been perhaps the most pronounced flash point in the national debate, 57 percent of all Americans now favor a public insurance option, while 40 percent oppose it. Support has risen since mid-August, when a bare majority, 52 percent, said they favored it.

If 54% of voters would prefer no action on healthcare to GovCare, how could 57% favor GovCare with a public option (which moderates of both parties have professed to be troubled by)? We can see two possible explanations.

• Some voters may visualize a government-run entity offering HCI in competition with private insurers as simply giving consumers an additional choice. Literally, that is what “public option” suggests, which is probably why the term was selected. But as Michael Tanner of the Cato Institute observes, that is not how a subsidized public option would actually work. Cognitive Dissonance on Healthcare Reform, Townhall.com, 10/20/09.

By way of evidence., consider how government intervention has led to domination of the market for housing loans. Between Fannie Mae, Freddie Mac and the Federal Housing Administration, over 90% of all U.S. mortgages are now federally guaranteed. Fannie’s Next Big Adventure, Wall Street Journal, 10/10/09.

Fannie and Freddie's guarantees and subsidies helped to create the housing disaster, which has led the Fed directly to purchase mortgage-backed securities and mess up the market for small mortgage lenders, which in turn is leading Fan and Fred to guarantee the debt of those small lenders. Market distortion is piled on market distortion until we have a mortgage industry that can't function without taxpayers being on the hook for every transaction.

• The private entities that provide HCI are none too popular either, so GovCare supporters have found insurance companies a convenient target. Their attacks may not prove much about the desirability of a public option, but they help to wear down the opposition.

The attack starts at the top. Thus, the president made 18 references to “insurance companies” in his 9/9/09 address to Congress, castigating them for tough business practices and bemoaning the lack of competition.

. . . in 34 states, 75 percent of the insurance market is controlled by five or fewer companies. In Alabama, almost 90 percent is controlled by just one company.

And without competition, the price of insurance goes up and quality goes down. And it makes it easier for insurance companies to treat their customers badly -- by cherry-picking the healthiest individuals and trying to drop the sickest; by overcharging small businesses who have no leverage; and by jacking up rates.

Insurance executives don't do this because they're bad people. They do it because it's profitable. As one former insurance executive testified before Congress, insurance companies are not only encouraged to find reasons to drop the seriously ill, they are rewarded for it.

Even worse was the president subsequent claim that insurance companies have been using bogus studies (e.g., a report by Price Waterhouse & Co.) to demonstrate that GovCare would drive up cost and insurance premiums. We are unaware of any “bogus” studies, and the indicated conclusions are valid in our opinion. Unhealthy smoke and mirrors, Donald Lambro, Washington Times, 10/22/09.

There have been many attacks on insurance companies from lower level GovCare supporters, as exemplified by a column published in Delaware. Real people for real health[care] reform, JoAnne Cabry [Democracy for America], News Journal, 10/17/09.

The “real people” column reported that Ms. Cabry and allies had enjoyed a one-hour private audience with Senator Tom Carper (D-DE), in the course of which they had presented “overwhelming evidence” that a “strong federal insurance plan must be part of any genuine reform.” No sale, however, as Senator Carper was apparently sticking up for the insurance industry.

Rather than complaining that Senator Carper did not agree with them, it seems to us, the writer et al. should consider themselves fortunate to have been granted a one-hour private meeting. Few Delawareans enjoyed such access, certainly not SAFE.

We are also not persuaded by most of the substantive points in the column. Limited competition in the HCI market is probably due to state-by-state regulation versus exemption from the federal anti-trust laws, a public option would destroy private HCI (for reasons noted above), and it is hard to credit the overhead rates cited for private insurers vs. Medicare.

The insurance companies are hardly above reproach, however, as is well explained in “Who Killed Healthcare,” Regina Herzlinger (Harvard Business School), McGraw-Hill (2007). And to be fair, neither are most of the other groups vying for control of the healthcare industry, including hospitals, employers, the U.S. Congress, and academics.

To be continued – Time is short and we need to win this battle. The discussion will continue next week. Please stay tuned!

10/19/09 – For better schools: get the right people, put them in charge, and stand back Read Replies

HANOVER, MD – What drew SAFE directors Jerry Martin, Steve McClain and Bill Whipple to the Chesapeake Science Point Public Charter School (CSP)? Perhaps this trip will seem a bit out of character, as we generally focus on policy issues at a macro level rather than getting into the details of specific operations.

One factor was the infectious enthusiasm of Spear Lancaster, a fellow SAFE member, who has played a key role in getting CSP up and running over the past five years – he is a strategist, cheerleader, and lobbyist par excellence. McClain and Whipple had heard part of the story at the National Taxpayer’s Conference in June, and wanted to hear more.

Also, Martin (our resident expert on Delaware government) and McClain (formerly a Delaware teacher and administrator) have considerable background in the educational field. The opportunity to compare notes and share experiences was naturally appealing.

So here we are, sitting at a table in Principal Fatih Kandil’s office as Kandil and Lancaster paint the picture for us.

CSP occupies a fine new building in a office park area. Certificates and good wishes were received from a number of public officials for the ribbon cutting on August 18, including the governor of Maryland, the county executive of Anne Arundel County, and several state legislators. Such accolades do not come automatically, and one gathers that CSP and its backers have done some good “public relations” work.

Currently, CSP is a middle school (grades 6-8), using one of the two corridor areas in the building. The other corridor area will be for the high school, which is to be phased in starting with grades 9 and 10 next year. The physical facilities are first rate, a tangible sign of a success story in the making; we will do a walk through a bit later.

Then there are the test scores, second highest in the state – some of the 7^th grade students studying algebra – voluntary (and very popular) tutoring sessions on Saturday, not just for students who need help but also for those who want to progress faster – house calls to talk with parents – a science fair that has achieved state-wide recognition and is welcomed at the main University of Maryland campus in College Park. Wow!

Could it be that CSP is “cherry picking,” i.e., outperforming other schools because it attracts elite students? That seems unlikely for several reasons. For one, the school has at least a proportionate number of minority students and an excellent special education program. For another, students are selected from among the applicants through a lottery.

The only factor that might bias the selection process, it seems to us, is that the parents involved are sufficiently concerned about their children to submit applications to CSP in the first place. But if there is one thing that most parents have in common, it is a desire to see their children get a good start in life. And children naturally want to learn, once their interest is kindled. It only remains for the schools to help achieve these goals instead of permitting them to be stifled by uninspiring instruction and bureaucracy.

So does CSP get more money than other schools? That is not the secret either; we are told that CSP costs 20% less per student than the public schools with which it competes. It is true that CSP spends money smarter, e.g., picked up a lot of the furniture for the new school through donations rather than buying it, operates the Saturday coaching programs with volunteer tutors, etc., but there is no inherent reason that other schools could not follow similar strategies.

CSP is a part of the county school district and subject to all of its requirements, including the employment of union teachers. There has been suspicion about CSP’s objectives and jealousy of its success from time to time, however, leading to administrative attacks on key personnel and intense auditing of the school’s operations to ensure compliance with all applicable legal requirements. The ground rules in Delaware give charter schools a somewhat freer hand so long as they meet state testing standards, which might suggest some desirable changes in Maryland law.

Still, success begets success. Nine new charter schools opened in Maryland this year, bringing the total to 42 (serving 11,500 students) in five counties and Baltimore City. Maryland Charter School Network press release, 9/1/09, accessible from this link.

Following the very interesting visit, our host, Spear Lancaster, takes us to Timbuktu! This nearby restaurant features an inviting décor, attentive service, and superb crab-cake (voted #1 in all of Maryland according to the Washington Post).

Over lunch, Whipple asks a question. What would it take, in terms of policy changes, to replicate the successes being achieved at CSP?

If 20% of patients at a hospital died, says Lancaster, it would be closed down. Ditto for an airline if 5% of its planes crashed every year. So why is there acceptance of a school system in which many students do not learn much (algebra in 7^th grade, are you kidding?) and a significant percentage drop out without graduating?

The basic problem is not the curriculum or the testing, but the absence of anyone who is in charge and can be held accountable. To improve results, there must be site-based management. What this means, basically, is that the principal and teachers in a school should run it – focusing on the needs of the students, with the active support of the parents, following the dictates of common sense. An effective school system cannot be run by rote, following rules and regulations set on high, with compliance monitored by bureaucrats at other locations.

Charter schools may be a good vehicle to put site-based management into practice, witness what is happening at CSP, but the concept could benefit the public schools as well and it should apply across the board.

Great point, site-based management will definitely be reflected in the Education page of this Website (currently “under construction”) that SAFE is working on.

Thanking our host, we set out on the return drive to Delaware – and talked about education much of the way.

For better schools, get the corrupt Washington politicians out of the picture, & return education to states & localities, where it belongs per the U. S. Constitution. - SAFE member, Arizona

When I read the first sentence [defining site-based management], I kind of bristled. Accountability is an over-used term and usually only refers to the accountability of the teachers and administration. With that being said, there are a few important points that you make that really appeal to me. First, that the principal and teachers at a school generally know what’s going to work best for their students. They are with them all day; they know their needs pretty well. Also, I like that the focus is on the students. Obviously, 7^th grade algebra isn’t for all students, but some are just waiting to soar. It’s important to meet students where ever they are at and help them advance from there, otherwise they’ll get overwhelmed and shut down. I especially liked that you mentioned the ACTIVE SUPPORT OF PARENTS. I can’t stress how important this is. Too many parents feel like they shouldn’t have to watch over their kids in middle school when that’s one of the most crucial times. Unfortunately, I experienced many parents who weren’t involved, wouldn’t return calls, wouldn’t come in for conferences, and one that even gave a false phone number to the school. There is no accountability for these parents. If a child is suspended, they may stay home alone anyway- not much of a punishment. Finally, I get sick and tired of all these bureaucrats try to tell teachers how to do their jobs. Let them try to teach kids after making the children sit through 3-4 hours of testing every day for a week. Somehow, I don’t think they would be too productive. The bureaucrats show up for a few hours and think they know what a school is like, but it’s not until they’re in the “trenches” so to speak, that they can really make decisions that are best for all concerned. Anyway, it sounds like this is a great school. Good luck to them. – Delaware teacher

When Medicare and Medicaid were launched in 1965, the costs of these programs were wildly underestimated. This was apparently no accident. Top Liberal [Former Labor Secretary Robert Reich] Agrees: Cost of [Healthcare] Reform Could Wreck Economy, Michael Medved, 9/30/09.

In a taped conversation with Senator Ted Kennedy, [President Lyndon Johnson] attacked his own economic advisors because the fools had to go to projecting those costs down the road five or six years. LBJ deliberately misled the public by lowballing the amount of money that taxpayers would need to spend to secure [healthcare] coverage for senior citizens, contradicting the official economic estimates and intentionally distorting the truth. [I’ll] spend the goddamned money, he indignantly (though privately) declared.

Although some may view LBJ’s role with admiration (leave it to the “bean counters” and nothing gets done), Medicare and Medicaid have contributed greatly to the deterioration in the government’s fiscal situation. One would hope for a more accurate assessment of the healthcare bills now under consideration – but don’t count on it.

This entry will discuss some of the problems, using the Congressional Budget Office (CBO) analysis of the healthcare bill that has been taking shape within the Senate Finance Committee as an example.

Background: The president has said he will only sign a healthcare bill that is deficit neutral, meaning that costs over the 10-year budget projection period would be fully covered by cost savings and/or tax increases. In other words, this is a commitment to balance the bill, not to balance the budget (which in our opinion is what is really needed).

Some members of Congress agree that the healthcare bill should be deficit neutral, notably Chairman Max Baucus (D-Montana) et al. on the Senate Finance Committee. And the healthcare bill taking shape within that committee has been described as a watered-down, less-expensive healthcare plan that should appeal to moderates and might gain some degree of bipartisan support. Granny Pulls the Plug on Obama, Chris Stirewalt, Washington Examiner, 8/13/09.

The nonpartisan Congressional Budget Office (CBO) bears primary responsibility for assessing the budget effects of proposed legislation – including the various healthcare bills currently being worked on in Congress.

Douglas Elmendorf has headed the CBO since January 2009. He has a reputation for being low key, apolitical, and yet not afraid to take a stand on controversial issues. An economist armed with a grenade, James Gerstenzang, Washington Examiner, 9/20/09.

Scorekeepers determine outcomes, even in the amorphous game of politics, as official Washington was reminded on July 16 at a Senate Budget Committee hearing. Chairman Kent Conrad, D-N.D., asked Elmendorf if bills coming out of the House would curb federal health care costs.

"On the contrary," Elmendorf said, "the legislation significantly expands the federal responsibility for health care costs." With that verdict, the mild-mannered director of the Congressional Budget Office set off a storm that helped fuel the cross-country uprising against the health plan.

Analysis: There was considerable interest last week when the CBO scored (costed out) the Baucus healthcare bill. 13-page letter (plus attachments) to Senator Baucus, 10/7/09 (best accessed from the director’s blog).

The preliminary results (to be revisited when the “legislative language” becomes available) indicate deficit neutrality, to the delight of supporters of healthcare “reform.” Here is a recap for 2010-2019 (dollars in billions), which will be fleshed out in the discussion that follows.

By 2019, estimates the CBO, the number of Americans without healthcare insurance would be 29 million lower with the Baucus bill than under existing law.

The indicated reduction in the number of uninsured people would result from several provisions:

• Starting in July 2013, legal U.S. residents would be required to obtain healthcare insurance (HCI). In many cases, financial penalties would be imposed for failure to do so. And new insurance exchanges would be established that would subsidize the purchase of HCI for individuals and families with income between 100% and 400% of the federal poverty level (FPL).

New rules would apply for insurers providing HCI: no exclusion of coverage for preexisting medical conditions or variation in premiums based on the individual’s health. Start-up funds would be provided to encourage the formation of cooperative insurance plans (co-ops) that could be offered through the exchange; existing insurers could not be approved as co-ops.

Firms with more than 50 workers that did not offer HCI to employees would pay a fine for full-time workers who obtained subsidized coverage through insurance exchanges.

In general, full-time workers offered HCI coverage by their employer would not be eligible for subsidies via the exchanges – unless they had to pay more than a specified percentage (10% in 2013) of their income for their employer’s insurance, in which case the employer could also be penalized.

Insurance policies with relatively high total premiums (generally $8,000 for individual and $21,000 for family coverage in 2013, to be indexed for inflation thereafter) would be subject to a 40% excise tax on premiums in excess of the threshold.

• Starting in 2014, nonelderly people with income below 133% of the FPL would generally become eligible for Medicaid. States would be responsible for paying a portion (averaging about 10% of the costs of covering newly eligible enrollees). However, the states would receive higher federal reimbursement for Children’s Health Insurance Program (CHIP) enrollees.

The cost (wrapped numbers, dollars in billions) of the foregoing provisions is projected as shown below for the 10-year period, both gross and net of tax effects & penalties.

Cost savings of $404B over ten years reflect Medicare “market basket cuts and productivity adjustments” ($207B), reduced subsidies for Medicare Advantage plans ($117B), improved payment accuracy ($58B), reduced Medicaid outlays ($41B), and a net spending increase of $19B for numerous other items.

Other tax effects, adding up to a $196B fiscal benefit over the 10-year period, principally consist of an $180B estimate from the Joint Committee of Taxation that is cited without supporting detail. Said amount may represent payments to be collected from drug and medical device firms, which we could not identify in the OMB schedules. The Greatest Show on Earth, Wall Street Journal, 10/9/09.

Another $180 billion will hit the likes of drug and device makers, including $29 billion because companies won’t be allowed to deduct these “fees” from their corporate income taxes.

The real bill or a decoy? – Is it likely that those who feel everyone should have HCI will be satisfied with the indicated result – 25 million people (including perhaps 8 million illegal immigrants) still uninsured in 2019? No way, and the president’s party has the votes. So whatever its fiscal merits, we doubt the Baucus bill will be the template for the final healthcare bill.

One strategy for obtaining a more sweeping bill after the Senate Finance Committee approves the Baucus bill, as it is poised to do this week, would be to introduce a “public option” amendment on the floor of the Senate – potentially circumventing the 60-vote requirement for cloture. New plan might allow Dems to slip public option through Senate, Susan Ferrechio, Washington Examiner, 10/7/09.

Majority Leader Harry Reid, D-Nev., is weighing a plan to bring the final health care bill to the floor without a public option -- making it much easier to get the 60 votes needed to prevent a Republican filibuster -- and then adding the provision later as an amendment. The public option amendment would be there waiting, but the 60-vote test would technically be on a bill without the government plan. Then moderate Democrats could drop out for the vote on the public option, which requires just 51 votes for passage.

With such a game plan, the fiscal cost of the healthcare bill might increase drastically rendering the CBO’s scoring of the Baucus bill irrelevant.

A pricey plan – It stands to reason, we think, that the gross cost of added HCI coverage should be looked at, not the “net cost” (gross cost less tax effects and fines) that is identified in the CBO analysis let alone the net decrease in the deficit.

In addition, the fiscal impact of the Baucus bill would vary substantially by year:

Do not assume, therefore, that the annual cost for extending HCI to more people would be $83B ($829B divided by 10). The annual cost would hit $180B by 2019, representing $6,200 per person for the net 29 million increase in people with HCI.

What about the long-term fiscal burden of the Baucus bill? As shown in the previous table, the CBO projects that the net fiscal effect would turn positive in 2019. It is further suggested that “the proposal, if enacted, would reduce federal budget deficits over the ensuing decade relative to those projected under current law.”

Employer-provided coverage – The CBO projects the number of people with employer-provided HCI as increasing from 150 million in 2010 to 162 million in 2019 under existing law (or 159 million with the Baucus bill).

Many employers are disenchanted with their HCI plans, however, which have become increasingly costly and represent an administrative headache as well. And the prevalence of these plans seems to be on the decline. Thus, the percentage of people under 65 with employer-provided HCI fell from 66.4% in 1997 to 61.6% in 2007. National Health Statistics Report, U.S. Center for Disease Control and Prevention, 7/1/09.

In the CBO analysis, 56% of people under 65 are shown as having employer-provided HCI in 2010. The sharp drop from 61.6% in 2007 may be due to the current depression, or perhaps the CBO and CDC data are on different statistical wavelengths. In any case, we suspect that the CBO’s base projection of 162 million (57%) people with employer-provided HCI in 2019 errs on the high side.

Even more questionable is the assumption that only 3 million people would shift out of employer-provided HCI plans under the Baucus bill. Bear in mind that this proposal would impose stringent new limitations on private HCI insurers (predictably driving up average cost for employers) and provide government-subsidized options (giving employees an incentive to defect from their employers’ plans).

It seems likely to us that there would be a major decline in employer-provided plans and more HCI purchased through exchanges than has been projected. If so, the CBO cost estimates could prove to be significantly understated.

See “Why Business Fears the Public Option,” Jane Sasseen and Catherine Arnst, Business Week, 10/1/09. The basic concern is said to be cost shifting from government-run or government-subsidized HCI plans that reimburse at less than market rates to private HCI coverage.

Business lobbyists don't buy the White House line that reform plans will reduce the explosive growth in health-care costs. Instead they see Obamacare shifting much of the cost of extending coverage to 45 million uninsured Americans onto the backs of major companies and private insurers.

Note also that the basic techniques for increasing the number of people with HCI in the Baucus bill, a combination of mandates and subsidies, have been tried at the state level. None of the state plans have done much to hold down healthcare costs, quite the contrary, as illustrated by the experience in Massachusetts. The Lesson of State Healthcare Reforms, Peter Suderman (Reason Magazine), Wall Street Journal, 10/6/09.

Health-insurance premiums in the Bay State have risen significantly faster than the national average, according to the Commonwealth Fund, a nonprofit health foundation. At an average of $13,788, the state's family plans are now the nation's most expensive. Meanwhile, insurance companies are planning additional double-digit hikes, "prompting many employers to reduce benefits and shift additional costs to workers" according to the Boston Globe.

Assumed cost savings – What about the $404 billion in cost savings that are projected, principally for Medicare outlays? Surely that should represent an offset to the cost of providing increased HCI coverage. Well maybe not, for several reasons.

First, Medicare is in a huge fiscal hole – so any opportunities to reduce costs without unacceptably impairing healthcare services should be implemented. This does not mean the savings should be plowed back into new healthcare programs, however, because they are urgently needed to reduce the government’s deficits.

The same logic applies to new taxes that could be imposed on high premium HCI plans or whatever else Congress might decide to tax.

Second, Congress has a track record of legislating Medicare cost cuts and waiving them later so the indicated cuts may be bogus. The Greatest Show on Earth, Wall Street Journal, 10/9/09.

Mr. Baucus spends $10.9 billion to eliminate the scheduled Medicare cuts to physician payments—but only for next year. In 2011, he assumes they'll be reduced by 25%, with even deeper cuts later. Congress has overridden this "sustainable growth rate" every year since 2003 and will continue to do so because deeper cuts in Medicare's price controls will cause many doctors to quit the program. *** The only Medicare cut that isn't made merely on paper is $117 billion in Medicare Advantage, which Democrats hate because it gives one of five seniors private insurance options.

The CBO knows about this, of course, as demonstrated by the following excerpt from their report (p. 12), but no matter because their task is to score the bill presented.

These projections assume that the proposals are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation. For example, the sustainable growth rate (SGR) mechanism governing Medicare’s payments to physicians has frequently been modified (either through legislation or administrative action) to avoid reductions in those payments.

Third, if all of the Medicare cuts embedded in the Baucus bill were implemented, e.g., establishment of a Medicare Commission charged with recommending changes to limit the rate of growth in spending, the results might be regrettable. Ultimately, when the government runs out of ways to shift healthcare costs to others, e.g., private employers and patients, it will impose and enforce cost controls instead of imposing tax increases that would be politically unacceptable or shutting all of its other operations. Medicare for Dummies, Wall Street Journal, 9/11/09.

As ever-more health costs are financed by taxpayers, something will eventually have to give on care the way it has in every other state-run system.

Opportunity cost – Last but not least, the Baucus bill would squander an opportunity to improve the operation of the healthcare system by enhancing competition and individual choice instead of empowering the government to effectively ration healthcare.

With SAFE’s proposals for real healthcare reform, we believe it would be possible to put Medicare and Medicaid on a fiscally sustainable basis. But none of these proposals have been incorporated in the Baucus bill, or any of the other major healthcare bills being worked on in Congress.

The Cato Institute has offered a free market approach to healthcare reform, which we could also support. Take at look at their plan too, which has been similarly ignored, we do not have all the good ideas.

If the losses from failing to take better ideas into account could be reflected in scoring the Baucus bill, the cost of this proposal would be astronomical.

While the Administration mounts a big push for its version of healthcare “reform,” never mind what it would cost, the U.S. dollar is sinking and gold is soaring due to a national debt that is already high (and headed much higher).

If matters are allowed to continue on the present track, look for the cost of imports to soar. The only way to raise fresh capital will be to print it, with the well-known consequences of spiraling inflation and interest rates.

It is time for the government to start paying attention to the real problems, such as balancing the budget and keeping it that way. - SAFE member

In last week’s entry, we recapped energy policy failures dating back to the 1970s and suggested that enactment of the Waxman-Markey (WM) energy bill (which passed the House in June) would compound the damage.

WM is based on an unproven theory of manmade global warming. It would impose a heavy burden on the U.S. economy, with a negligible effect on global temperatures. Here is one observer’s take on the situation: Dear Senator: Why you should vote against cap-and-trade, James Manzi (Manhattan Institute), Washington Examiner, 9/30/09.

If the law works precisely as intended, in about 100 years we should expect surface temperatures to be [about] one-tenth of one degree Celsius lower than they otherwise would be. The expected costs are at least 10 times the expected benefits, even using the EPA's cost estimates and assuming achievement of the primary goal of the legislation.

Senator Barbara Boxer (D-CA) has now introduced an energy bill in the Senate. Like WM, the Senate bill would impose a cap and trade system to cut carbon emissions; it would allegedly cut emissions more deeply while costing less (how?). Senators Ready a Bill on Greenhouse Gases, Juliet Elperin, Washington Post, 9/30/09.

Many details remain outstanding, such as how emission credits would be distributed – the better to negotiate with the special interests. For present purposes, let’s assume the Senate bill is functionally equivalent to WM.

We doubt that WM (or the Senate bill) will pass this year, but believe its supporters will continue working to expand the government’s partial control of the energy sector by whatever means may be available. Here, as promised last week, is their Plan B:

International negotiations: The Earth’s atmosphere is one. So even if fears about carbon emissions were fully justified, it would be futile for the United States to address global warming unilaterally. As U.S. emissions were cut and manufacturing moved elsewhere, additional power plants would be built in China, etc. Net results: an impoverished U.S. and no overall reduction in emissions.

Much effort is being devoted to developing an international consensus to reduce carbon emissions, together with verifiable national commitments. But the developing countries have shown limited interest in hobbling their respective economies to fight global warming unless the developed countries agree to cover the cost. Consider the views reported in “India attacks British and Western ‘hypocrites’ over cutting emissions,” Dean Nelson, UK Telegraph, 8/5/09.

The Indian prime minister, Manmohan Singh, has been under pressure to curb his country's carbon emissions as its economy grows but he blamed the West for creating the climate crisis through 150 years of "dirty" industrial development and demanded a $250 billion per year fund to help developing countries.

The U.N. Secretary General and U.S. president were quoted last week about the catastrophic consequences if action is not taken to reduce carbon emissions, ideally at the December climate summit in Copenhagen. By way of support, check out this 2-minute video – complete with gee whiz graphics and a sound track by global warming guru Al Gore. Google Earth 3D map unveiled, Asher Moses, Sydney Morning Herald, 9/28/09.

The events depicted in the video are no more reliable than the IPCC projections on which they are based, and we have considerably more faith in the alternative findings of the NIPCC (discussed last week). One must admit that the video is slick, however, and uninformed viewers might assume it is factual.

How do global warming activists respond to cessation of the warming trend over the past decade? Far from rethinking their conclusions, many of them see only a temporary deviation. On Climate, Bad News Will Resume, George Will, Townhall.com, 10/1/09.

By asserting that the absence of significant warming since 1998 is a mere "plateau," not warming's apogee, the [New York] Times assures readers who are alarmed about climate change that the paper knows the future and that warming will continue: Do not despair, bad news will resume.

Assume an international agreement was struck, which required country-by-country reduction in carbon emissions and developed country contributions to a global green energy fund. It would predictably be argued that the U.S. had no choice but to go along, lest it be held responsible, in the eyes of the world, not just for U.S. carbon emissions but also for coal power plants built in China, rain forest destruction in South America, etc.

Such an agreement appears unlikely, however, because “jobs trump environment and emission restrictions might stifle economic growth.” Stubborn facts block green campaigns, Irwin Stelzer, Washington Examiner, 10/2/09.

The likelihood now is that when the world's leaders gather in Copenhagen in December -- Obama has not yet decided to attend -- they will not sign on to a legally binding international agreement. Obama will tout the steps he is taking to subsidize green energy, while China will promise only to keep the increase in its emissions below the rate of increase in its national output -- which means lots more emissions.

Voodoo economics: Claims about the scarcity of U.S. oil and inherent advantages of renewable energy sources should sound familiar; they have been used to justify the failed energy policies of the past four decades. But such arguments are convenient in talking to people who feel U.S. energy policy should be established by Congress (not the U.N.) and/or have grown weary of hearing about global warming, so they will continue to be made. Some recent examples follow.

• Secretary of Interior Ken Salazar stated in April that the U.S. has 3% of the world’s oil reserves while consuming 25% of its oil. He views U.S. dependence on foreign oil as “a national security problem, an environmental security problem and an economic security problem.” Never mind that U.S. reserves could be increased (to the benefit of the U.S. Treasury) simply by allowing oil companies to look for oil and gas in heretofore-unexplored areas. Flawed intelligence guides the Obama energy plan, Daniel Kish, Washington Examiner, 9/23/09.

Based on his department’s own estimates, Salazar could quadruple those reserves from the OCS [Outer Continental Shelf], and increase them by 50% from the Arctic National Wildlife Refuge (ANWR) alone. Salazar is landlord for almost 2.5 billion acres of onshore and offshore lands, but his department currently has only leased about 3% of them for energy production.

Ironically, the U.S. government will provide at least $2 billion in financing (loan or loan guarantee) to the Brazilian national oil company for the development of an offshore oil find in their backyard. Obama Underwrites Offshore Drilling: Too bad it’s not in U.S. waters, Wall Street Journal, 8/18/09.

• Praising the marvels of clean, inexhaustible, and (supposedly) inexpensive wind and solar power, political leaders continue to back them with mandates and subsidies. Consider what the California governor had to say, for instance, about his order requiring utilities to get a third of their power from renewable sources by 2020. Schwarzenegger signs order boosting clean power, Samantha Young, Washington Times, 9/16/09.

"This is really a great day today because we are creating major action to create more green jobs and more green energy," Schwarzenegger said while signing the order [at a field of solar panels] in the Sacramento suburb of Rancho Cordova.

We have nothing against the development of wind and solar power. So long as they are economically competitive, let the market decide. But this condition will not be met in the foreseeable future, and we do object to mandates and subsidies.

One problem with wind and solar power is intermittency, i.e., neither sunlight nor wind is constant and the power that is generated cannot readily be stored until needed. Getting real on wind and solar, former Secretary of Energy James Schlesinger and Robert Hirsch, Washington Post, 4/24/09.

Because of this need for full fossil fuel backup, the public will pay a large premium for solar and wind -- paying once for the solar and wind system (made financially feasible through substantial subsidies) and again for the fossil fuel system, which must be kept running at a low level at all times to be able to quickly ramp up in cases of sudden declines in sunshine and wind. Thus, the total cost of such a system includes the cost of the solar and wind machines, their subsidies, and the cost of the full backup power system running in "spinning reserve."

Environmentalists almost invariably support wind and solar power in principle, but they will fight projects perceived as introducing construction and power lines in pristine areas (energy sprawl), interfering with wildlife, etc. Activists’ Failure to Agree on Energy Sources Jeopardizes Economy, Heartland Institute, 8/1/09.

We all have heard the horror stories about Cape Wind, the Nantucket Bay offshore wind project capable of powering 420,000 homes, which has been embroiled in eight years of permitting delay. But you may not have heard about the Cascade Wind Project killed in Oregon, or the Tallahassee Renewable Energy Center biomass plant killed in Florida, or even small projects such as Akeena Solar in California, which was sued for trying to install solar panels on its own roof.

And nuclear power represents a lower cost, more reliable substitute for coal power plants than wind and solar power. So if the U.S. did commit to reducing carbon emissions, building more nuclear power plants would be the most effective way to go about it.

Just ask the U.S. Energy Information Administration (EIA). [WM] bill requires doubling nuke use, Stephen Dinan, Washington Times, 8/12/09.

Under the basic scenario EIA ran, consumer energy prices would rise about 15 percent by 2030. But under a scenario with less reliance on nuclear energy, international offsets and other alternatives, consumer prices could rise by more than 60 percent, and the hit to the U.S. economy would be three times as deep as the basic scenario, EIA said.

Many environmentalists dislike nuclear power, however, so it is impolitic to push it. Far from doing that, the Administration recently moved to kill a proposed national depository for nuclear waste at Yucca Mountain, Nevada, after two decades of study and $11 billion of expenditures. The decision was reportedly made at the urging of Senate Majority Leader Harry Reid (D-NV), a long-time opponent of the facility. US’s Yucca Mountain nuclear project in meltdown, Garry White, UK Telegraph, 8/22/09.

It is unclear how, or indeed whether, the nuclear waste issue will be resolved – and until it is, a new wave of nuclear power plants appears highly improbable. Nuclear power: walk first, then run, 8/11/08.

Regulatory action – Although WM may be long and involved, suggests one observer, the basic thrust of the bill is simple: “make energy so expensive to consume that Americans use less of it, and ‘greenhouse gas’ emissions are thereby curtailed.”

And given a U.S. Supreme Court decision that the Environmental Protection Agency (EPA) has authority to classify CO2, etc. as pollutants under the Clean Air Act, which the agency has since proposed to do (5/11/09 entry), the EPA could – and will if the president wishes – restrict carbon emissions by regulation. Cap-and-Trade is Dead. Long Live Cap-and-Trade. Patrick J. Michaels, Townhall.com, 9/18/09.

Now that cap-and-trade has so spectacularly failed in the legislature, it is a sure bet that Obama will direct (or has directed) EPA Administrator Lisa Jackson to issue her own cap-and-trade protocols. Look for something concrete out of EPA before the U.N.’s climate change confab in Copenhagen in early December. (That “something” may even include a new fuel economy standard of 35.5 miles-per-gallon—though it would be lower, of course, for the inefficient cars produced by government-owned General Motors.)

Actually, the EPA has already proposed new fuel economy standards under its “greenhouse gas emission program.” It acted in concert with the Department of Transportation, which is accelerating the timetable for tightening of the Corporate Average Fuel Efficiency (CAFE) standards that was enacted in 2007. Director Lisa Jackson lauded the proposed standards as “the nation’s first ever greenhouse gas emissions standards for vehicles.” EPA press release dated 9/15/09.

Unlike the members of Congress, employees of government agencies are appointed. With the exception of the top echelon, they are unknown to the general public. If they are entrusted with policy decisions, it is difficult to hold them accountable. There is no way to vote them out of office, as is sometimes done in the case of elected officials.

Accordingly, we believe that the EPA (or any other government agency) should not be entrusted with a basic policy decision like this one; Congress should deal with the matter instead. EPA regulation of CO2: a bad idea from any angle, 5/11/09.

The EPA is part of the administrative branch, of course, and as such accountable to the president. But Congress could readily take charge of the situation by removing the regulation of carbon emissions (as opposed to genuine pollutants) from the EPA’s statutory purview.

SAFE’s campaign for global warming common sense was described in the last entry. A new phase began on September 29, when SAFE founder Bill Morris made a 2-minute video to explain why “nature, not manmade activity, controls the climate.”

Do not expect polished slickness, nor gee whiz graphics like the aforementioned Google Earth 3D map. SAFE does not have the money for that sort of thing, and a model that did not show a clear-cut, inexorable trend would not seem very dramatic anyway.

Morris’s sincerity is obvious, however, and he makes some telling points within the time allotted. Watch the video, and if you agree forward the link.

Good writin' there. Has anyone yet answered the basic question whether the pre-plateau global warming trend was caused more by nature than by humans? I haven't seen a definitive answer on that. – Virginia attorney

SAFE response: We would say “mostly nature,” as the fluctuation of global temperatures began long before the Industrial Revolution and nothing observed since then seems out of line with past patterns. See “A Global Warming Primer,” National Center for Policy Analysis, e.g., p. 14.

U.S. energy policy has been in a muddle since the oil price shocks of the 1970s, as the government promoted one far-fetched solution after another. Key results have included steadily rising oil imports (energy independence was never in the cards, but the failure to tap domestic petroleum reserves is incomprehensible), decline of the U.S.-owned auto companies (recently resulting in the forced sale of Chrysler to Fiat and government takeover of General Motors), stalled development of nuclear power (the radioactive waste issue must be addressed), and unjustifiable mandates and subsidies for alternative energy (mixing ethanol in motor fuel; generating electricity with windmills and solar cells).

The government’s basic mistake has been to single-mindedly focus on energy conservation and environmental concerns (often overstated) while blocking timely and cost-effective expansion of energy supplies. See the Energy page of this Website and the prior blog entries that are referenced.

Far from learning from experience, many political leaders seem determined to double down on past mistakes by enacting the Waxman-Markey (WM) energy bill (passed by the House in late June). This entry will provide an update on this proposed legislation, starting with the manmade global warming theory that undergirds it.

Global warming – The starting point is two facts: (1) there has been a modest warming trend in global temperatures over most of the last two centuries, and (2) the burning of fossil fuels has contributed to a rising level of CO2 in the atmosphere (now up to 380+ parts per million). By assuming a cause and effect relationship, alarmists predict catastrophic climate changes unless action is taken to cut CO2 emissions.

SAFE has attempted to stay informed about the debate over global warming (there is not an overwhelming scientific consensus about its causation or severity) and play an educational role.

• Founder Bill Morris gives talks about global warming and energy policy to civic groups, e.g., Rotary Clubs and the Retired Men’s Luncheon Club. He finds that the audiences are generally receptive to a thoughtful and balanced review of these subjects.

• In June, SAFE commented to the Environmental Protection Agency (EPA) on its proposed finding that CO2 et al. are pollutants within the meaning of the Clean Air Act. No chance the EPA will listen to us, but their finding was based on a unrepresentative sampling of the scientific literature and we suggested they should start from scratch.

• SAFE’s views on energy policy have been periodically shared with the three members of Congress from Delaware, although without any apparent benefits to date.

• We have also written letters and columns for the general public. Note the recent letters on energy policy by Harry Kenton (9/8/09) and Bill Morris (9/18/09).

• A common sense view of global warming was promoted on Newark Community Day (University of Delaware campus, 9/21/09). Morris was in the thick of the action, which he summarizes as follows.

Ten global warming skeptics took turns covering our spot with the "Climate Common Sense" banner for 8 hours. We handed out over 300 "Global Warming in a Nutshell" 8.5 X 3.7 inches papers [see below]. Most accepted politely with a "thank you". A few declined with apparent opposition, but more showed interest and support, [also] taking a larger handout. Even though we had issued a news release, nobody from the media showed. We didn't see a media rep anywhere. We'll have to go to them if they don't come to us.

All of which is not to deny that global warming could occur, scientists do not know whether average temperatures will rise or fall in the future, nor to rule out human activity as a contributing factor. But we know of no solid evidence that the buildup of CO2 and other greenhouse gases in the atmosphere from the combustion of fossil fuels will necessarily result in global warming.

The real driver for climate change is probably the level of solar activity, as expressed by sunspots, which has diminished in recent years (coinciding with a lull in the warming trend) and during cool periods in the past, e.g., the Little Ice Age (which peaked about 500 years ago). Yet global warming activists seem slow to acknowledge this connection. Global Warming and the Sun, Jonah Goldberg, Townhall.com, 9/2/09.

. . . we are told, nay lectured and harangued, that if we use the wrong toilet paper or eat the wrong cereal, we are frying the planet. But the sun? Well, that's a distraction. Don't you dare forget your reusable shopping bags, but pay no attention to that burning ball of gas in the sky -- it's just the only thing that prevents the planet from being a lifeless ball of ice engulfed in darkness. Never mind that sunspot activity doubled during the 20th century, when the bulk of global warming has taken place.

For much, much more, see Climate Change Reconsidered, Fred Singer and Craig Idso, Nongovernmental International Panel of Climate Change (NIPCC), Heartland Institute, 2009. At 800+ pages, this book is hardly a light read, but all 11 of the customer reviewers on Amazon.com have awarded it a “five star” rating.

Granted, many people have other ideas – including some in high positions. Consider what UN Secretary-General Ban Ki-moon had to say, for example, when he spoke to the Global Environment Forum on August 11, 2009.

If we fail to act, climate change will intensify droughts, floods and other natural disasters. Water shortages will affect hundreds of millions of people. Malnutrition will engulf large parts of the developing world. Tensions will worsen. Social unrest – even violence – could follow. The damage to national economies will be enormous. The human suffering will be incalculable. *** We must seal the deal in Copenhagen [global warming summit in December] for the future of humanity.

The U.S. president spoke in similarly sweeping terms at a 9/22/09 meeting on global warming. Obama makes U.N. debut on global warming, LA Times, 9/22/09.

It is true that for too many years, mankind has been slow to respond or even recognize the magnitude of the climate threat. It is true of my own country, as well. We recognize that. But this is a new day. It is a new era. And I am proud to say that the United States has done more to promote clean energy and reduce carbon pollution in the last eight months than at any other time in our history.

The scientific evidence does not clearly support such pronouncements, however, and some of the studies suggesting otherwise may have been tainted by institutional bias. Climate Change Reconsidered, preface, pp. iii-vi.

Although the [United Nations–sponsored Intergovernmental Panel on Climate Change] claims to have based AR4 [a summary report issued in 2007] on the best available science, such is not the case. In many instances conclusions have been seriously exaggerated, relevant facts have been distorted, and key scientific studies have been omitted or ignored.

Proposed response - In broad outline, the WM bill would impose a “cap and trade” regime designed to raise the cost of energy (via prices and/or taxes) and thereby force progressive reduction of CO2, etc. emissions over the next several decades. An array of other provisions would foster energy conservation and subsidize renewable energy (wind and solar) power projects. The high cost of “green” energy, 5/25/09.

If the threat of manmade global warming has been grossly exaggerated, as we believe, it follows that the environmental benefits of the bill would be inconsequential. First, a warming trend is not inevitable, nor is it likely to be sudden. Second, the effects would not necessarily be adverse, e.g., warmer temperatures would offer pluses as well as minuses.

Even if the concerns about global warming were fully justified, moreover there is plenty of room to question whether reducing CO2 emissions would be the most effective way to prevent it. Technology Can Fight Global Warming, Bjorn Lomborg, Wall Street Journal, 8/28/09.

Research for the Copenhagen Consensus Center by Claudia Kemfert of German Institute for Economic Research in Berlin shows that in terms of reducing climate damage, reducing methane emissions is cheaper than reducing CO2 emissions, and—because methane is a much shorter-living gas—its mitigation could do a lot to prevent some of the worst of short-term warming. Other research papers highlight the advantages of planting more trees and protecting the forests we have to absorb CO2 and cut greenhouse gases.

On the other hand, it is crystal clear that WM would boost energy prices, thereby imposing a major, long-term burden on the U.S. economy. The Economic Consequences of Waxman-Markey, David Kreutzer et al., Heritage Foundation, 8/6/09. In summary, the Heritage study projects the following effects (in 2009 dollars):

Cumulative gross domestic product (GDP) losses are $9.4 trillion between 2012 and 2035;

Single-year GDP losses reach $400 billion by 2025 and will ultimately exceed $700 billion;

Net job losses approach 1.9 million in 2012 and could approach 2.5 million by 2035.

The annual cost of emissions permits to energy users will be at least $100 billion by 2012 and could exceed $390 billion by 2035;

A typical family of four will pay, on average, an additional $829 each year for energy-based utility costs; and

Gasoline prices will rise by 58 percent ($1.38 more per gallon) and average household electric rates will increase by 90 percent.

Public support for WM has been lukewarm, especially in Midwestern states that are heavily dependent on coal-burning power plants, and it is unclear that the president’s party will have the 60 votes needed to cut off debate and force a vote in the Senate. Cap and Tax Delay, Wall Street Journal, 9/2/09.

Middle-American Senators aren't about to rush through a huge new tax on carbon energy—e.g., their constituents—that will largely flow to the wealthier coasts, even if it is done in the name of saving the planet while the here-and-now economy is still sputtering.

Which is not to say the Administration will throw in the towel. To the contrary, the so-called “green cabinet” has been working hard to line up support. White House quietly lobbies Senate as climate bill stalls, Christina Bellantoni, Washington Times, 9/20/09.

President Obama has dispatched Energy Secretary Steven Chu, Interior Secretary Ken Salazar and Environmental Protection Agency Administrator Lisa P. Jackson to Capitol Hill. White House aides said that they and other executive branch staffers, such as climate-change czar Carol Browner, have met with "dozens" of senators.

No doubt, concessions will be considered as necessary to buy support. For instance, ten senators have asked for carbon tariffs against countries that do not impose comparable restrictions on CO2 emissions. This is a terrible idea, which could spark retaliation by our global trading partners, but do not be too sure the Administration would rule it out. More Cap-and-Trade War, Wall Street Journal, 8/12/09.

What will the outcome be? All things considered, we continue to believe that WM will be defeated this year, but here is the bad news. If the bill falls short, its supporters have a Plan B that could be even trickier to defend against. Tune in next week for the details.

This week we bring you a first hand report on the 9/12 “March on Washington,” plus some observations about its significance. Here goes.

7:15 a.m. - SAFE directors Barry Dorsch, Steve McClain, and Bill Whipple + grandson James Wiest meet at People’s Plaza in Glasgow, Delaware. After being checked against the passenger list, we board a bus that will take us and kindred spirits to the D.C. area. We are carrying smallish signs (prepared by Bill Morris) expressing some plain vanilla ideas to restore fiscal responsibility. Easy on the regulations, no more debt, cut spending instead of raising taxes, and “hands off the national piggy bank.”

7:30 – The people on board appear to be predominantly middle-aged, with a gender mix of roughly 50/50. We make them for conservatives, like us, but hardly wild-eyed extremists.

9:25 – Our bus pulls into the parking lot at the Metro station in Greenbelt, where it and the other buses will spend the day.

9:35 – The fare is $4.70 per person, round trip. A crowd queues up at the ticket machines to buy fare cards. No human attendants are in sight, and it turns out that the machines only take one dollar and five dollar bills, coins, and maybe credit cards (at some of the machines). Confusion reigns for a while. Is this what healthcare will be like if GovCare goes through?

10:03 – Our train arrives and everyone boards, packing it, for the ride downtown.

10:30 – There had been talk about the group on the bus sticking together, but this idea evaporates after we emerge from the Archives – Navy Memorial Penn Station. There is a steady stream of people, perhaps 20 abreast, marching down Pennsylvania Avenue towards the U.S. Capitol from an assembly point at Freedom Plaza (near the White House). Team SAFE edges into the flow, four drops in a 3-hour stream of humanity.

The marchers had arrived from many starting points. Thus, Joe Hilliard reports that the Lehigh Valley (of Pennsylvania) contingent was boarding buses at 4:43 a.m. On arrival at Freedom Plaza in D.C., shortly before 10:00, they got the word to move out - never mind the notion of marching by states - so as relieve congestion in the assembly area.

About that time, the president departed by helicopter, en route to a healthcare rally in Minnesota that was scheduled to begin at 1:00 p.m. CST.

Heard a police officer repeat into his radio, "I need to speak with an official. I need an official." Marine Corps 1 does an overfly and circles. Found out later the President was on it. 10:07 a.m.

10:45 - Like the folks on our bus, the marchers appear to be sensible people in a determined but non-threatening mood – even the ones wearing “Missouri Mob” shirts and the like. A cross-section of America is on display, including young people and minorities. Everyone seems cheerful and orderly; we will not see any angry or disruptive behavior all day. And very little trash will be left on the streets when the crowd disperses at the end of the day.

Most of the marchers are carrying signs, generally larger and more elaborate than ours (and more of a chore to carry around). Fiscal responsibility is a common theme; ditto for opposition to government-run healthcare, “cap and tax,” and assaults on liberty.

Many of the signs are politically pointed; the thrust seems to be that you folks serve at our pleasure and watch out in 2010 & 2012. A few signs are over the top (more on this later), but not many in our opinion. Check these pictures (best viewed in slide show mode) and see what you think.

11:15 – Our cohort in the march nears the Capitol. Where to now? There are several options; who knows which one will work best. After a bit of indecision, Team SAFE turns right, edges its way over to the low fence around the Capitol grounds, and eventually turns in on a walkway and finds a vacant spot on the lawn. From this location we will be able to hear the speeches, albeit imperfectly, but not observe the action at the speaker’s stand.

Midday – Standing in place is more tiring than walking, and the pre-rally activity is hard to follow, but what a thrill to be here with thousands of demonstrators on the Capitol grounds. We join in periodic choruses of “USA-USA-USA” and yell when a speaker asks “Can you [the politicians] hear us now?”

Looking west, we can see huge throngs of people in the National Mall area that lies between the Capitol grounds and the Washington Monument over a mile away. There are also big crowds on Pennsylvania and Independence Avenues, which bracket the area.

How many demonstrators? Hard to say, but it is announced on the public address system that ABC News is reporting some 1.2 million. A bit later the number is upped to 1.5 million. Perhaps these estimates are overstated, how could 1.5 million people (the equivalent of 15+ Rose Bowls, filled to capacity) participate in this event anyway. Still, it seems far more people have shown up than were expected.

The weather is overcast, but no rain thank goodness. The sun breaks through at one point, only to be covered by clouds again a few minutes later.

1:00 p.m. – A female singer belts out the Star Spangled Banner, kicking off the formal program. Many short speeches and presentations will follow, with no clearly defined theme or leader.

Here is the speaker list, gleaned from the footage posted on C-Span.com after the event, plus a few lines that strike us as particularly memorable. Note that you can fast forward to selected segments of the video instead of watching the whole thing (nearly three hours).

1:29 – James Anderer, lost a Chrysler dealership in Lindenhurst, New York

The process became corrupted, I was cheated, and the only way to get the country back is to vote “them” out.

Modern pop culture has been boosting the liberal cause for the past 30+ years; it is time to turn that around!

[Team SAFE makes its way out of the Capitol grounds and walks west on Independence Avenue until we locate a street vendor selling food and refreshment.]

I’ve got two points. (1) Freedom works. (2) Government goes to those who show up – and you guys showed up!

[Team SAFE finds a new location on the far side of the Capitol Reflecting Pool, where we can actually see the speaker’s stand, and sits down on the low stone steps. Ah!]

The president said electricity rates would skyrocket with cap and trade, and he was right. There would go the rest of U.S. manufacturing jobs to China.

2:34 – Betsy McCaughey, a former lt. governor of New York who chairs the Committee to Reduce Infectious Deaths (see our 8/10/09 entry)

This healthcare bill is like asking someone to sign for a loan on the understanding that the interest rate and repayment term will be filled in later. No deal! Give us 20 pages in plan English, not 1,000+ pages of gobbledygook.

I’m a black man without a teleprompter, so I’ll keep it simple. We don’t need hope; we’ve got freedom. And what you folks need to do is decide today what you are going to be. Then you can rest tomorrow.

2:42 – Introductions for Representatives Ron Paul (L-TX) and Louie Gohmert (R-TX)

About healthcare, they say silence is consent, and I’m here to tell you that We the People do not consent. What we want is not another speech, Mr. President, it is another plan.

2:52 – Press guy at Freedom Works, with instructions on how to text My USA

The Tea Party Express (bus tour) covered 7,000 miles as it made its way across the country, and people kept showing up. We have to stay energized. This is not about a person or an organization – it will take a grass roots army.

There has been some talk about “tough choices,” but spending more and more money is not a tough choice in Washington, D.C. Stand together, fight for liberty.

3:16 – Vinny Forras, a fireman who responded to the World Trade Towers on 9/11 from Westchester, New York, heard one tower collapse above him and saw the other fall later.

Hello, America! “United we stand” was not just a bumper sticker on 9/12/01, and three years later I joined the Marine Corps and went on to serve two tours in Iraq. We can come together again.

3:42 – Julian Kulski, World War II freedom fighter (he was 10 in 1939, when the Nazis marched into Poland)

4:45 – Back at the Greenbelt, MD metro station, Team SAFE and others relax and regroup.

Conservatives generally viewed the March on Washington as a resounding success, albeit one that would need to be followed up with more action (there are very few final victories in politics, or life itself for that matter). In a celebratory vein, see “Conservative Woodstock Rocks the Capital, lookingattheleft.com, 9/12/09.

The conservative movement, which developed in the post-WWII, Cold War environment has now fully matured into the most significant political movement of the 21st century. I believe that this day could be referred to in the not too distant future as the day that changed America. This was the day the great silent conservative majority finally found its voice.

Another historical parallel was suggested, namely the civil rights March on Washington of 1963. What next for the Middle America Rebellion of 2009, Mark Tapscott, Washington Examiner, 9/17/09.

Whatever the number of attendees, this was possibly the most significant Washington protest since the civil rights movement's epic March on Washington for Jobs and Freedom in 1963. Indeed, about all that was lacking was a charismatic leader like Dr. Martin Luther King to deliver an "I have a dream" address for the ages.

Surprise, surprise, liberals had a jaundiced view of the March on Washington, and they did their best to pick it apart afterwards.

• Numbers – It was claimed that the turnout was exaggerated, amounting to mere “tens of thousands” versus up to 2 million. Debate rages over “tea party” crowd size, Washington Times, 9/17/09.

FreedomWorks, the Washington-based conservative advocacy group that was the chief organizer of the rally's arrangements, corrected an earlier estimate of 1 million to 1.5 million that it attributed to ABC News and put the figure between 600,000 and 700,000. ABC News denied it had reported a crowd that large and said its reports put the size of the demonstration in the "tens of thousands" range.

There is no objective way to settle this question, but we think the revised Freedom Works estimate is probably sound. And as Chairman Dick Arney observed, “[whatever] the actual number, the 9/12 March on Washington was far and away the largest gathering of limited-government conservative activists in history."

Note also that the participants came on their own volition, often at considerable cost and personal inconvenience. There is no comparison to the staged rallies being organized to promote the president’s healthcare plan. Thus, according to Townhall columnist Jillian Bandes, the crowd (some 15 thousand, comfortably seated in an inside venue) at a 9/17 University of Maryland rally consisted primarily of students who had not been offered an alternative event and bused-in union members who had been given paid time off to attend.

• Awareness – It was suggested that the protestors were a fringe element, people who are resisting change because they do not understand the president’s plans for the country. WH aide: “Tea party” protestors wrong, Washington Times, 9/13/09.

"I don't think it's indicative of the nation's mood," David Axelrod, the president's top adviser, said on CBS' "Face the Nation." "My message to them is, they're wrong." *** He also denied that Mr. Obama has any intention of a government takeover of the health care system.

It seems doubtful that this kind of rhetoric will impress anyone. But for the record, we believe the 9/12 demonstrators et al. may be better informed than the president and his advisers would like. See, e.g., “Happytalk” blossoms in the nation’s capital, 7/6/09.

It is nothing new for politicians to promise more than they can deliver, especially on the campaign trail, but the practice seems to be growing worse. One reason may be the blurring of the traditional distinction between campaigning and governing, with some politicians operating in nonstop campaign mode. In any case, people had better start paying attention to what is happening, or they may be shocked by the results. *** We are not buying the Happytalk about economic stimulus, healthcare, or energy policy. Shame on the proponents; they should present their proposals honestly and be open to other viewpoints – including the dictates of fiscal responsibility. Help us hold them to a higher standard!

• Motivation – The 9/12 demonstrators have been painted in some quarters as angry people energized by racial bias, simply because they oppose the policies of a black president. Such a charge would be devastating if it could be made to stick.

The starting point is to focus on a few of the more extreme signs, or perhaps an incident, participant interview, or speech. Here is how Campbell Brown did it on CNN.

The segment begins with selective footage from the 9/12 event, including an incident in which a taunting counter-protestor’s sign is torn up, taped interviews with several participants who could perhaps have been more guarded in what they said, and an angry excerpt from an unidentified man’s speech. An interview follows with Joe Wierzbicki, Coordinator of the Tea Party Express (bus tour across the country) and two guests with a different perspective.

Joe is grilled about a sign that depicts the president as an African witchdoctor and spells “Obama Care” with a hammer and sickle instead of a C. The implication is that this sign must reflect the mindset of all the protestors, since no one apparently asked that it be put away. There are fringe elements in any broad-based and spontaneous political event, Joe maintains, but he is out-talked by the other three participants. Is the Tea Party Racism Going Too Far? MoxNews.com, 9/14/09 (8:31 video).

Moral: It is always safer to stick to the issues than attack personalities, and if protestors do a bit of the latter they should be careful not to go too far. There is nothing that politicians pushing a questionable policy like better than an excuse to change the subject and put their opponents on the defensive – do not give them this chance!

Dorsch – It was good to be there. We saw with our own eyes what was going on, and if the media try to underplay the attendance or mischaracterize what happened we will be able to counter them with the truth.

McClain –The president and his advisers are not going to listen, but I hope this protest will send a message to Congress.

Whipple – People need to come out of their comfort zones and get involved. Watching this event on television might have been efficient, but there is nothing like being there to build commitment. In the end, we are what we do.

Wiest – There were too many speeches; a big speech was needed. But the good thing is there were so many demonstrators, and they seemed to realize what is happening to our country.

No doubt some readers were also in Washington on 9/12, and it would be great to post your comments as well. Please send them to ww3@atlanticbb.net.

Please send this 9/12 March on Washington video to everyone you know. It is genuine. I was there and that was the woman singing the National Anthem and it was the actual crowd. The only people not participating in this march were the people at the very back near the Washington monument underneath the tents; they were there for another function. -- Donna, Delaware Tea Party

Great description of the 9/12 events...hope it goes again next year. -- SAFE member, Arizona

I would have loved to go to Washington for the march, as I have often done with the pro-life group. Keep up your good work---lets hope the fervor continues! -- Retired dental hygienist, Delaware

As a general rule, asking for things is more effective than keeping quiet and hoping for the best. Framing requests helps people to focus on what they want and get organized to go after it. Also, how can others help if there is no request in play?

Which is not to say that people who speak up necessarily get what they want. It pays to ask for things that are reasonable under the circumstances, and to offer logical, factually supported arguments that fair-minded people will recognize as such. Even then, there is likely to be opposition from those with a different vision – which it may not be possible to overcome.

Consider SAFE’S advocacy of smaller, more focused, less costly government. This agenda is not based on self-interest, and we believe there are strong reasons to support it – such as consistency with the framework of the U.S. Constitution, demonstrated efficacy of free market mechanisms, and experience that government programs often make economic and social problems worse instead of solving them.

But people who look to the government for the solution to every problem (recession, healthcare, dependence on foreign oil, global warming, you name it) or their ticket on the gravy train (e.g., profits or employment from providing government-mandated services) are not shy about demanding new programs and the perpetuation of existing ones.

Just because the tide is running against fiscal visionaries at the moment does not mean the time has come to give up. Indeed, this might be a good time to redouble our efforts.

We were struck by a comment that David Walker (formerly the U.S. Comptroller General, now CEO of the Peterson Foundation) made in a recent interview with John Fund of the Wall Street Journal.

By way of background, Walker spoke at the National Taxpayer’s Conference in June. He struck a somber note (see 6/29/09 entry), saying (1) smaller government is not in the cards, and (2) taxes must go up in order to close the government’s fiscal gap.

Fund (who also spoke at the NTU event) probed Walker’s reasoning on taxes in the interview, which produced the following exchange (emphasis added). Warning: The Deficits Are Coming, Wall Street Journal, 9/4/09.

Wouldn't any "grand bargain" [to close the fiscal gap] involve significant tax increases that would only hurt the ability of the economy to grow? "Taxes are going up, for reasons of math, demographics and the fact that elements of the population that want more government are more politically active," [Walker] insists. "The key will be to have tax reform that simplifies the system and keeps marginal rates as low as possible. The longer people resist addressing both sides of the fiscal equation the deeper the hole will get."

Interesting point! Maybe if fiscal visionaries want smaller government instead of tax increases, they should make their views known (which is what being politically active amounts to) instead of knuckling under to their ideological opponents. Consider what SAFE has been doing this year:

#Sent an unprecedented number of letters to the Delaware members of Congress, and testified at Senator Tom Carper’s listening session on healthcare.

#Continued cranking out letters and columns. Take a look at this gem from SAFE member Harry Kenton on the “cap and tax” bill.

#Participated in the Delaware tea parties on April 15 and July 2, and will join in the “March on Washington” on September 12. (For a report, see next week’s entry.)

One of the major issues for the protest will be GovCare. Three days after the president delivered a prime time address to Congress, which was intended to rally flagging support for his healthcare proposal, participants will communicate that it is time to hit the reset button. (Other issues: bailouts, economic stimulus, irrational energy policies, soaring deficits, and higher taxes on the way.) A march on Washington: Protest set on Democratic healthcare plan, Washington Times, 9/10/09.

But remember that SAFE is a small organization, and much of its activity is attributable to a handful of people. To gain traction, we will need lots of help.

Why don’t some of you folks (especially younger people) pick up the phone and call the office of a member of Congress, or send them an e-mail or letter? Here is the contact information for the Delaware members, and comparable information is posted on the Websites of the members from elsewhere.

Other options might include attending a public meeting (SAFE and the Delaware Tea Party were outnumbered 2:1 at the healthcare listening session that we attended, even though polls suggest that opinion on the GovCare proposal is close to a dead heat), writing a letter to the editor, or giving a talk.

And if you approve of the things SAFE is doing, there is always the option of becoming a member. We would be delighted to have you join us!

Remember the story about five blind people and an elephant. Each described the animal based on the part they had touched – leg, tusk, tail, etc. – and their perceptions were quite different. A spoilsport might suggest studying the elephant more carefully, thereby figuring out how its various parts hooked together, but never mind.

The elephant analogy applies in many situations. Thus, people have different ideas about the healthcare system – where it stands currently, what is wrong with it, and how, if at all, it should be changed – based on personal or shared experiences, things they were taught long ago, etc. The point was demonstrated at a meeting that SAFE directors Jerry Martin and Bill Whipple attended on Wednesday, September 2.

Billed as a “listening session,” the event was hosted by Senator Tom Carper (D-DE). The idea was to satisfy numerous requests for a meeting with the senator and/or his staff on healthcare that otherwise could not all be met. It was the last of three such sessions that day, starting in New Castle County and working south. The venue was a meeting at the Delaware Technical and Community College campus in Georgetown, Delaware (the county seat of Sussex County).

Arriving early, we learned that there would be about 15 guests versus the 30 or so that the meeting scheduler had predicted. Good, there should be more opportunity to make our points during the 90 minutes allotted for the meeting.

The other participants, including Senator Carper and his staff, arrived, and everyone took seats around a square formed by four lines of tables. The seating arrangement placed all concerned in close proximity. No media, no signs, everyone looked comfortable. After self-introductions around the square, the discussion began.

Senator Carper delivered a monologue about what the healthcare proposal (broadly speaking, as there are several proposals in play, not the least of which is the bill being worked on by the Senate Finance Committee on which he sits) is all about, why he thinks it is needed, and where it stands.

People had often been asked whether members of Congress would agree to be covered by the healthcare plan they were proposing for everyone else, said Carper. It was a fair question – and he thought he had a good answer.

Like other government employees, members of Congress participate in a healthcare insurance (HCI) purchasing pool. A variety of coverage plans are on offer, from Chevrolet to Cadillac plans. With 8 million participants, the pool can and does negotiate attractive rates, but the insurance companies still make a reasonable profit. The government pays about 72% of the cost; employees pay about 28% of the cost, which is not out of line with many HCI plans offered by private employers.

In the process of extending HCI coverage to the roundly 46 million Americans without it, what could be more fairer than to offer the same benefit to the uninsured that government employees currently enjoy, namely the opportunity to participate in a large HCI purchasing pool at a cost they could afford?

Do not think of this arrangement as a “public option,” think of it as a “national exchange” or perhaps a number of regional exchanges. But simply relying on private insurance companies would be problematic, because in some states there are only one or two private firms offering HCI.

[The possibility of promoting more competition by allowing HCI to be purchased across state lines was not mentioned. Query: are the HCI plans offered through the government pool subject to regulation on a state-by-state basis?]

Perhaps a backup arrangement that kicked in if needed would suffice to keep the insurance companies honest. A somewhat similar provision is provided in the Medicare prescription drug bill, although thus far – due to lively private insurance company competition – there has been no need to invoke it. And by the way, polls show that 85% of Medicare participants are pleased with their prescription drug coverage.

[Note: millions of the seniors get enhanced drug coverage through Medicare Advantage plans (which the president is proposing to eliminate in order to reduce costs). Medicare Drug Plans Strong and Growing, Center for Medicare & Medicaid Services, press release, 1/30/07.]

After this opening monologue, the discussion went around the table with each guest being invited to make a statement or ask questions, however they wanted to proceed. It was requested that individuals try to keep their presentations to “about 2 minutes” but the guideline was not rigorously enforced.

Most guests spoke in favor of healthcare reform, which they equated with the president’s plan, including a public option of some sort.

One theme was personal or shared experiences of hardships resulting from being without HCI and/or satisfactory access to healthcare services. Thus, an SEIU representative said her mother had died due to not having HCI. And several healthcare workers reported that patients were either being denied proper care, or receiving it on a delayed basis due to questions as to whether their insurance covered it.

There were also requests that the healthcare bill include various features that the guest (or guest’s organization) considered especially important. Here are some examples:

• Multiple Sclerosis organization representatives (an advocate, a patient, and the patient’s aide) urged universal access to a full range of MS services.

• Healthcare worker advocated better access to behavioral therapy (e.g., substance abuse) services, which is more economical than imprisoning people or sending them to hospital emergency rooms.

• Representative of Planned Parenthood advocated that women’s reproductive healthcare be covered. The point was not that abortions should be paid for with taxpayer dollars, she said, but rather that there should be no provisions in the bill interfering with a woman’s right to have an abortion.

• Representative of the National Restaurant Association spoke in favor of national nutritional labeling requirements on menus, which could help restaurant patrons make healthier choices. Senator Carper indicated his support, commenting that he loves chocolate cake but needs to be reminded that a slice represents 1,300 calories. [Note: The NRA’s interest may reflect a desire to head off state-by-state legislation, which for a national restaurant chain would be more costly to comply with.]

• An employee of the Small Business Administration suggested that small businesses that provide HCI for their employees are being hammered by rising healthcare costs, wherefore a federal plan that incorporates the best practices of the Cleveland Clinic, etc. was absolutely essential. [No evidence was cited to show that the government needed to be involved.]

• A small business owner related that all employees had been cut to part-time status. There was no way to offer HCI, wherefore the federal government needed to step in.

SAFE’s turn came about halfway through the session (we were sitting across the square from Senator Carper).

Bill Whipple agreed that healthcare costs are out of control and said SAFE is in full agreement that reforms are needed. Indeed, our 7-point plan for real healthcare reform is set forth in a 24-page paper (held aloft) that was sent to Senator Carper and others in May 2009 and is also posted on SAFE’s Website.

The gist of our position is that Medicare and Medicaid have artificially fueled demand for healthcare over the past 40+ years, while throttling price competition. Job one is to restructure these programs so to make them fiscally sustainable and bring healthcare costs under control. And with the OMB projecting $9 trillion in deficits over the next 10 years, a costly new healthcare program is simply not affordable.

Jerry Martin cited a Wall Street Journal column (9/2/09) by Senator Tom Coburn (R-Oklahoma), which observes among other things that the way to save taxpayer dollars is not to spend more as an “investment” – it is to spend less. Given the dire fiscal outlook, this is no time for “business as usual.” Congress should therefore put the healthcare bill and other proposed initiatives like “cap and trade” on hold, Martin continued, and organize task forces to drive spending cuts throughout the government’s budget.

Senator Carper supported the need to spend taxpayer dollars carefully, citing several instances of actual or potential cost savings – such as cancelling orders for more F-22 fighters [national defense is the only area in which the president and his party have shown real interest in cutting spending], and efforts to crack down on Medicare and Medicaid fraud.

He also pointed out the president’s commitment not to sign a healthcare bill that increases the deficit, and said the Senate Finance Committee will proceed accordingly.

Whipple said the president’s criteria might be met by raising taxes, and that several new taxes have been suggested to pay for the healthcare plan – a tax on employer-provided healthcare benefits, higher income taxes for high earners, a tax on sugary drinks, maybe even a value added tax.

Senator Carper said he likes the idea of taxing healthcare benefits above a Cadillac plan threshold (which once set would be indexed for inflation), as this would not only raise revenue but encourage more cost conscious healthcare decisions.

Whipple: SAFE sees merit in taxing healthcare benefits, in fact that is one of the seven steps in our plan for real healthcare reform.

Whipple: Only 50%, because any revenues that might be raised should be applied to reduce deficits.

The Delaware Tea Party got the opportunity to speak a bit later, and like us their representatives differed with the majority view at the meeting.

They were not against healthcare reform said one – but why not start with the easy fixes, such as permitting HCI to be purchased across state lines and tort reform, instead of launching a huge new federal program?

The second cited a personal reason for not favoring the healthcare plan that is on the table. Her husband is from England, which has a government-run healthcare plan, and they know better. She held up newspaper accounts about abysmal conditions in British hospitals, long waiting times for treatment, etc. The bottom line: if the government runs the show, that does not mean things will be done better.

Interaction: There were no personal attacks during the session, but there was an undercurrent of animosity towards the obstructionists. She did not read the Wall Street Journal, commented the speaker after SAFE, but people who did should not believe everything they read. Others cited the need to ignore naysayers mouthing buzz words and talking points in an effort to block change.

To be honest, much of what the supporters of the healthcare plan said did not register with us either – even though they seemed well meaning and sincere.

Wrap-up: Senator Carper offered some closing comments, including the following:

• He is a big believer in the power of preventive medicine to cut healthcare costs, and by way of example he cited the success of Safeway in holding down its healthcare benefit costs by giving employees financial incentives to stop smoking, lose weight, etc.

[We agree, but are unclear why government intervention is needed to implement such a program. If private employers can save money while keeping their employees healthier, why wouldn’t they do it without being told?]

• He recognizes that medical malpractice has inflated healthcare costs to some degree, not only by driving up the cost of malpractice insurance for doctors but also by influencing doctors to order medical tests that may not be truly necessary.

Quite possibly the situation could be improved by new legal ground rules, e.g., cases would have to be referred to a panel of doctors for review before they could be taken to courts, or the “English rule” (the losing litigant must pay the winner’s legal costs).

In our federal system, however, tort reform should be dealt with on a state-by-state basis. Over time, successful programs will be recognized and adopted by other states. Trying to solve the problem with federal legislation would be inappropriate.

[The state rights argument should carry some weight with conservatives. After all, aren’t we the ones who are always talking about the limitation of powers and the 10^th Amendment? But everyone tends to be a bit inconsistent in this area, favoring federal law when they want to get something done and opposing it when they do not. Senator Carper apparently sees nothing wrong with federal nutritional labeling requirements for restaurant menus, and a vastly expanded role of the federal government in the healthcare sector. So does it really make sense to view regulation of the increasingly interstate legal industry as a state prerogative?]

• Senator Carper cited four core values, as he sometimes does in meetings with his staff. Here they are: 1) to do what we believe is right; 2) to treat others as we would like to be treated; 3) to use common sense and be committed to excellence in everything that we do; [at the Georgetown session, we understood him to say “if it’s not perfect, make it better”]; 4) to never give up when we know that we are right.

[Fair enough, except that things done with the best of intentions sometimes have disastrous consequences. Let’s hope that Senator Carper will reflect on what the Delaware Tea Party representatives and we had to say.]

8/31/09 – If you can’t hear what we hear, you aren’t listening Read Replies

Let it be remembered that SAFE said the following about the coming fiscal crisis in a March 1996 statement (see the first issue of our newsletter):

As senior citizens, we are very concerned about the growth of the federal government, and the huge debt being left for our children and grandchildren to pay. We believe this country is risking a financial disaster, which will hurt everyone, including senior citizens. It is as if we are floating down a river and can hear a waterfall ahead. It is time to pull for the shore now.

Sound familiar? The statement was quoted in our 9/10/07 entry (The coming fiscal storm: an historical perspective), with a comment that “the boat is still headed downstream, and the noise of the waterfall is louder.”

A healthcare expert at Pacific Research Institute gives the waterfall analogy an interesting twist. The Medicare Tsunami, Jeffrey Anderson, Washington Times, 8/26/09.

The president is absolutely right about the urgency of getting Medicare & Medicaid outlay under control, says Anderson, but his GovCare proposal would represent a “strange solution.”

Take Medicare, the bigger of the two programs, which is “drifting toward disaster” – or in navigational terms a waterfall.

In inflation-adjusted dollars, the average American spends 7 times as much on Medicare as in 1970. But it's the baby boomers' impending retirement that magnifies the roar of the falls. There are now almost four American workers for every Medicare beneficiary. Within the next two decades, that number will drop to just 2 1/2. For those still in the work force, the financial burden will rise tremendously.

But instead of trying to steer the boat to shore, the proposed “solution is to paddle harder toward the falls.”

The president is trying to expand government-run healthcare because he mistakenly believes its skyrocketing costs have been driven by the growth in private-sector health costs. However, since 1970, the costs of Medicare and Medicaid have risen one-third more each, per patient, than the combined costs of all other healthcare in America -- the vast majority of which is purchased privately. Government-run healthcare is the horse, not the cart, on the road to higher costs.

As for what needs to be done, Anderson’s view is rather similar to ours. Focus on making the existing programs sustainable, e.g., by gradually raising the Medicare entry-level age, and forget about trying to make the rest of the healthcare system operate like Medicare and Medicaid.

Stopping our drift toward disaster will require genuine leadership, and reasonable people can debate the best way to get to the shore. But we'll never get there by paddling toward the falls.

SAFE’s proposal for Medicare (point 6 of our 7-point healthcare plan) is to “phase out traditional Medicare coverage, providing capped funding for private insurance coverage of future retirees.” For discussion, see In Search of Real Healthcare Reform, page 18 et seq.

And folks, if you have questions or comments about this or any of the other points in our healthcare plan, let us hear about them. Getting healthcare costs under control after 50+ years of misguided government intervention is a huge problem, and there are no simple or obviously correct solutions.

Do the kind of changes we are proposing stand a chance of being implemented? Hard to say, but there does seem to be growing awareness that the government’s spending spree on the national credit card cannot be allowed to continue.

In a recent Wall Street Journal/NBC poll, 24% of respondents cited the deficit as the most important economic issue facing the country (11% said healthcare). And according to 58% of respondents, “the president and Congress should focus on keeping the budget deficit down, even if [it] takes longer for the economy to recover.” Public Wary of Deficit, Economic Intervention, Laura Meckler, Wall Street Journal, 6/18/09.

There was much wringing of hands after the Office of Management and Budget (OMB) issued a mid-year budget projection showing deficits totaling $9 trillion over the next 10 years (FY 2010-2019), up $2 trillion from OMB’s projection in February. White House: Budget deficit will top $1.5 trillion in ’09, ’10, Washington Times, 8/25/09.

The Congressional Budget Office (CBO) works with input from OMB, but produces its own budget projections. In March, its deficits for the 10-year period were $2 trillion higher than the OMB deficits (see 3/23/09 entry). Now the CBO is projecting deficits $2 trillion lower than the OMB number, go figure, principally due to different assumptions about taxes. The Budget and Economic Outlook: An Update, CBO, August 2009.

Even with the CBO mid-year projection (tabulated below), the projected deficits and debt are dismaying for those who, like us, believe the government should balance its budget and keep it that way.

The deficit for fiscal year 2009 (running from 10/1/08 to 9/30/09) is pretty much a given. It will be the highest deficit as a % of GDP since World War II – by a wide margin. Shame on both the previous and current Administrations!

Going forward, the CBO projection shows the government debt in public hands (unlike the National Debt figure usually reported, excludes IOUs to Social Security and other government trust funds) rising from 54% of GDP at the end of FY 2009 (or 41% at the end of FY 2008) to 68% by FY 2019. With the OMB projection, public debt in FY 2019 would be some $2 trillion higher, or say 77% of GDP. Either way, no one has offered a plausible explanation for the indicated deterioration in the government’s fiscal position.

Notice that the cost of the GovCare proposal (said to be $1 trillion+ over 10 years) is not reflected in either the OMB or CBO projections.

Also, the projections are overly optimistic in several respects, says the Wall Street Journal (The Pelosi-Obama Deficits, 8/26/09).

• Both the White House and CBO predict that Congress will hold federal spending at the rate of inflation over the next decade, [a marked change from recent practice.]

• CBO actually has overall spending falling between 2009 and 2012, which is less likely than an asteroid hitting the Earth.

• CBO assumes that some 28 million middle-class tax filers will get hit by the alternative minimum tax, something Democrats say they won't let happen. CBO also assumes that all the Bush tax cuts disappear—not merely those for the rich, but those for lower and middle income families as well.

• A burst of sustained economic growth [could potentially] boost tax revenues and reduce future debt. But there's nothing in the Obama budget that nurtures or rewards growth or small business. [The cap and trade bill, healthcare bill, and contemplated tax increases on capital gains, dividends, and upper tier income would all impede growth.]

We would add that interest expense may have been underestimated by a wide margin as a result of assuming that conditions in the financial markets will only change modestly over the next 10 years. See OMB report summary, p. xii.

• With the economy functioning well below its potential level, inflation is projected to remain very low; the consumer price index . . . is expected to increase by 1.6 percent this year, by 1.1 percent in 2010, and by 1.0 percent in 20ll . . .

• In CBO’s forecast, the interest rate on 3-month Treasury bills averages 0.2 percent in 2009 and 0.6 percent and 1.7 percent in 2010 and 20ll, respectively; the rate on 10-year Treasury notes average 3.3 percent in 2009, 4.1 percent in 2010, and 4.4 percent in 2011.

Here is the interest expense resulting from the CBO’s assumptions and debt projection (Table 1-6, p. 22 of the CBO report):

But suppose that inflation and interest rates spike within a year or two, as a consequence of continuing the monetary and fiscal policies that have been employed to fight the 2008-2009 recession. Imagine what double-digit interest rates, last seen 30 years ago, would do to the interest expense shown in this table.

Federal Reserve Chairman Ben Bernanke (just reappointed by the president for a second term) says the Fed is committed to holding down inflation, but there is reason to doubt that the excess liquidity will be mopped up fast enough. Inflation’s Coming – Hide Here, David Dreman, Forbes, 9/7/09. [For investors, Dreman’s advice is to buy national resource and cyclical stocks, buy real estate and sell long bonds.]

Central banks, including our not-so-omniscient Federal Reserve, will again fail to take the punch bowl away from the party soon enough, keeping stimulative polices going far past the point when unemployment has turned a corner and the financial debacle is behind us. Treasury Secretary Geithner and Fed boss Bernanke are trapped by politics and events. They make pronouncements downplaying the inflation threat, but inflation will hit like a tsunami within three years, maybe sooner.

One answer to the projected deficits, of course, might be to drastically raise taxes. But make no mistake, the fiscal problem (which includes soaring entitlement outlays beyond the 10-year budget horizon) is far too big for Congress to tax its way out of – there is just so much in taxes that people are willing or able to pay.

Or it could turn out, for all Team GovCare’s denials, that outlays would be contained by rationing healthcare after all. This would be consistent with the experience in other countries, and it could happen whether there was a “public option” or not. Obamacare, The Only Exit Strategy, Charles Krauthammer, Townhall.com, 8/28/09.

Government-subsidized universal and virtually unlimited coverage will vastly compound already out-of-control government spending on health care. The financial and budgetary consequences will be catastrophic. However, they will not appear immediately. And when they do, the only solution will be rationing. * * *Look at Canada. Look at Britain. They got hooked; now they ration. So will we.

Or the debt could be allowed to keep climbing as projected, with the idea that the principal amount would be wiped out by inflation. Various countries have resorted to such dodges, notably Germany after World War I, and the consequences are ugly. The Ascent of Money: A Financial History of the World, Niall Ferguson, Penguin Press (2008), pp. 102-107.

• The enduring economic legacy of the hyperinflation was bad enough: weakened banks and chronically high interest rates, which now incorporated a substantial inflation risk premium. But it was the social and political consequences of the German hyperinflation that were the most grievous.

• In more recent times, a number of countries have been driven to default on their debts – either directly by suspending interest payments, or indirectly by debasing the currency in which the debts are denominated – as a result of far less serious disasters [than losing a world war].

Let’s say that a huge tax increase, healthcare rationing, and/or hyperinflation are not what you want in America’s future. Could it possibly be time to start looking at government spending programs more carefully. For some ideas on “where to cut,” see:

But more than anything else, what is needed is an attitude adjustment. For there is a common denominator in the many questionable expenditures that make it though the appropriation process, and it boils down to taking joy in spending other people’s money. Haste-and-waste deficits, Jay Ambrose, Washington Times, 8/29/09.

In the end, because it derives from the same kind of ideological hubris and political irresponsibility as the stimulus package, [GovCare] will likely do about as much to improve healthcare as the condom study at Indiana will do to lower the unemployment rate, and we simply cannot afford it.

Maybe the reckless spenders in Congress should be voted out of office. Or perhaps there should be a law that the pay and staff budgets of members of Congress cannot be increased in any year in which the federal budget is not balanced.

The FDA has ordered three firms to stop production of a medicine (natural desiccated thyroid, or NDT, made from a product of porcine origin) that has been in use for 100+ years and is identical molecularly to a compound in the human thyroid. NDT has been an absolute lifesaver for me and for others suffering from the same condition. There are reports that the two remaining producers may be closed down, and in any case they may not be able to meet the demand for NDT. With a 6-week supply on hand, my survival is at risk. And the plan is to give the government even more power over healthcare? – Steel supply firm executive, Texas

John Adams and his crowd must be turning over in their respective graves! Oh well, for my final few years, I'm just going to concentrate on improving my golf game. – Retired financial executive, Florida

The past two entries have focused on the extraordinary national ferment about the big push for near universal healthcare insurance coverage (or GovCare), which figures to continue during the August recess of Congress and peak with the 9/12 “March on Washington.”

We will have more to say about the 9/12 event in due course, and be assured that SAFE will be there, but for now let’s back away from the fray and focus on two strategic issues. First, why is there so much fuss about a “public [healthcare insurance] option”? Second, would a compromise on healthcare make sense?

Public option – Having ended the 8/17 entry (finalized on 8/15) with the president defending a public option, we were chagrined by reports that Team GovCare was signaling willingness to forego a public option in order to strike a deal. [HHS Secretary] Sebelius Says Government Insurance Plan Not Essential, Bloomberg.com, 8/16/09.

We decided to post the entry as written, however, and just as well. Following an angry reaction from the liberal wing of the president’s party, it developed that the president wants a public option after all. Prez in Double-Flip on Health[care] Option, New York Post, 8/19/09.

The Obama administration now says it remains fully behind the idea of a "public option" for government-run insurance, despite clear signals over the weekend from top officials that the public option is not a deal-breaker and is just a "sliver" of the overall reforms it seeks.

Now let’s see, what are the arguments for a public option, and why are some people so passionate about the subject?

As a starting point, and at the risk of oversimplification, here are the core elements of the GovCare proposal:

(1) Using a combination of government mandates and subsidies, dramatically reduce the number of Americans (currently about 46 million, including 10+ million illegal aliens) without healthcare insurance;

The anticipated result is not universal healthcare insurance coverage, but something close to it. The president made the following prediction at an 8/11/09 town hall meeting in Portsmouth, New Hampshire (see coverage in the 8/17 entry).

There are about 46 million people who are uninsured. And under the proposals that we have, even if you have an individual mandate, probably only about 37-38 million, so somewhere in that ballpark.

(2) Impose new federal requirements for healthcare policies of private insurance companies, e.g., coverage could not be denied due to a preexisting condition nor fees raised to levels deemed unaffordable.

By way of illustration, here is what the president said at the Portsmouth rally after being introduced by a woman who had been unable to obtain healthcare insurance.

Now, I want to thank more than anybody, Lori, for that introduction, and for sharing her story with the rest of us. (Applause.) Thank you, Lori. Lori's story is the same kind of story that I've read in letters, that I've heard in town hall meetings just like this one for the past five years. In fact, some of you were in that town hall -- those town hall meetings, as I was traveling all throughout New Hampshire. It's the story of hardworking Americans who are held hostage by health[care] insurance companies that deny them coverage, or drop their coverage, or charge fees that they can't afford for care that they desperately need.

(3) If steps 1 and 2 were implemented, it is said, there would still be an important role for private healthcare insurers. Again quoting the president at Portsmouth:

Under our proposal, the majority of Americans will still be getting their healthcare from private insurers. All we want to do is just make sure that private insurers are treating you fairly so that you are not buying something where if you failed to read the fine print, next thing you know, when you actually get sick, you have no coverage.

But some observers have different expectations. If young, relatively healthy consumers knew they (a) could not be denied healthcare insurance when they want it (guaranteed issue), and (b) could not be charged more based on their health status (community rating), it is pointed out, they would have no incentive to obtain insurance until they got sick. The result: higher insurance rates for everyone unless the government heavily subsidized the cost of obtaining coverage. See, e.g., The Truth About Health[care] Insurance, Wall Street Journal, 8/12/09.

New York, New Jersey and Massachusetts have both community rating and guaranteed issue. And, no surprise, they have the three most expensive individual insurance markets among all 50 states, with premiums roughly two to three times higher than the rest of the country. In 2007, the average annual premium in New Jersey was $5,326 for singles and in New York $12,254 for a family, versus the national average of $2,613 and $5,799, respectively. ObamaCare would impose New York-type rates nationwide.

Clearly, GovCare would be bad news for taxpayers, already being hammered by huge outlays for Medicare and Medicaid (far higher than were projected when these programs were established in 1965), but that does not mean it would be bad for private insurers.

Allured by the prospect of millions of new customers, big healthcare companies (e.g., Aetna, UnitedHealth, and WellPoint) are prepared to accept guaranteed issue and/or community rating requirements so long as the rules apply for all private insurers and their coverage can be priced high enough to make money on average. Aside from campaigning against a public option, which would presumably cut into their business, they are supporting GovCare – don’t be fooled by the anti-insurance company rhetoric of GovCare supporters, which is mainly for show. The Health[care] Insurers Have Already Won, Chad Terhune and Keith Epstein, Business Week, 8/6/09.

The carriers have succeeded in redefining the terms of the reform debate to such a degree that no matter what specifics emerge in the voluminous bill Congress may send to President Obama this fall, the insurance industry will emerge more profitable. Health reform could come with a $1 trillion price tag over the next decade, and it may complicate matters for some large employers. But insurance CEOs ought to be smiling.

Should the government compete with private insurers by issuing healthcare insurance? Such an activity might seem superfluous if the government would be regulating the healthcare coverage and terms to be offered, rather like wearing both a belt and suspenders, but the president has nevertheless suggested that a public option could “keep the insurance companies honest.” Portsmouth town hall meeting, 8/11/09.

It seems unlikely that the president would insist on a public option, however, if the rest of his healthcare plan could be pushed over the top by foregoing it. He certainly managed to suggest flexibility on this issue at another town hall meeting. In [Grand Junction,] Colorado, Obama promises “common-sense” healthcare, Maeve Reston, Los Angeles Times, 8/16/09.

The public option, whether we have it or we don't have it, is not the entirety of healthcare reform. This is just one sliver of it, one aspect of it. And by the way, it's both the right and the left that have become so fixated on this that they forget everything else.

The “one sliver” comment would seem like a realistic assessment, but for one thing: participants on both sides of the healthcare battle perceive the public option as an opening wedge to undermine private insurers and pave the way for a single payer system.

If the real objective of a public option was to foster more competition in the insurance market, conservatives point out, there would be better ways to go about it, e.g., by permitting consumers to buy the healthcare insurance coverage that they want (rather than what the government says they should have) from insurers operating anywhere in the country. Also, there is quite a bit of competition in the private insurance market already. The “Public Option” Healthcare Scam, Steve Chapman, Townhall.com, 7/16/09.

It will come as a surprise to private health[care] insurance providers that they have not had to compete up till now. Nationally, there are some 1,300 companies battling for customers. Critics say in many states, one or two insurers enjoy a dominant position. But market dominance doesn't necessarily mean insufficient competition. * * * [And] net profit margins in the business run about 3 percent, only slightly above the median for all industries.

Obviously, a government insurance entity could undercut private insurers if it received special subsidies. (That is why private companies do not sell flood insurance, for example.) But even without special subsidies, the playing field would be far from level. The Public Option Two-step, Wall Street Journal, 7/10/09.

. . . the public version Mr. Schumer favors would supposedly receive no special advantages. But this is meaningless when Democrats are planning to mandate the benefits that private insurers must provide, the patients they must accept, and how much they can charge. Oh, and a government plan would still have an implicit taxpayer guarantee a la Fannie Mae, giving it an inherent cost-of-capital advantage.

People on the other side of the issue, e.g., Representative Lynn Woolsey (D-Calif.), who heads the 84-member House Progressive Caucus, perceive the public option as having much the same potential – and they love the idea. Progressive, Black, Hispanic caucuses pledge more than 120 “no” votes on health[care] co-op plan, Susan Ferrechio, Washington Examiner, 8/18/09.

[Do not underestimate] how important competition and lowering the overhead and providing a path toward universal health care is for progressives. There must be a strong, robust public option or we will not vote for this.

Compromise – In the Senate Finance Committee, efforts are under way to craft a bipartisan compromise on healthcare. The key players, aka “the gang of six,” are Senators Max Baucus (D-Montana), Jeff Bingaman (D-New Mexico), Kent Conrad (D-North Dakota), Charles Grassley (R-Iowa), Mike Enzi (R-Wyoming), and Olympia Snowe (R-Maine). We understand that other Finance Committee members are also involved in the effort, e.g., Senator Tom Carper (D-Delaware).

In general, it is anticipated that the Senate Finance Committee bill would carry a lower price tag than HR 3200 and drop or water down some of that bill’s most controversial provisions. Although the discussions are taking place behind closed doors, and during the August recess via conference calls, a few details have been revealed of the matters under discussion.

• As noted in the 8/17 entry, it has apparently been decided to drop the provision for reimbursement of advance care planning consultations. Michael O’Brien, The Hill.com, 8/13/09.

• It is believed that the Senate Finance bill will dispense with a public option, probably substituting a non-profit co-op approach. Opposing view: Public option is no option, Senator Mike Enzi, USA Today, 8/19/09.

In the Finance Committee, six of us leading the negotiations are working from the premise that there will not be a government-run plan. One alternative we are considering is a non-profit health insurance cooperative where consumers could band together to seek better rates and coverage from health insurance companies.

I can count votes, and I know that a government-run plan will not pass in the Senate. The co-op approach has potential and should be considered, but it must not get hijacked in the House-Senate conference as a backdoor way to get a government-run program in place. A government-run option is really no option at all.

• HR 3200 would subsidize healthcare insurance for most American workers. With or without a public option, the result would be to establish a middle class entitlement program – situated between Medicare for the elderly and the newly liberalized SCHIP program for children – which would be virtually impossible to dismantle later. Welfare at $193,000? Terrence Jeffrey, Washington Times, 8/22/09.

Both the House and Senate bills would set up a new government-regulated health-insurance market -- called an "exchange" by the House -- where people could purchase approved health-insurance plans (including, as currently drafted, the public option) using credits the government would provide to all families making up to 400 percent of the poverty level.

There have reportedly been discussions behind the scenes about the mandate and subsidy provisions of HR 3200, namely whether these provisions should be adjusted so as to reduce the cost of the healthcare plan. So far there is no consensus in this area, and if agreement is not reached by September 15 it is understood that the president’s party may decide to forget about seeking bipartisan support and attempt to go it alone. New Splits Emerge in Health-Plan Talks, Jonathan Weisman and Naftali Bendavid, Wall Street Journal, 8/22/09.

Republicans are pressing to reduce the size of tax credits for families with incomes that are below three times the poverty rate. They would also like to trim back insurance coverage mandates in hopes of lowering premiums that would have to be subsidized. But the three Democrats believe savings can be found without going to the heart of the bill. *** A conference call went until nearly midnight Thursday [August 20] with no major breakthroughs.

If a bipartisan Senate Finance Committee [SFC] bill results from these efforts, insiders predict that it will supplant HR 3200. And many liberals, e.g., former Labor Secretary Robert Reich, are not very happy about this prospect. Why the Gang of Six Is Deciding Healthcare for Three Hundred Million of Us, Huffington Post, 8/21/09.

Why has it come down to these six? Who anointed them? Apparently, the White House. At least that's what I'm repeatedly being told by sources both on the Hill and in the administration. "The Finance Committee is where the action is. They'll tee-up the final bill," says someone who should know.

The SFC bill would presumably be more attractive from our standpoint than HR 3200, thereby creating a dilemma. Should fiscal visionaries accept the SFC bill as an acceptable compromise, or should they hold out for total victory and possibly contribute to a less favorable outcome. In other words, to pose the question popularized by a TV game show, “Deal or no deal?”

We appreciate that legislating is an imperfect process, and that some give and take is often necessary. Also, the healthcare system has serious problems that need to be addressed – for which reason a simple “no” response would be inappropriate.

But SAFE is not simply attempting to block change. To the contrary, we have proposed a 7-step program for real healthcare reform. See the following page, and the linked blog entries (especially 4/6/09).

As best we can determine, the SFC bill would not address any of our 7 steps – from (1) focusing on healthcare costs rather than near universal coverage, to (7) tort reform. And we doubt this situation will change unless the proposed healthcare plan is rejected.

So from our standpoint, the answer seems pretty clear – “No deal!” And a recent poll suggests that we are not alone in this opinion. 54% Say Passing No Healthcare Reform Better Than Passing Congressional Plan, Rasmussen Reports, 8/15/09.

We must stop this major healthcare overall – those on Medicare will take a big hit on what services will be covered. – SAFE Member

I believe GovCare would provide free medical care for illegal aliens (the exception clause is meaningless as no mechanism has been provided for enforcement) and abortions at taxpayer expense, and that it would constrict medical care for older folks nearing the end. Following the historical path of government, the plan would be expensive and inefficient. The substantial cost involved would be shifted to the private sector by imposing unfunded mandates on employers/workers and raising taxes. The government is in a huge fiscal hole already, which is rapidly growing due to reckless spending and promises. GovCare would make the situation that much worse. Bury businesses in costs and taxes and they will flee the country as they are now leaving California. Let government debt soar and we can expect double-digit inflation or worse and a rating downgrade on U.S. government securities to junk bond status. – SAFE member

As previously related (8/10/09 entry), the surging opposition to government-run healthcare seemed to surprise the politicians leading the charge for GovCare.

And make no mistake; the confusion went all the way to the top. Obama’s Tone-Deaf Health[care] Campaign, Dorothy Rabinowitz, Wall Street Journal, 8/10/09.

The president has a problem. For, despite a great election victory, Mr. Obama, it becomes ever clearer, knows little about Americans. He knows the crowds—he is at home with those. He is a stranger to the country's heart and character.

He seems unable to grasp what runs counter to its nature. That Americans don't take well, for instance, to bullying, especially of the moralizing kind, implicit in those speeches on healthcare for everybody. Neither do they wish to be taken where they don't know they want to go and being told it's good for them.

The president and his allies still have the votes to pass a big healthcare bill, however, and they are not about to back down. Their strategies and tactics are already being adjusted, using what might be called the three Rs:

Retaliation – In addition to complaining about protestors at town hall meetings, Team GovCare quickly deployed its own foot soldiers – who were just as energized as the protestors and physically more intimidating. “Brown Shirts” vs. Purple Shirts, Michelle Malkin, Townhall.com, 8/12/09.

At town hall meetings in St. Louis and Tampa, Fla. [see video in the 8/10/09 entry], last week, purple-shirted SEIU members engaged in physical confrontations with critics of the Democrats' health care takeover plans. Assault victim Kenneth Gladney, beaten while passing out "Don't Tread on Me" flags, is turning the tables on his SEIU assailants. The black conservative activist announced Tuesday that he's filing hate crime charges against the union goons in Missouri.

These were the first outbreaks of violence since the summer recess began. And that's no coincidence. SEIU President Andy Stern, the militant social worker turned union heavy, boasts of his organizing philosophy: "(W)e prefer to use the power of persuasion, but if that doesn't work, we use the persuasion of power."

No strong arm tactics were on display at the president’s 8/11/09 town hall meeting in Portsmouth, New Hampshire, of course, but the audience was stacked in the president’s favor and the questions were tame. Potemkin town halls: Obama’s healthcare forums are staged pep rallies, Washington Times, 8/12/09.

The Portsmouth rally was the first of three such events planned for this week. If nothing else, it was well-choreographed, if not completely scripted. The questions posed to the president were all softballs; his answers were mostly platitudes. Mr. Obama said that he wanted to hear from people who disagree with him because "they need to be heard, too," but it was hard to discern opposing viewpoints through the chants of "Yes, we can."

Outside the school gym where the meeting took place, the atmosphere was quite different. Obama appeals for calm in health[care] debate, Washington Times, 8/12/09.

Under overcast skies, heavy crowds lined the campus driveway, with hundreds of protesters chanting and waving signs in opposition to the health care proposals. Another group, equally large, rallied in support of the president's plan. Many of the protesters who came to voice their opposition said they remained deeply concerned about the cost of the overhaul and personally hurt by the characterization that they were part of an orchestrated mob.

According to New Hampshire resident Kevin Fritton, the crowd was “equally split for and against.” His eye witness account follows.

The pro side (for the bill) was made up mainly of visible union members clearly identified by t-shirts with SIEU, NEA, AFL-CIO, and Massachusetts Nurses Association. There was also a contingent of global warming supporters and even people with signs saying defeat Bush.

The con side was mainly made up of ordinary people that were not organized. There were Veterans carrying flags, families and senior citizens. There was a group passing out Do Not Tread On Me bumper stickers. In speaking to many individuals it was [their] first time at such a gathering.

Watching the line of 2,500 people going into the gym, Fritton saw “that over 80% were supporters of the bill and or the President. Most were well dressed and had stickers or shirts supporting the bill. The Union guys were clearly identifiable by [their] shirts.”

Rebranding – Team GovCare has been talking less about overhauling the healthcare system of late, and more about reforming healthcare insurance. Columnist Charles Krauthammer interpreted the shift as a bow to fiscal reality. Obamacare: Not Waterloo, Just a Tactical Retreat, Townhall.com, 7/31/09.

To win back the vast constituency that has insurance, is happy with it, and is mightily resisting the fatal lures of Obamacare, the president will in the end simply impose heavy regulations on the insurance companies that will make what you already have secure, portable and imperishable: no policy cancellations, no pre-existing condition requirements, perhaps even a cap on out-of-pocket expenses.

[How to do this without bankrupting the insurance companies?] Force the 18 million Americans between 18 and 34 who (often quite rationally) forgo health[care] insurance to buy it. This will create a huge new pool of customers who rarely get sick but will be paying premiums every month. And those premiums will subsidize nirvana health[care] insurance for older folks.

Other observers perceive no change in objective, just a shift in strategy designed to bolster support for a “public option” (government-provided healthcare insurance) by vilifying healthcare insurance companies (already unpopular). Certainly, Speaker of the House Nancy Pelosi (D-CA) holds this view. Democrats’ Healthcare Strategy: Attack Insurance Industry to Push Public Option, David Patten, Newsmax.com, 7/30/09.

[The private insurers] have been part of the problem in a major way. They are doing everything in their power to stop a public option from happening. And the public has to know that. They can disguise their arguments any way they want, but the fact is that they don't want the competition.

The president’s rhetoric has been subtler, but he is continuing to tout a public option as well as attacking the insurance companies. Thus, at the Portsmouth event, he said:

Under the reform we're proposing, insurance companies will be prohibited from denying coverage because of a person's medical history. Period. (Applause.) They will not be able to drop your coverage if you get sick. (Applause.) They will not be able to water down your coverage when you need it. (Applause.) Your health[care] insurance should be there for you when it counts -- not just when you're paying premiums, but when you actually get sick. And it will be when we pass this plan. (Applause.)

Now, when we pass health[care] insurance reform, insurance companies will no longer be able to place some arbitrary cap on the amount of coverage you can receive in a given year or a lifetime. And we will place a limit on how much you can be charged for out-of-pocket expenses, because no one in America should go broke because they get sick. (Applause.)

* * *And I do think that having a public option as part of that would keep the insurance companies honest, because if they've got a public plan out there that they've got to compete against, as long as it's not being subsidized by taxpayers, then that will give you some sense of what - sort of a good bargain for what basic health care would be. (Applause.)

Rebuttal – Supporters developed slick answers to complaints about GovCare, which were designed to marginalize critics and limit the damage. Consider these comments by the president at the Portsmouth meeting.

1. Re advance care planning consultation, which some critics labeled “death panels.”

It turns out that I guess this arose out of a provision in one of the House bills [HR 3200] that allowed Medicare to reimburse people for consultations about end-of-life care, setting up living wills, the availability of hospice, et cetera. So the intention of the members of Congress was to give people more information so that they could handle issues of end-of-life care when they're ready, on their own terms. It wasn't forcing anybody to do anything.

Comment: The language in HR 3200 goes far beyond authorizing Medicare reimbursement for end-of-life care consultations. In addition to defining what is involved in advance care planning (ACP) counseling at great length, the applicable section (p. 424-434) specifies who is to be involved (family members are not mentioned), provides for the development of criteria to be used in physician’s quality reporting re ACP and end of life care, and prescribes new content for the Medicare and You booklet.

This issue has since been dropped by the Senate Finance Committee, which is working on a “bipartisan” healthcare bill that may well supplant HR 3200, as was announced in a statement by the ranking minority member, Sen. Chuck Grassley (R-Iowa). Michael O’Brien, The Hill.com, 8/13/09.

"We dropped end-of-life provisions from consideration entirely because of the way they could be misinterpreted and implemented incorrectly."

The president outlined some possible Medicare cost savings, but avoided any suggestion that sacrifices might be involved for seniors – “the AARP would not be endorsing a bill if it was undermining Medicare, okay?” (Oops, the AARP has not officially endorsed any of the healthcare bills being worked on, as it would be quick to point out.)

Cost cuts would come from insurance companies and healthcare providers, no reason they should be permitted to earn excess profits or deliver shoddy service. For example:

• Termination of the Medicare Advantage program would eliminate a $177 billion windfall (over 10 years) for insurance companies “to provide services that Medicare already provides. And it’s no better – it doesn’t result in better healthcare for seniors.”

Comment: Medicare Advantage plans do provide enhanced coverage and they are quite popular with the seniors who have signed up for them. Medicare Advantage cuts: Not the type of change we need, Warren Throckmorton, Townhall.com, 8/3/09.

Basic Medicare covers outpatient, inpatient and some prescription costs, but there are significant gaps. Using federal funds, Medicare Advantage allows private insurers to manage the basic Medicare benefits plus provide additional services that Medicare does not cover, such as wellness services, dental care, hearing and vision screening. Most Medicare Advantage plans also provide prescription drug options which are often easier to use and understand than the basic Medicare, Part D coverage.

• Hospitals would be penalized for frequent readmissions, because “too often we're not seeing the best practices in some of these hospitals to prevent people from being readmitted. That costs a lot of money.”

Comment: Hospitals are already being less than fully reimbursed for the cost of Medicare services, with the shortfall being shifted to other hospital bills. Why make a bad situation worse? Medicare for All Isn’t the Answer, Alan Miller, Wall Street Journal, 8/12/09.

Medicare reimbursements to hospitals fail to cover the actual cost of providing services. The Medicare Payment Advisory Commission (MedPAC), an independent congressional advisory agency, says hospitals received only 94.1 cents for every dollar they spent treating Medicare patients in 2007. MedPAC projects that number to decline to 93.1 cents per dollar spent in 2009, for an operating shortfall of 7%.

• Prices would be negotiated for Medicare-covered prescription drugs, thereby curbing the pharmaceutical company profits while reducing the “doughnut hole” for seniors.

Comment: Empowering Medicare to negotiate lower prices for prescription drugs would amount to imposing price controls, which never work very well.

The request concerning healthcare disinformation on the Internet was perfectly natural, said the president at the Portsmouth meeting, just a case of “trying to be responsive to questions that are being raised out there.”

. . . this is another example of how the media ends up just [completely] distorting what's taken place. What we've said is that if somebody has -- if you get an e-mail from somebody that says, for example, "Obamacare is creating a death panel," forward us the e-mail and we will answer the question that's raised in the e-mail. Suddenly, on some of these news outlets, this is being portrayed as "Obama collecting an enemies list." (Laughter.)

Comment: Oh, please! Everyone knows that not all the information that circulates on the Internet is reliable. Why should the White House seek to compete with Snopes.com?

No problem, says the president, so long as “the private insurance companies are providing a good bargain” and the public option is not subsidized. And at the Portsmouth meeting, he offered a rather odd example of how private industry can and does compete with the government.

I mean, if you think about -- 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. (Laughter.)

Comment: Would people really want the healthcare system to be run like the post office? Obama’s Post Office Healthcare Disaster, Byron York, Washington Examiner, 8/12/09.

Given the huge cost to of Medicare and Medicaid, moreover, how could any thinking person expect that a government-run healthcare insurance program would break even? “Public Option”: Son of Medicaid, Daniel Henninger, Wall Street Journal, 6/18/09.

The list of [coverage] add-ons is endless, and there's little about it that is thoughtful. Why shouldn't one think that, as with Medicare and Medicaid, the Obama Public Option in time will become an impossible fog for patients to navigate? But unto eternity the program's administrative complexity will provide work for bureaucrats, Members of Congress, their staffs, lobbyist spouses and the "health-care" establishment of foundations and economists.

The battle over GovCare is far from over. If you have a view about the proposals on the table, we urge that you reach out to the members of Congress who are supposed to be representing your interests.

Contact information for members of Congress may be found in various locations, e.g., on their respective Websites. For the convenience of Delaware residents, here is a link to contact information for our three members.

# A SAFE director wishes the three members of Congress from Delaware would read and thoroughly digest the SAFE blog, but doubts it will happen. “I have been writing them with pithy examples from articles I have been collecting,” he says, and have booked a bus seat for the 9/12 “March on Washington.”

# A SAFE member in Arizona contrasts the extensive media coverage of the Bernie Madoff investment scam with the lack of recognition that Social Security, which marked its 74^th birthday on August 14, is a government-run Ponzi scheme that will shortchange younger workers when they retire. In a similar vein, see “Madoff writ large,” 1/12/09.

Also, the length of a document may not correspond to its importance. The U.S. Constitution took 40 pages (in the Cato printing) to set up the national government; HR 3200 (one of several healthcare bills under consideration) takes 1,000+ pages to prescribe proposed healthcare “reforms.”

# A SAFE member in Delaware is concerned that illegal aliens could receive healthcare insurance subsidies under GovCare. He likens the situation to apparent plans to count illegal aliens in the 2010 census by not inquiring as to their citizenship.

Although HR 3200 (Section 246) does not allow for federal affordability credits “on behalf of individuals who are not lawfully present in the United States,” it is unclear whether and how illegal aliens would be identified and excluded from coverage. We plan to discuss this issue in a future entry.

Not long ago, it appeared that near universal healthcare (or “GovCare”) would breeze through. The president had called on both houses of Congress to quickly pass healthcare bills, which could be melded into a final bill for his signature before yearend.

SAFE and like-minded groups were working the other side of the street, but the general public did not seem to be paying attention. In Delaware, for example, the Independence Day tea parties organized with a healthcare theme were only modestly successful. SAFE to Congress: wake up, 7/13/09.

We previously reported on the tea parties with a healthcare theme that were planned in Delaware on July 2. They have now taken place. There was a rally in Georgetown, plus sidewalk demonstrations outside the district offices of Delaware’s three members of Congress (one location in Dover, two in Wilmington).

SAFE monitored all of these events. They appeared to be well run, although the turnout was relatively modest. The biggest one was the rally in Georgetown. Check out these photos posted by the Sussex Countian.

How things have changed! The Internet, talk radio, and even the mainline media are now buzzing about GovCare, which has not been voted on by either the full House or the Senate. It appears that members of Congress will get an earful during the August recess, much of it in the vein of “not so fast, this is not what we want.”

The president and his party are emotionally invested in GovCare, and they have the votes in Congress to push legislation through. A major healthcare bill still seems likely this year, although it may be watered down. The public’s concerns are not clearly based on the real healthcare problem – a tide of red ink for government healthcare programs.

But time enough for our prognosis; this entry will survey what others have been saying and doing about GovCare. We invite you to settle back and enjoy the ride, including some striking videos.

MOUNTING SKEPTICISM – The president and his supporters initially painted GovCare as an “everybody wins” proposition – better healthcare for all at lower cost – but the claim was dubious from the start and the public is not buying it. For example:

• If GovCare included a “public [insurance] option,” could people who liked their existing healthcare insurance keep it? Yes, said the president, and in a 6/15/09 speech to the American Medical Association, he rejected the “illegitimate concern” that a public option could be a Trojan horse for single payer healthcare. It turns out, however, that both the president and his supporters had said essentially the opposite on other occasions. Video (1:52), Breitbart TV.

• Critics claim that healthcare costs would rise (not fall) with GovCare, unless restrained by rationing. The president attempted to defuse this claim at a prime time news conference on 7/22/09, offering examples of the painless elimination of waste. This set the stage for a sarcastic response: “I’m not a doctor, but I play one on TV,” video (52 seconds), GOPLeader.gov.

RESEARCH – In an effort to come to grips with the GovCare proposal, some people have resorted to reading HR 3200, a 1,000+ page healthcare bill that was introduced in the House on July 14. For those disposed to do likewise, here is a link to the bill (as passed by the House Committee on Energy and Commerce on July 31).

• Notice the provision for “advance care planning consultation” (or end of life counseling), which appears in Section 1233 starting on page 424. Despite an attempt to blame questions about this provision on right wing talk show hosts, it seems strange that the government would want to intrude in such an area unless major cost savings were anticipated. Phantom pains at The Post, Fred Thompson, Washington Times, 8/5/09.

So is this a conspiracy to kill off granny? No. Will seniors be forced to make decisions they don't want to make? No. But will "practitioners" be encouraged to have end-of-life discussions that include when it might be best for patients to allow their life to end earlier than it has to? Of course. And seniors have a right to be satisfied that there is not, at the heart of this process, [undue] consideration given to cost-cutting.

• Thompson’s column refers to his July interview of Betsy McCaughey, a former Lt. Governor of New York who chairs the Committee to Reduce Infectious Deaths. In addition to warning against HR 3200, McCaughey points out that the government is already authorized (under provisions buried in the economic stimulus bill) to set up a mandatory system of electronic medical records and conduct “comparative effectiveness” research for medical procedures. She perceives the potential for a “vicious” assault on medical care for the elderly.

Although rather long (8:12), the McCaughey interview is well worth listening to. Here is the link.

• Taking a shotgun approach, columnist Mike Adams jotted down a series of true/false questions about HR 3200 that might be asked of politicians supporting GovCare. Some examples follow. A Health Quiz for Barry, Townhall.com, 8/5/09. (Note: as Adams was working from an earlier draft of the bill, some of the page numbers may be a little off.)

On Page 22, I saw some language, which suggested that the bill mandates audits of all employers that choose to self-insure. Can you tell me whether that is a) True or b) False?

On Page 29, I saw what appeared to be an admission that health care will be rationed under this new plan. Can you tell me whether that is a) True or b) False?

On Page 30, I discovered that a government committee will be established to decide what treatments and benefits I get. However, unlike an insurer, I see no evidence that there will be a process to appeal their decisions. Can you tell me whether that is a) True or b) False?

• Readers may notice that HR 3200 sounds different than the promotional pitches for GovCare, and unsurprisingly so because the choice of language is different. To make the point, the National Taxpayers Union Foundation developed a chart comparing the president’s overwhelming choice of positive words like “choice” in talking about GovCare with the verbiage of HR 3200 (negative words predominate by a 3:1 margin). NTUF press release, 7/21/09.

"Words don't always have a lot of meaning inside the Beltway, but if the language of the 'America's Affordable Health Choices Act of 2009' is a guide to its true intent, then the bill is really about empowering bureaucracy and limiting freedom, competition, and the marketplace," said NTUF Director of Congressional Analysis Jeff Dircksen.

QUESTIONS – Recent polls indicate declining support for GovCare and growing fondness for the current healthcare system. Reading between the lines, we would infer that many Americans are concluding that they would have to pay higher taxes or have their medical options restricted with GovCare – and are not happy about it.

• Such sentiment is particularly strong in the 65+ age bracket. Seniors Most Skeptical of Healthcare Reform, Gallup.com, 7/31/09.

Seniors are the least likely of all age groups in the U.S. to say that healthcare reform will benefit their personal healthcare situation. By a margin of three to one, 36% to 12%, adults 65 and older are more likely to believe healthcare reform will reduce rather than expand their access to healthcare. And by 39% to 20%, they are more likely to say their own medical care will worsen rather than improve.

• Some seniors envision that GovCare could be tailored to ensure strengthened support for the elderly. Thus, six people (ranging from 55 to 87 years old) were arrested recently when they refused to leave the Los Angeles office of Senator Dianne Feinstein (D-CA). The group had hoped to “talk to Feinstein about strengthening Medicare and using the program as a model for health[care] reform.” Democraticunderground.com, 7/30/09.

• Speaking of seniors, the national leadership of the AARP is backing GovCare. New e-mail endorsement shows AARP going all-out for Dems, Obamacare, Mark Tapscott, Washington Examiner, 8/7/09.

It is unclear, however, that the 40 million members of the AARP are on the same page. Consider what happened at an 8/4/09 “listening session” in Dallas, Texas when participants refused to let two visitors from the national office do all the talking. The presenters packed up and left; the meeting continued without them. Video (7:58, but worth it!), Breitbart.tv.

ACTION – Politicians who back GovCare have been encountering public skepticism and/or hostility in their respective states. Democrats’ break looking like a bad trip, Politico.com, 8/4/09.

• Senator Arlen Specter (D-PA) and HHS Secretary Kathleen Sebelius got a rocky reception in Philadelphia. Crowd Explodes When Arlen Specter Urges that We “Do This Fast,” youtube video (2:36).

• Congressman Lloyd Doggett (D-TX) had an even tougher time at a GovCare event in Austin, Texas. The video (2:21) posted on Youtube shows lots of people milling around in an outdoor setting and chanting “just say no.”

• Congressman Frank Kratovil (D-MD) was greeted by a 250-person audience in Mardella Springs, a tiny town on the eastern shore of Maryland. He had expected “maybe two or three dozen residents” for his “Congress in Your Corner” meeting. There was much applause for the residents who spoke out against GovCare. A Town-Hall Protest in Maryland, Max Schultz (Manhattan Institute), Wall Street Journal, 8/8/09.

REACTION: Supporters of GovCare responded to the emerging opposition in a negative way. It does not seem to have occurred to them that they might learn something from the public angst over their proposal, let alone that they might want to rethink it.

• Protestors were dismissed as an “angry mob,” by people who should know better – such as Professor Paul Krugman of Princeton, a Nobel Prize winner yet, who views the protests as racist. The Town Hall Mob, New York Times, 8/6/09.

• It has also been suggested that the resistance to GovCare is being orchestrated. Thus, Senator Barbara Boxer (D-CA) commented on how “well dressed” the protestors seemed to be. MSNBC (Hardball) interview, video (0:58).

• Resistance to a “public option” has been attributed to the activities of private insurance companies that do not want competition. Pelosi lashes out against insurance companies, Reuters, 7/30/09.

"It's almost immoral what they are doing," [Speaker of the House Nancy] Pelosi said to reporters, referring to insurance companies. "Of course they've been immoral all along in how they have treated the people that they insure," she said, adding, "They are the villains. They have been part of the problem in a major way. They are doing everything in their power to stop a public option from happening."

• At the White House, healthcare czar Nancy DeParle posted an online bulletin soliciting reports of “disinformation about health[care] insurance reform” on the Internet. Who’s Behind the Internet Snitch Brigade? Michelle Malkin, Townhall.com, 8/7/09.

What will health care czar DeParle do with this information? Where will it be stored? Who has oversight of the czar's powers, budget and personnel? Concerned citizens, alas, will have a hard time tracking down the "Office of Health Care Reform" created by executive order in April. There is no central website for the office, no direct channel for transparency and no congressional accountability.

• And in a mass e-mail to supporters, the president urged them to show up at GovCare events during the August recess and, in effect, drown out dissent. Barrack Obama urges backers to fight health “lies,” Politico, 8/5/09.

There are those who profit from the status quo, or see this debate as a political game, and they will stop at nothing to block reform. They are filling the airwaves and the internet with outrageous falsehoods to scare people into opposing change. And some people, not surprisingly, are getting pretty nervous. So we've got to get out there, fight lies with truth, and set the record straight.

• In a meeting for Senate Democrats, senior White House officials outlined a get tough strategy for the August recess. White House to Democrats: “Punch back twice as hard,” Politico.com, 8/6/09.

• Although the “punch back twice as hard” line was presumably not meant to be taken literally, GovCare protestors may indeed encounter physical intimidation. At an 8/6/09 meeting in Tampa, Florida, the room was apparently packed by admitting supporters early and shutting the door in the face of other would-be attendees. The people who were turned away felt frustrated, and they reacted accordingly.

Congresswoman Kathy Castor (D-FL) declared afterwards that she was determined to vote for GovCare, and that her office was receiving hundreds of supportive phone calls and e-mails. She hedged, however, when asked whether protests at the event represented a genuine expression of grassroots opposition. Caster heartened by reaction to town hall tumult, 8/6/09, TBO.com.

For those who would like to see some live footage from the Tampa fiasco, here is a video (3:37). The action is chaotic and intense, although we did not see anyone actually throwing a punch.

A debate about GovCare seems overdue, and we hope it will take place. We are appalled by the reactions of supporters, who apparently would prefer to stifle dissent. And we are not the only ones who feel that things are in danger of going off the rails. Mr. President, Americans are not an “angry mob,” Washington Examiner, 8/9/09.

We are witnessing something terribly ugly in America this summer. Obama is leading a campaign to shift our peaceful democratic process away from civil discussions of programs and candidates to using the power of the state to bully those who oppose the majority party's policy proposals. The threat may be as subtle as the fear of being reported by a neighborhood informant to the White House, or as overt as stick-wielding union toughs who might not approve of the way you ask your congressman a question.

We referred in a previous blog entry to how an ancient ruler ordered the tide to stop. How to win: be proactive, not reactive, 10/29/07.

Remember King Canute (the ruler of England some thousand years ago), who is said to have commanded the tide to stop coming in. He did not do this because he expected the command to be obeyed, but rather to impress a point on his flattering courtiers.

The discussion continued in the vein that fiscal conservatives will fail if they merely resist change, for which reason it may be more productive to advocate constructive changes – in effect becoming visionaries rather than conservatives.

Similarly, changes advocated by liberals will fail if they are undeliverable or poorly designed. This entry will provide five examples. In addition to being important in their own right, these examples demonstrate the need to scrutinize all government programs (existing or proposed) that are aimed at economic and social problems.

Economic stimulus – The purported benefits of deficit spending during economic downturns was invoked in February to justify a two-year, $787 billion economic stimulus bill (2/3 spending, 1/3 tax benefits).

Granted that additional government spending is stimulative, it can only be paid for by taking money from the private sector (via taxes or borrowing) that could otherwise be spent by individuals or businesses. Sounds a bit like “robbing Peter to pay Paul,” to say nothing of the difficulty of cutting back government spending later.

Moreover, the bill enacted did not comport with the “timely, targeted and temporary” criteria that all concerned professed to support. Economic stimulus package: what’s the rush? 2/2/09.

Subsequent developments, notably further increases in the jobless rate, have led to widespread disillusionment with the economic stimulus bill. There are critics aplenty saying “we told you so.” Obama’s plan stimulates the deficit, not the economy, Washington Examiner, 5/18/09.

George Mason economist Tyler Cowen predicted such dismal results when he pointed out that “it is very hard to find [historical] examples of successful fiscal stimulus driving an economic recovery. Ever.” In other words, the stimulus package was passed without any evidence that it would work. “It is becoming increasingly clear that the long-term fiscal strategy of the White House is based on large doses of wishful thinking,” concludes Harvard economist and former Bush administration advisor Greg Mankiw. But when you insist on ignoring basic economic principles, wishful thinking is all that's left.

Minimum wage – A time-honored (since 1938) approach for helping lower income workers is to set a minimum wage rate. The earnings of these workers can be raised by the stroke of a pen, or so it might seem until one considers that wage rates result from supply and demand.

If the minimum wage rate is set low, prevailing wages will almost invariably be higher. If it is set high, some lower paid workers may benefit but others will lose their jobs or be unable to find jobs in the first place. Hmm, that does not sound like what the minimum wage was supposed to accomplish.

Consider the Congressional testimony of Paul Kersey of the Heritage Foundation, 5/3/04, re a proposal to raise the federal minimum wage by $1.50 per hour.

Labor economists refer to the “elasticity” of demand for labor to describe the ratio of jobs gained or lost when wages change. Estimates of this “elasticity” vary, but the average estimate by labor economists is that for a 10 percent increase in the minimum wage, employment among those affected drops by 5 percent. If the minimum wage is increased from $5.15 to $6.65 per hour, demand for unskilled labor could drop by as much as 15 percent in jobs that earn the minimum wage, resulting in the loss of hundreds of thousands of jobs and making it more difficult for poor families to take this escape route out of poverty.

An increase in the federal minimum wage was enacted in 2007, despite the views of Kersey et al., with the increase phased in as follows:

Given the high and still rising jobless rate in the spring of 2009, a good case could have been made for cutting the minimum wage or at least deferring the increase scheduled to kick in on July 24. There was no serious consideration of such a move, however, even though it could have saved jobs for low-level workers. Mandating Unemployment: Congress prepares to kill more jobs, Wall Street Journal, 7/14/09.

If Congress were wise and compassionate, it would at least suspend the wage hike for one or two years until the job market recovers. We know this Congress won't do that, but someone has to speak up for the poorest, least skilled Americans.

Healthcare – We have discussed the Administration’s healthcare “reform” plan in previous entries. Briefly, this plan would greatly reduce the number of Americans without healthcare insurance, while increasing healthcare costs and/or curtailing healthcare consumption by the majority of the population.

The president and his advisers initially argued that it would be possible to have the best of all possible worlds, namely better healthcare for everyone at lower cost. But this claim has grown increasingly threadbare. Why Obama Care is Sinking, Charles Krauthammer, Townhall.com, 7/24/09.

President Obama premised the need for reform on the claim that medical costs are destroying the economy. True. But now we learn -- surprise! -- that universal coverage increases costs. The congressional Democrats' health care plans, says the [Congressional Budget Office], increase costs in the range of $1 trillion plus.

In response, the president retreated to a demand that any bill he sign be revenue neutral. But that's classic misdirection: If the fierce urgency of health care reform is to radically reduce costs that are producing budget-destroying deficits, revenue neutrality (by definition) leaves us on precisely the same path to insolvency that Obama himself declares unsustainable.

Bottom line, the only rational argument for the healthcare proposal is a moral one – that our country should provide healthcare for all residents (including illegal aliens) as a matter of right. It might be thought to follow that everyone is entitled to the same excellent service, never mind the cost.

But there is a limit to how much any society can afford to pay for healthcare, even the United States. State-of-the-Art Healthcare for Everyone? William Poole (Cato Institute), Forbes, 7/28/09.

Providing today's state-of-the-art healthcare for everyone is simply impossible. Moreover, relentless and highly desirable technical improvements keep pushing the healthcare frontier outward. * * *Advocates of reform will object that they are not proposing state-of-the-art healthcare for everyone. But in practice, that is exactly what they are doing. A government-operated plan will have no satisfactory way of saying "no" to certain expensive treatments, especially when such treatments are known to be effective. We need to face the moral dilemma of saying no.

If the government guarantees healthcare for all, expect deteriorating service to make ends meet. Certainly this has occurred in the UK. Is There a “Right” to Healthcare? Theodore Dalyrymple, Wall Street Journal, 7/28/09.

After 60 years of universal health care, free at the point of usage and funded by taxation, inequalities between the richest and poorest sections of the population have not been reduced. But Britain does have the dirtiest, most broken-down hospitals in Europe.

An intention to manage healthcare costs has been signaled, as for example by two of the president’s comments during a prime time press conference on 7/22/09.

• So if they're looking -- and you come in and you've got a bad sore throat, or your child has a bad sore throat or has repeated sore throats, the doctor may look at the reimbursement system and say to himself, you know what, I make a lot more money if I take this kid's tonsils out. Now that may be the right thing to do, but I'd rather have that doctor making those decisions just based on whether you really need your kid's tonsils out or whether it might make more sense just to change -- maybe they have allergies, maybe they have something else that would make a difference.

• Why would we want to pay for things that don't work, that aren't making us healthier? And here's what I'm confident about: If doctors and patients have the best information about what works and what doesn't, then they're going to want to pay for what works. If there's a blue pill and a red pill and the blue pill is half the price of the red pill and works just as well, why not pay half price for the thing that's going to make you well?

Saying that rationing is on the way, however, might doom the healthcare plan. Thus, at a 7/27/09 town-hall style meeting in the AARP headquarters, the president maintained that Medicare spending reductions would only represent the elimination of “waste.” Obama to seniors: “This is not like Canada,” Washington Times, 7/28/09.

All I know right now is we have a problem, and it includes the spiraling cost of Medicare. * * * Nobody is talking about reducing Medicare benefits. If it works, we don't want to change it. What we want to do is to eliminate some of the waste.

Meanwhile, at the other end of Pennsylvania Avenue, Congress was reviewing tax increase options – including a new payroll tax on employers and employees for cases in which an employer does not choose to provide the mandated healthcare coverage. The Pelosi Jobs Tax, Wall Street Journal, 7/30/09.

Even many Democrats are revolting against Speaker Nancy Pelosi’s 5.4% income surtax to finance ObamaCare, but another tax in her House bill isn’t getting enough attention. To wit, the up to 10-percentage point payroll tax increase on workers and businesses that don’t provide health insurance.

Given the weakened state of the economy, it would be hard to imagine a worse time for such tax increases – especially if combined with the latest increase in the minimum wage and the energy legislation that is on the drawing board.

“Cash for clunkers” – The popularity of this program is understandable. Give people a substantial financial incentive (up to $4,500) to do something congenial, namely buy a new car with few strings attached, and they will react enthusiastically.

The original authorization, $1 billion, was exhausted in a matter of days, and it is clear that Congress will provide additional funding.

The results: a boost for the hard-pressed automobile industry and, to the delight of environmentalists, a quick increase in the average fuel efficiency of American owned and operated vehicles. What’s not to like?

Well, for one thing, the government is already in over its fiscal head. Why on earth should taxpayers start subsidizing the trade-ins of used automobiles? Yet, some observers are already predicting that the “cash for clunkers” program will be a keeper. Five reasons why Obama and Congress will make Cash-for-Clunkers a permanent federal entitlement, Mark Tapscott, Washington Examiner, 7/31/09.

Another concern arises from the requirement that traded-in “clunkers” be certifiably destroyed. Some of the cars would be scrapped anyway, no doubt, but others have economic value. Taking them off the market will boost prices for buyers (e.g., teenagers) who are looking for a low cost, starter car.

Oil prices – With oil prices on the upswing after having plunged to recession-driven lows, government leaders are sounding the alarm about another price spike.

One suggestion is that the oil-consuming nations should initiate a dialog with the Organization of Petroleum Exporting Countries (OPEC) about the management of global oil prices. Oil Prices Need Government Supervision, Gordon Brown and Nicholas Sarkozy, Wall Street Journal, 7/8/09.

This sounds rather like price controls to us, which as has been shown many times create more problems, e.g., supply shortages and “black markets,” than they solve. Why on earth should different results be expected this time?

Another tactic is to blame rising oil prices on “excessive speculation,” a theory that was rejected by the Commodity Futures Trading Commission (CFTC) a year ago but has been revived by the new Administration. The Politics of “Speculation,” Wall Street Journal, 7/28/09.

The CFTC’s about-face is all about the politics, not the economics, of price discovery. And the real goal is not to blame the evil speculators for last year’s price spike or this year’s oil rally, but to lay the groundwork for explaining away the commodity-price bull run that we’re likely to see as a result of the Federal Reserve’s easy money and the Obama Administration’s spending and debt party.

Meanwhile, the federal government continues to play a blocking role to the development of domestic oil and gas reserves that could reduce the need for U.S. oil imports and help to hold down global oil prices. Obama Blocks New Energy Exploration, [Congressman] Doc Hastings (R-WA), Wall Street Journal, 7/14/09.

Exactly a year ago, President Bush issued an executive order lifting the ban on offshore oil and natural gas drilling on the Outer Continental Shelf (OCS) and opened the door for new energy production and the creation of millions of new energy jobs in our country. But today, a de facto ban remains in place only because the Obama Administration has actively blocked the new 5-year leasing program which would open areas for offshore exploration and development.

Global temperatures –As discussed in previous entries, it seems unlikely that manmade emissions of CO2 and other greenhouse gases will trigger catastrophic global warming. Warming trend since about 1800 has been modest by historical standards – no warming over the past ten years – available evidence indicates solar activity is the dominant factor in determining global temperatures.

Nevertheless, the U.S. government has pursued various policies designed to foster the development of green energy – including the Waxman-Markey bill (cap & trade, etc.) that was narrowly passed by the House of Representatives in June and will be taken up by the Senate later this year.

We believe Waxman-Markey would inflict a devastating blow on the U.S. economy without having much effect on global temperatures. Among other things, any reduction of CO2 emissions here would be dwarfed by the continuing growth of emissions in China and India – which countries have no intention of hobbling their economies based on an unproven theory. How to win the global warming debate, 6/8/09.

So it was interesting to see what would be said about the matter at the recent G-8 summit. Rather amazingly, the upshot was a resolution setting a target “to limit global warming to 2 degrees Celsius (3.6 Fahrenheit) compared with pre-industrial levels.” [Temperatures are currently up by about 0.7 degrees Celsius from the start of the Industrial Revolution.] Gordon Brown calls on developing nations to sign up to G8 climate pledge,” UK Telegraph, 7/9/09.

If the warming trend is fated to exceed this target due to increasing solar activity, we doubt the human race will have much luck in stopping it.

Some readers may have heard a story about Irish playwright George Bernard Shaw that goes something like this:

An acclaimed actress approached Shaw and said they should marry and produce children with her beauty and his brains.

“But, madam,” replied Shaw, “what if the children had my beauty and your brains?”

Developing a national master plan for the K-12 (kindergarten through 12^th grade) school system would be somewhat analogous, in that the results might not turn out as expected. So while supporting the ideas for improving the curriculum presented in last week’s entry, we would not think of asking the federal government to implement them.

For one thing, there is no such thing as an ideal curriculum for U.S. schools. The capabilities of teachers, preferences of parents, and needs of students vary widely, and these factors have a considerable bearing on what should go on in classrooms.

Ideas about the objectives of education have changed over time, and will doubtless continue to do so. Feds in the Classroom, Neal P. McCluskey (Cato Institute), Rowman & Littlefield (2007), pp. 19-21.

Beginning in the latter years of the 19^th Century, many public school leaders saw the schools as “factory-prep programs in which students learned to keep schedules, follow the regimented dictates of bells and superiors, and be acceptably passive.”

Many parents did not share this enthusiasm for vocational education, which gave short shrift to the prospects of their children to get ahead in life. But by 1940, progressive educators had succeeded in “making most public school districts large, bureaucratic machines in which operations were standardized and professionals, not families and parents, determined who would learn what and when they would learn it.”

The Soviet Union’s launch of Sputnik (first man-made satellite) in 1957 sparked fears that the United States might be falling behind academically. The National Defense Education Act was enacted the next year to provide federal assistance for math, science and foreign language programs.

Today, the operative assumption is that public schools should “give all children, regardless of class, the chance to become independent, upwardly mobile men and women.” [Comment: this mindset is not necessarily better than the vocational education model. Society needs followers as well as leaders, and the widespread promotion of student self-esteem, whether merited or not, will predictably lead to disappointment for many in later life.]

Finally, a standardized curriculum is a two-edged sword. While we can envision educating students about the danger of chronic government borrowing in a financial literacy course, for example, such a course could be designed (as noted in last week’s entry) to showcase the purported merits of Keynesian economics instead.

Suppose the federal government was empowered to decide what should be taught in the schools, and the feds botched the job. If the 50 states continue running their respective school systems, they will surely make mistakes, but they probably will not all make the same mistakes at once.

Also, it is doubtful that the drafters of the Constitution intended to give the federal government the power to control education. There is no mention of “schools” or “education” in the enumerated powers of Congress. See also the 10^th Amendment: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” Feds in the Classroom, pp. 129-140.

If education is federalized, all Americans will be forced to entrust their children to a single system dominated by whatever faction can bring the most raw political force to bear, the very opposite of the liberty our system of government was designed to protect. We ignore the Constitution at our peril.

So it’s settled, the time has come to disband the U.S. Department of Education (ED) and leave the states to their own devices? Perhaps, but this may not be the best answer.

The first ED (which operated under various names over the years) was established in 1867. Its function was to collect and disseminate information that would help the states to establish effective school systems.

Many responsibilities were added in time, re (among other things) land grant colleges (1890), vocational education (1917, 1946), the GI Bill of Rights, the National Defense Education Act (1958), ending school segregation (a one-time situation in which federal intervention was clearly needed), and the Elementary and Secondary Education Act (1965, aimed at helping poor school districts).

In 1980 (final year of the Carter Administration), at the insistence of the National Education Union (NEU), the ED was separated from the Department of Health, Education and Welfare and made a cabinet level department. Long a professional association dominated by school administrators, the NEU had recently been transformed into a politically formidable teacher’s union; the ED reorganization served to cement its power base. Feds in the Classroom, pp. 50-52.

Elected with a conservative mandate, President Ronald Reagan proposed to replace the ED with a subcabinet-level “foundation” that would administer federal education programs. The change would have been primarily symbolic as Reagan had made little headway in slashing federal spending for education, but even so it died in Congress.

Then came a 1983 study written by the National Commission on Excellence in Education (convened by the ED), “A Nation at Risk,” which blamed the mediocre performance of U.S. schools on low standards. Feds in the Classroom, pp. 55-56.

[We] find that for too many people education means doing the minimum work necessary for the moment . . . But this should not surprise us because we tend to express our educational standards and expectations largely in terms of “minimum requirements.”

The Nation at Risk findings caught on, and discretionary ED spending grew 19% in constant (1988) dollars between 1984 and 1988. William Bennett, who became secretary of education in 1985, promoted the federal government as a source of educational wisdom and cash. Ever since, the ED’s primary role has been seen as setting educational standards and pushing for their attainment. Feds in the Classroom, pp. 56-57.

According to research conducted by the Cato Institute, there is scant evidence that the programs administered by the ED (from National Defense Education Act funding for science, math, foreign languages, etc. to the No Child Left Behind program launched in 2002) have raised student test scores or otherwise achieved their stated purposes.

Accordingly, Cato advocates termination of the programs (phasing out the $70 billion per year funding over a 3-year period). Handbook on Policy, Chapter 20, 2009.

On the basis of the inconceivably expensive failure of federal interventions over more than half a century, it would be foolish not to cease them immediately.

The net revenue loss to the states would be considerably less than $70 billion per year, by the way. Federal grant programs are inherently wasteful – breeding bureaucracy in Washington (to set standards, apportion funds, and monitor compliance) and more bureaucracy at the state and local level (to research the federal regulations, request funds and demonstrate compliance). SAFE director Barry Dorsch described the dynamics as follows in a 12/11/06 letter.

Here’s what’s going on [with federal grants]: We send taxes to Washington, D.C. The bureaucrats spend part, then let us have the rest if we spend it according to their complicated rules. I say, use the money to pay off debt, to help protect our children and grandchildren. Let the states raise the money they want to spend.

Logically speaking, the case for getting the federal government out of education seems solid, but remember that there would be a bruising political battle – which could easily be lost. Perhaps the better part of valor would be to keep the ED, but redefine its role.

In colonial times, responsibility for the education of American children rested with families and local schools. The results were better than one might have expected. As of 1785, the literacy rate among free males stood at roughly 65%, which was probably higher than the comparable figure in England. Feds in the Classroom, p. 12.

State control of the schools developed later, with decidedly mixed results. The segregated school system that came into being in the South after the Civil War and lasted until the 1954 Supreme Court decision in Brown v. Board of Education was a national disgrace. The long-time emphasis on vocational education undervalued the aspirations of many Americans, and the upward mobility for all thrust that supplanted it is patently unrealistic.

Notwithstanding the growing influence of the federal government, the public schools are still run by the states. (Some 90% of the funding comes from state and local taxes.) So current problems, such as the deficiencies in the school curriculum discussed in last week’s entry, provide further evidence that state control is no panacea.

U.S. education costs are high by international standards. The average cost per student is currently about $12,000 per year (including cost elements that are sometimes overlooked, such as pensions for retired educators), 38% above the OECD average. Patrick Byrne, director of the Friedman Foundation of Educational Choice, Talk at the National Taxpayers Conference, 6/12/09.

On the other hand, U.S. test results are far from stellar. In a 2003 OECD test of the ability of 15-year-old students to solve problems requiring computational, reading and reasoning skills, for instance, the U.S. came in 29thout of 41 countries. Feds in the Classroom, pp. 117-119.

“If we really want to improve education,” says McCluskey, “we must give parents school choice and schools autonomy, and let the market go to work.” Feds in the Classroom, p. 187.

With such an approach, it would not be necessary to reach a consensus – at either a national or state level – as to what students should study in school. Schools would be free to design their curricula; parents could choose where to send their children; school costs would be lower due to reduced overhead (fewer administrators engaged in monitoring compliance with bureaucratic requirements) and competition. Sounds great to us, but not everyone would approve.

• Bureaucrats and school administrators might not welcome the prospect of being displaced from their comfortable, well-paid jobs.

• Teachers might fear that competition between schools would undermine pay scales and/or result in job losses.

• Another source of opposition would be politicians, who are accustomed to bragging about how their programs have solved (or will solve) problems whether their claims are factually valid or not. Such posturing is generally a low risk activity due to public ignorance and/or apathy. Feds in the Classroom, pp. 124-125.

Politicians win when they appear to do something about a problem and appease those who live off government funding, while they lose very little when their initiatives do not work.

Opponents of a free market solution for K-12 education, or “School Choice” for short, would have no shortage of arguments about the dire consequences of scrapping existing government programs and/or the need for controls over new ones. For example:

• The charter (or private) schools “cherry pick” the good students; no wonder their test scores look good. You can bet they don’t want the Special Ed kids.

• There is no way to be sure that home schooling works, and the social development of the children is stunted.

• Sounds like you want to revert to an 18^th Century model for education, but this is the 21^st Century and the United States cannot afford schools run by amateurs.

Such arguments would be hard to counter because of the well-known difficulty of disproving a negative. So if fiscal visionaries decide to back a School Choice solution, they had better work out the details carefully and develop a powerful game plan for marketing it.

But, oddly enough, pushing for School Choice might be an easier battle to win than simply disbanding the ED.

A 2006 membership survey confirmed support for SAFE’s agenda, and also provided some useful feedback on strategy. Our Members Speak: New name OK, keep plugging, Newsletter 43, Fall 2006.

Feelings re SAFE strategy (as government’s fiscal situation has continued to deteriorate): 2/3 said we should “keep plugging,” 1/3 said to try new strategies (in many cases offering suggestions, which will be thoughtfully considered. No one voted for “giving up.”

We were struck at the time by a comment from SAFE member Spear Lancaster, but unclear about just how to follow up on it. [Update: we are planning a field trip in the fall to observe Spear’s charter school and compare notes.]

Only long-term answer is to change K-12 education. We have an island of socialism polluting our culture. I am on the board of the first charter school in Anne Arundel Country, Maryland.

SAFE was already on record as favoring the abolition of the federal Department of Education in the interest of reducing government spending. See, e.g., Two More Cuts, Newsletter 42, Summer 2006.

The U.S. Department of Education ($71 billion) should be abolished. President Reagan and Newt Gingrich proposed to abolish it, but it has continued to grow. Much better to let the states compete and learn from each other. Expect the education of children to improve after abolition.

But Lancaster’s point went beyond getting the federal government out of education to changing the information being taught in schools across the country. Hmm, sounded like a tall order for a little organization like SAFE.

On the other hand, the “island of socialism” label carried some weight. Many Americans are ill prepared to manage their own financial affairs, let alone to understand how the economy works. They overestimate the government’s contribution to the national welfare, underestimate the private sector’s contribution, and pay limited attention to how the government is spending their money. These attitudes may be due, at least in part, to what they were taught in school.

Revamping the school system would be no small task, but it might be easier than trying to “educate” a substantial segment of the adult population. In our experience, “grownups” do not change their minds about anything very easily.

The idea would not be teaching sophisticated financial strategies (leave that to the business schools), but imparting an understanding of basic financial principles. Thus, DeWayne Wickham advocated “a massive financial literacy education program” in a recent column, on grounds that some borrowers in the 2007-08 subprime crisis did not understand the mortgage obligations they were assuming. Financial literacy: A way out of economic crisis, 11/27/08.

[Many Americans] don’t understand the need to live within their means. They don’t know the long-term value of a personal savings account. They buy cars they can’t afford, clothes they don’t need and homes that cost more than they can actually pay.

Wickham sees financial literacy as a subject to be “pushed” by the federal government. How ironic, given the seeming inability of the government to manage its own fiscal affairs! Why not extend the training, we wonder, to the workings of the overall economy?

To spell it out, people need to understand that wealth in our society is created by the private sector. Taxes are collected to pay for government spending, and regulations imposed to foster desired behaviors. Both taxes and regulations deter private economic activity; this drag effect may outweigh the hoped-for benefits. The government can properly borrow from time to time, as individuals and businesses do, but there will be adverse consequences if this practice becomes habitual and excessive.

Although these principles may sound glaringly obvious, many people ignore them in practice – aided and abetted by politicians. Happytalk blossoms in the nation’s capital, 7/6/09.

• Yes, I strongly believe in private enterprise, but the government must get involved in XYZ (whatever subject happens to be under discussion, from light bulbs in private homes to expenditures on purportedly unnecessary medical procedures).

• I have always stood for fiscal responsibility, the government must live within its means like everyone else, but action on the ABC crisis cannot wait a minute longer. Conservatives, let this be our Waterloo [victory over the liberals], Dan Gainor, Townhall.com.

A quick search of the White House Web site finds 530 separate mentions of “crisis.” They’ve got an “economic crisis,” a “financial crisis,” a “home mortgage crisis,” a “flooding” crisis, an “international financial crisis,” a couple of “humanitarian” crises and even a “potential environmental crisis” in Australia.

• The program will create jobs, speed economic recovery, and prevent anything like the ABC crisis from ever happening again. (Never mind that reckless government spending and borrowing threaten to trigger a fiscal meltdown that would make ABC look like a minor problem.)

We do not necessarily favor incorporating financial literacy in the school curriculum. One concern is the crowding out of academic subjects, such as math, English, and civics. FLT: a nightmarish scenario, 12/8/08.

There is just so much time in the school year. The more time is devoted to ancillary programs, such as driving training or financial literacy, the less time will be left to teach the core curriculum. Expanding such programs may not be smart at a time when the U.S. school system is falling behind.

It also seems unrealistic to rely on a government-run school system to teach that the government needs to manage its fiscal affairs in a more responsible manner. Before long, the financial literacy instructors might be singing the praises of Keynesian economics (deficit spending to boost the economy).

We would therefore recommend that financial literacy training be offered on an elective basis, ideally as an extracurricular activity, for the purpose of helping participants learn to manage their personal finances. If students grasp that the “no free lunch” principle applies in their own lives, they will hopefully remember that principle in later years when considering the merits of government programs.

One form of financial literacy training, the Money Rules summit, has been well received in the First State. At a daylong session in 2007, 200 high school students compared notes on spending wisely, saving early, and not getting into debt. The event was co-sponsored by the Delaware Money School and state Treasurer (now Governor) Jack Markell. Teens say money class enriching, Drew Volturo, Delaware State News, 11/27/07.

SAFE director Steve McClain, who worked in the Delaware school system for a number of years, recalls a classroom exercise that he developed. At the outset, the students were presented with the following scenario:

You come home from school and find a note on the kitchen table. “Your father and I have decided to retire and move to Florida. From now on, you will have to support yourself. Good luck!”

In light of this development, students were asked to make a list of what they would need (e.g., housing, utilities, food, clothes, transportation, healthcare, and entertainment) to live on their own, look up prices in the newspapers that were provided, and prepare a monthly budget.

At a subsequent session, students were asked what employment they would obtain; they then forecast their earnings (using the newspapers as a reference for wage rates) and subtracted the applicable taxes.

When the spending and earning budgets were compared, says McClain, many students saw that drastic adjustments were needed on the spending side – and came away with heightened appreciation for the support being provided by their parents.

Aside from financial literacy, what changes in the curriculum might be considered? Very briefly, here are some potential areas for improvement.

• Math – Emphasize the importance of getting the correct answers, not simply using the right method. Require students to solve the problems manually until they master the computational techniques involved before permitting the use of calculators.

• English – Assign lots of writing, and review the work critically. High school graduates should be able to express their ideas clearly, using proper grammar and complete sentences. They should not be allowed to copy (or paraphrase) material they found on the Internet and turn it in as their work.

Also, we question the concept of teaching “English as a second language” while providing non-English instruction in other courses. The predictable results will be to increase the number of teachers employed and slow the assimilation of immigrant children into the mainstream.

• Civics – We do not believe that U.S. culture is no better than any other culture, that the political system envisioned by the Constitution is passé, or that this country should apologize to the world for its success. Yet, sadly, U.S. schools (and colleges) are doing a poor job of teaching American values, institutions, and history – the collective memories essential to know what this nation represents and reason about where it should be headed. David Boren [president of the University of Oklahoma, formerly the state governor] explained why in A Letter to America, University of Oklahoma Press (2008), p. 99.

We have sidestepped the obvious need for core requirements essential to civic literacy, because we do not want to set off controversies between races, genders, and ethnic groups about what we should require all students to study. We can no longer allow these “culture wars” to paralyze us. We must take action.

• Computers – Digital devices have vast potential for improving the efficiency and quality of education. Videotaped training modules (such as those sold by the Teaching Company to the general public) can provide mass access to highly skilled instructors at a modest cost. Learning a language can be greatly facilitated by the use of well-designed computer program, such as Rosetta Stone. And Internet research is faster and more effective than traditional library research, although perhaps less conducive to thoughtful contemplation than reading books.

Educational professionals may resist the use of videotaped or on-line training, however, because it could reduce the number of teachers required. To our knowledge, limited use has been made of these techniques in K-12 schools.

As for Internet research, it is a mistake to expect students to use their time productively if the goals of a project have not been clearly defined and their work is not critically reviewed. Yes, Johnny spent two hours on the Internet, but what did he learn from the sites visited and what was done with the information? The idea should not be to let students learn what they want; it should be to help them learn what experience shows that they need to know. The Dumbest Generation: How the Digital Age Stupefies Young Americans and Jeopardizes Our Future, Mark Bauerlein (a professor of English at Emory University), Tarcher/Penguin (2008).

OK, that should be enough to make the point that there is room for improvement in the curriculum of U.S. schools. Reasonable minds could differ on the points that have been covered, and it would be very difficult to achieve consensus for a “new curriculum” unless some centralized authority was empowered to mandate that it be followed.

Does this mean the federal government should take over the school system, contrary to the position SAFE has always taken, or is there some other way to proceed? We will discuss the question in next week’s entry.

We posted a hypothetical letter to Congress in May 2008, urging big spending cuts to balance the budget. A line in the sand on taxes, 5/26/08.

Proclaiming your dedication to spending the taxpayers’ money wisely will not suffice; we have heard such claims before. Forget about blaming the deficit on the other party, that excuse is threadbare too. Instead of the usual talk, let’s see some action.

We want wasteful programs terminated – not renamed, reorganized, or cut 5%. Ethanol mandates and subsidies – gone. Agricultural subsidies – gone. Export-Import Bank – gone. Hundreds of federal grant programs that most taxpayers have never heard of – gone.

Then we were complaining about a $400 billion deficit; now a $1.8 trillion deficit is projected for fiscal year 2009. So perhaps a second letter is needed, e.g., we told you to cut spending, you did the opposite, and the window of opportunity is about to slam shut.

But would anyone in Congress pay attention to such a letter, other than the heroes (a distinct minority) who are already fighting for fiscal responsibility? Before putting pen to paper, we decided to run a reality check.

Public sentiment – Our May 2008 letter cited a low Congressional approval rating as evidence that Americans were tired of ever-growing government spending.

Aside from shutting down the Interstate Commerce Commission a few years ago, when is the last time that you terminated a government program? No wonder the approval rating for Congress has sunk to 18%.

The source was a recently conducted Gallup poll. Approval of U.S. Congress ties record lows [in 1992 and 2007], UPI.com, 5/14/08.

Based on our theory, one might think the Congressional approval rating would be in the single digits by now, but guess again. It rose to 40% after the election, and is only now tailing off. Congress’ Approval Rate Drops to 33%, Gallup, 6/23/09.

A more encouraging sign from our standpoint might be the number of Americans who identify themselves as “conservative” vs. “liberal.” Recent polls indicate about twice as many conservatives as liberals in the population, and also a shift to the right (by Republicans, Independents, and to a lesser extent Democrats) “in recent years.” Ideologically, Where Is the U.S. Moving, Gallup, 7/6/09.

A conservative trend is belied, however, by the victories of the traditionally more “liberal” Democratic Party in the 2006 and 2008 elections.

Also, the trend of opinions on individual issues does not bear out an overall increase in “conservative” sentiment. One might conclude from the data (measured by polls in 2004 and 2008-9) that Americans are growing more conservative about some things (including issues unrelated to the SAFE agenda, e.g., gun rights) and more liberal about others.

When it comes to healthcare, for example, the public seems conflicted. Many people hope to benefit from government-run healthcare in some fashion, but they do not necessarily want to help foot the bill.

Changes in public attitudes on healthcare reform have been mixed. The percentage of Americans in favor of maintaining the current healthcare system based on private insurance was 63% in 2004 but 56% in March 2009 -- a drop of seven points for the traditionally conservative healthcare position. (Support for the alternative position -- replacing the current healthcare system with a government-run system -- grew from 32% to 39%.) At the same time, Gallup saw a seven-point increase, from 34% to 41%, in views that it is not the government's responsibility to provide all Americans with healthcare coverage.

All things considered, muses the Gallup analyst, “many in and outside of the Republican Party [are] wondering whether the country has outgrown the GOP’s largely conservative platform.” The polling firm does not appear convinced that the country is moving to the right, nor for that matter are we.

Activity – We previously reported on the tea parties with a healthcare theme that were planned in Delaware on July 2. They have now taken place. There was a rally in Georgetown, plus sidewalk demonstrations outside the district offices of Delaware’s three members of Congress (one location in Dover, two in Wilmington).

Maybe things need to get worse (think California, where politicians are still reeling because voters rejected all of the tax increase proposals in a recent referendum) before demonstrators start turning out en masse. Or perhaps the place to demonstrate is in Washington D.C. (the heart of the fiscal problem), where a July 4^th tea party drew a crowd estimated at 2,000. Photos posted by Freedom Works attest to the spontaneity and enthusiasm of that event.

Advance registration for the September 12 “March on Washington” is reportedly up to 9,000 already. We will remind you again, but please note this event on your calendar now so you will remember to watch it on television – or better yet, be there.

Ideas – Last week, we reviewed the marketing pitches for the economic stimulus bill (already passed, but in the news because it does not appear to be working), government-run healthcare, and cap & trade. None of these proposals holds water, in our opinion, and certainly the downside aspects have not been honestly disclosed. Happytalk blossoms in the nation’s capital, 7/6/09.

SAFE and its allies may not be in the ideological majority right now, but we can point out gaping holes in the other side’s arguments and present arguments of our own. Somebody needs to do this, because things are moving very fast in a direction that cannot be readily reversed if the Administration’s proposals get approved. We are glad to take the initiative, but would hope that others will join us – lots of them.

OK, now we are grounded, and it is time to act. Here is SAFE’s on-line letter to the members of Congress, which is shorter and less emotional than the first, perhaps more realistic, but equally pointed. We will also e-mail Senator Carper, Senator Kaufman, and Representative Castle to bring the letter to their attention.

Readers are urged to follow our example by calling, e-mailing or writing the members of Congress who represent them. Many contacts will be needed to have real impact, so please do not rationalize that “SAFE has done the job already.”

One approach would be to forward a link to our letter with your personal endorsement. Such action would be quick, easy, and supportive of our efforts.

It might be even better, however, to make the case for fiscal responsibility in your own words. If you use this approach, feel free to borrow any of the words or ideas in our letter that you would like.

Finally, please respond to the question of the week (link is in the box below). We would appreciate your input, and so would other readers.

We have noticed a pattern in Washington of late, which goes something like this. A huge government program is proposed to deal with a problem (whether current or forecast). The purported benefits are touted relentlessly, without discussion of drawbacks or costs. There is such a rush to enact legislation that members of Congress may not have time or inclination to read the final bill before voting. And anyone who complains runs the risk of being labeled a diehard extremist.

Is this country headed for a situation like the one described by George Orwell in 1984, a novel set in a futuristic totalitarian state where the distinction between propaganda and reality has been largely obliterated by Newspeak (enforced by the Thought Police).

Maybe, but things have not gone that far in the United States – yet. So let’s refer to the kind of one-sided political rhetoric that is in vogue as Happytalk.

Three Happytalk examples will be presented. The subjects are different, but the marketing approaches are similar.

Economic stimulus – For all the reasons to doubt that the president’s stimulus proposal would speed an economic recovery, no serious consideration was given to taking a more measured approach – let alone opting for “lower tax rates and a reduction in the burden of government,” which several hundred economists called “the best ways of using fiscal policy to boost growth.” Economic stimulus package: what’s the rush? 2/2/09.

The tactics used to push through the $787 billion economic stimulus bill have already been reported. Scary talk – blame game – faux economic history – naked partisanship. Playing hardball, 2/16/09.

Members of Congress who voted for the bill were quick to take credit for the predicted benefits – without discussing how the spending would be paid for.

Senator Tom Carper (D-DE): Delawareans will see benefits from this bill in the form of jobs and tax cuts. Over the coming weeks, I look forward to sharing the ways in which Delaware families and businesses will receive badly needed assistance with the passage of this legislation.

Senator Ted Kaufman (D-DE): After a month where we lost 600,000 jobs – 20,000 per day – this economic recovery package delivers what we need: 3.5 million jobs. There is no higher priority than getting our citizens back to work. The American people are demanding bold and quick action, and today we delivered it.

Administration officials soon began talking about the recession as though it had gone away – having saved the economy, they had other fish to fry. Despite the president’s assertion on February 9 that speedy passage of the stimulus bill would “save or create up to 4 millions jobs,” however, joblessness (a lagging indicator) continued to climb. Whatever happened to the greatest financial crisis of our time? 6/15/09.The unemployment rate now stands at 9.5%, and many people with jobs are working part-time. Despite some encouraging economic signs, such as low inventory levels that will be restored at some point, one might logically conclude that the stimulus bill is not working as advertised. Tilting at Windmill Jobs, Wall Street Journal, 7/3/09.

The Administration argues that the recession would be worse without the stimulus, which is impossible to disprove. However, it's worth recalling that Mr. Obama's economists predicted late last year that the stimulus would keep the jobless rate from exceeding 8%. That was a percentage point and a half ago. It's far more likely that the economy would have been better off without the spending, and the higher taxes and debt financing that it implies.

Skepticism about the stimulus bill has spread. Thus, in a June poll, 61% of respondents said the bill either hurt the economy or had no effect on it. And 45% said “the rest of the new government spending in the new stimulus bill should be stopped right away.” 31% Say Stimulus Plan Has Helped Economy, 30% Say It Hurt, Rasmussen Reports, 6/25/09.

Unfazed, senior officials have hinted that the president would consider more economic stimulus (although much of the money already authorized remains to be spent) if needed. When asked about this possibility during an CNBC interview, for example, Christina Romer (who chairs the Council of Economic Advisers) said “we’ll do whatever it takes” to promote economic recovery. No second stimulus, please, Washington Examiner, 7/3/09.

Healthcare – Advocates of healthcare “reform” say it should be possible to provide coverage for most (if not all) of the Americans who currently lack healthcare insurance while lowering costs for everyone.

Consider the president’s keynote remarks at the Forum on Health Reform (White House, 3/5/09). Those who do not have healthcare insurance should be enabled to get it, he told the audience. Those who are satisfied with their healthcare insurance should be able to keep it and pay less. And his version of healthcare reform is “one of the best ways, in fact maybe the only way” to “get our federal budget under control.” A tale of two summits, 3/16/09.

Really? Many observers believe that extension of healthcare insurance to some 45 million additional people would increase healthcare costs without limitations on access to healthcare services (aka rationing). No such conclusion has been communicated to the general public, however, nor would it be well received.

The projected cost of some of the healthcare bills under consideration has led to discussion of accompanying tax increases (or the equivalent, e.g., requiring employers to “play or pay”), but any tax increases that might be imposed are already spoken for. We interrupt this program for a special announcement [that the government is out of money], 6/1/09.

The idea seems to be that the government can spend more money on healthcare so long as taxes are raised by a like amount. Ideally the burden would fall on people with more money than they need, or those who are running up healthcare costs with unhealthy habits, but a sales tax on everyone would do in a pinch.

The fiscal problem is huge, however, and there is just so much the public is willing to pay in additional taxes. Even if taxes were to be raised, the proceeds should be allocated to reducing deficits – not funding new spending programs.

As for expecting to pay for healthcare reform with cost savings, Stuart Butler of the Heritage Foundation suggests that the cost savings be realized before taking on any new commitments. Time for “real world” health budgeting, Washington Times, 7/2/09.

If Congress and Mr. Obama are serious about paying for healthcare, and if they seriously think it can largely be paid for by savings, they have nothing to lose by agreeing to a kitchen-table style of saving money in a cookie jar before they spend it. But if they won't do that, then make sure your children and grandchildren get really high-paying jobs - because they will be stuck with the tab.

Reasonable minds may differ on how healthcare should be reformed, but we would hope for agreement on two points.

First, there been more than enough Happytalk. Let’s have a realistic discussion of what should be done (if anything) about healthcare, and whether the country can afford it.

Second, all reasonable viewpoints (including ours, see the link below) should be considered. There is no compelling reason that the job must be concluded in 2009.

Energy policy – The Happytalk model might seem inapposite in this context, as the prime argument for expanded government control over the energy sector has been the purported danger of leaving decisions to the private sector.

In the 1970s, the theme was scarcity, e.g., energy conservation needed to be mandated before the world ran out of oil and economic activity ground to a halt. Although the predicted oil shortages failed to materialize, there is continuing talk about how the United States must cure its “addiction to oil” so as to reduce or eliminate oil imports.

Nowadays, the manmade global warming theory is said to justify drastic action to “save the planet.” The theory has been pushed hard by environmentalists, is generally accepted by the mainstream media, and enjoys an aura of “political correctness.”

Proponents of increased government regulation are fond of doomsday scenarios about the consequences if their proposals are not implemented. Consider the scary statements of former Vice President Al Gore, and his award-winning movie, “An Inconvenient Truth.”

Several officials in the current Administration seem to be global warming alarmists, notably Energy Secretary Steven Chu. After speaking at the Summit of the Americas in the Caribbean nation of Trinidad and Tobago, for instance, Secretary Chu summed up his thoughts in a 4/19/09 interview with Major Garrett of Fox News. Here’s an extract.

I think the Caribbean countries face rising oceans and they face increase in the severity of hurricanes. This is something that is very, very scary to all of us. The island states in the world represent -- I remember this number -- one-half of 1 percent of the carbon emissions in the world. And they will -- some of them will disappear.

A shift in strategy is in the making, however, with less scary talk about global warming and more Happytalk.

Thus, Speaker of the House Nancy Pelosi (D-CA) declined Al Gore’s offer to come to Washington during the countdown to a vote on the Waxman-Markey bill (W-M) and “deliver a final pitch to the House Democratic Caucus.” She reportedly preferred to have Gore making telephone calls from Tennessee. Michelle Malkin’s blog, 6/25/09.

In the debate before voting on W-M, Speaker Pelosi took a new tack. Never mind whether the manmade climate change theory is right or wrong; this is a jobs bill. Cap and Confuse, Paul Greenburg, Townhall.com, 7/2/09.

[She] didn't even bother to answer the minority leader's numerous and pointed criticisms of this energy bill. Surprise: It's not actually about saving energy after all, but about providing employment. At least to hear her yell it. Instead of a speech, she just repeated, like a cheerleader: "Jobs, jobs, and more jobs. Let's vote for more jobs."

Hmm, that’s odd! A forced switch to higher cost energy sources should depress the economy and produce lower employment, as economic analysts have confirmed. Son of Waxman-Markey: More Politics Makes for a More Costly Bill, William Beach et al., Heritage Foundation, 5/18/09 (updated 6/16/09).

Analysis of the economic impact of Waxman-Markey projects that by 2035 the bill would reduce aggregate gross domestic product (GDP) by $9.4 trillion; destroy 1,145,000 jobs on average, with peak years seeing unemployment rise by over 2,479,000 jobs; . . .

What’s going on? It seems that polling and focus group discussions have shown that the environmentalists need to adjust their pitch, and they are doing so. The switch from “global warming” to “climate change” was a first step; many additional changes have been recommended by experts in environmental marketing and messaging. Seeking to Save the Planet, With a Thesaurus, John Broder, New York Times, 5/1/09.

“Energy efficiency” makes people think of shivering in the dark. Instead, it is more effective to speak of “saving money for a more prosperous future.” In fact, [ecoAmerica’s] surveys and focus groups found, it is time to drop the term “the environment” and talk about “the air we breathe, the water our children drink.”

“Another key finding: remember to speak in TALKING POINTS aspirational language about shared American ideals, like freedom, prosperity, independence and self-sufficiency while avoiding jargon and details about policy, science, economics or technology,” said the e-mail account of the group’s study.

Judging from his comments after W-M passed the House, the president gets it. Has the White House decided global warming is a losing issue? Timothy Carney, Washington Examiner, 6/27/09.

If you went by President Obama's words alone, you would think this bill had nothing to do with capping greenhouse gas emissions in an effort to battle climate change. He has vague talk of praising "action" and "change" over "inaction" and the "status quo." He talks about "clean energy," and once about "pollution." But he completely ignores the aspect of this bill that garnered almost all of the media, lobbyist, and congressional attention: that the bill, for the first time in history, regulates the emission of carbon dioxide from many U.S. sources.

Similarly, consider the 1,100+ word statement that Representative Mike Castle (R-DE) released to explain his vote for W-M.

“Global warming” is not mentioned, and there is only one reference (in a quote) to “climate change.” It seems that the legislation is primarily about strengthening the economy by driving advancements in industry and new business growth.

As for costs, a study is cited to the effect that Delawareans might have to pay an extra $3 per month on their electric bills. That sounds low to us, and the estimate is certainly out of line with the results of other studies. Thus, the above-cited Heritage study concludes that by 2035 W-M would “raise electricity rates 90 percent after adjusting for inflation.”

According to former Speaker of the House Newt Gingrich, W-M “could be the largest tax increase in history on the American people.” Cap-and-Trade is another way of saying 2+2=5, Washington Examiner, 6/26/09.

The sponsors of the global warming bill, which is known as Waxman-Markey, are telling Americans that not only will the legislation save us from calamitous climate change, it will also produce new jobs and new prosperity by transitioning America to new forms of "green" energy.

In other words, under Waxman-Markey, there's no trade-off necessary to save the planet; no price to be paid. It's a win-win-win.

We are not buying the Happytalk about economic stimulus, healthcare, or energy policy. Shame on the proponents; they should present their proposals honestly and be open to other viewpoints – including the dictates of fiscal responsibility.

The National Taxpayers Union hosts a conference every other year on taxpayer concerns. Two SAFE directors (Steve McClain and Bill Whipple) attended the latest one (Alexandria, Virginia, June 11-13). Their report follows.

The tone of the 2007 conference was generally upbeat. SAFE represented at National Taxpayers Conference, 6/20/07 (first entry in this blog).

The focus was not on whether our country needs more limited government, everyone agreed it does, but how to get there. * * * The problems of an unwieldy, relentlessly invasive government that is in a deep financial hole took years to develop, and it will take years of dedicated effort to start turning things around. That being said, we left the conference feeling that SAFE is not a voice in the wilderness – there are some very fine people in other organizations, big and small, who share our values and vision and are working like us to make them a reality. Together, we can make a difference!

Much has happened since these words were written. A recession (aka economic crisis) fueled demands to “do something.” The country elected a president who favors government-run solutions, and gave his party a commanding edge in both houses of Congress. Government spending and deficits are soaring. Big tax increases will follow, although the president and his allies have been less than upfront about this.

Speakers and participants at the NTU conference decried the contemplated expansion of government and warned of the consequences. There was little agreement, however, as to how fiscal conservatives (or fiscal visionaries, as we prefer to think of ourselves) should try to get back in the game. This entry will discuss some of the competing visions.

Political comeback: Polls can be cited (more Americans consider themselves to be “conservatives” than “liberals”), and activities (e.g., the tax day tea parties) pointed to, which suggest this country does not want to go Socialist.

The tea parties were not dreamed up by the Republican Party, Fox News, or any other well-established organization, said Representative Mike Pence (R-Indiana). They were genuine “grass roots” demonstrations, which show that something BIG is happening out in the hinterlands – to the terror of entrenched politicians. Pence’s theory is that people are demonstrating against government expansion and for freedom, because "when government expands, freedom contracts.”

The opposition party fondly recalls how it rebounded after election losses in 1976 and 1992. As columnist John Fund of the Wall Street Journal observed, however, another political comeback is not preordained; the point is simply that conservatives have a chance and should keep trying.

Liberals know their hold on power is insecure, which is one of the reasons for their advice to conservatives: “Unless you become more like us, you are history.” Ignore them, said Fund, because reducing the conservative message to mush is a prescription for failure.

Belying the political comeback theme, there was recurring criticism at the conference of past actions by Republican leaders. One would gather that many fiscal conservatives are disinclined to support a Republican comeback, at least until they see more evidence that the GOP has gotten its house in order.

Note that conservatives are not joined at the hip with either of the major political parties. Historically the Republican Party has been seen as pro-business and fiscally conservative, but it drifted away from these values in recent years. A growing number of Americans (39% per a poll in April 2009) view themselves as independents rather than Democrats or Republicans.

Both political parties have lost adherents since the election and an increasing number of Americans identify as independents. The proportion of independents now equals its highest level in 70 years.

But if fiscal conservatives disassociate themselves from the messy business of recruiting candidates and trying to get them elected, how can they bring their influence to bear? One way might be to push for fiscal reform on a nonpartisan basis.

A grand bargain – David Walker, CEO of the Peterson Foundation and former Comptroller General of the United States, painted a dire picture of the recent fiscal record. His points should sound familiar to readers of this blog.

• The Troubled Assets Relief Program (financial sector bailout) lacked both clearly defined objectives and sound criteria for making loans. The conditions for the financing were only spelled out after the fact.

• One-third of the $787 billion stimulus bill met the timely, targeted and temporary criteria. The rest was for “investments” to be charged on the national credit card.

• The omnibus budget bill for FY 2009 (unfinished business from 2008) was too big and loaded with earmarks.

• The economic assumptions in the president’s budget for FY 2010 et seq. were unduly rosy. No appreciable cuts in government spending programs were reflected, nor was a restructuring of entitlement programs called for.

By the end of Fiscal Year 2010 (9/30/11), the gross National Debt will stand at about 100% of GDP; the projected growth of entitlement spending (Social Security, Medicare and Medicaid) could “sink the Republic” over the longer term.

Walker visualizes a commission or task force, established by statute, which would be empowered to review the fiscal situation with the objective of recommending a “grand bargain” on spending, taxes and entitlements. The group’s recommendations would be presented to Congress for an “up or down” vote.

There is considerable interest in the independent commission concept among members of Congress who have despaired of addressing the fiscal problem through traditional means. Voinovich and Lieberman Introduce SAFE proposal, 5/7/09.

The proposal, dubbed the SAFE (Securing America's Future Economy) Commission Act, seeks to establish a commission that will examine our tax and entitlement programs. The hope is that the commission will offer recommendations about how to reform a system the senators deemed unsustainable and irresponsible.

Such an approach would require give and take, and Walker counseled the NTU attendees to be realistic in their expectations. Smaller government is not in the cards, and taxes will have to go up. Get on board now, because the longer action is delayed, the bigger the required tax increase.

Walker did express confidence, however, that the progression towards a European-style welfare state can be stopped. “Yes, we can institute tough budgeting controls,” he said, with the controls being instituted before the higher taxes go into effect.

Despite our great respect for Walker, who has spoken out courageously about the government’s fiscal problems, we are less confident than he about the independent commission approach. Some concerns follow.

• Prior proposals of this nature, e.g., the SAFE Commission proposal of Representatives Jim Cooper (D-Tenn.) and Frank Wolf (R-Virginia), focused on spending and taxes. In other words, the entire fiscal equation was to be put on the table. Cooper, Wolf Reintroduce SAFE Commission Long-Term Fiscal Reform Bill, Spring 2009.

[The Commission] would be tasked with holding town hall meetings around the country and then submitting a report that balances long-term spending and revenue scenarios for the nation. If Congressional leaders fail to introduce their own proposal, the SAFE Commission’s legislative proposal is automatically brought to the House floor. If passed, it is sent to the Senate for similarly expedited consideration.

The Voinovich-Lieberman approach is apparently directed at entitlements and taxes, however, which would leave wasteful government spending out of the equation. We suspect that this would stack the deck in favor of tax increases, as the only alternative would be cuts in entitlement programs that have heretofore been regarded as sacrosanct.

• Another worrisome aspect of the SAFE Commission concept is that healthcare “reform” would be taken up first. Although Walker visualizes the invocation of a “do no harm” fiscal standard in addressing healthcare, the proposals on the table involve substantial additional costs that could only be paid for by raising taxes (thereby eliminating sources of revenue to reduce deficits).

In our view, the sequence of events should be reversed. Thus, the soaring cost of current healthcare programs (Medicare, Medicaid, and SCHIP) would be addressed first, whether through a SAFE Commission or otherwise, with healthcare reform to be considered later.

• Finally, note that the president and his advisors were talking about a “grand bargain” before the inauguration. Obama Targets a “Grand Bargain” to Fix Budget Mess, Wall Street Journal, 1/16/09.

Odd as it sounds amid a wheezing economy, mounting bankruptcies and rising unemployment, President-elect Barack Obama and his aides realize they'll actually be dealing with the easy part of their economic challenge when he takes office next week. After all, getting Congress to agree to spend billions of dollars and cut billions more in taxes to stimulate the economy right now is, politically speaking, relatively easy.

The harder part will be trying to follow that up by creating what is coming to be known in Obama circles as a Grand Bargain: getting everyone to agree to clean up the nation's budget mess in a really big way, one that doesn't just fix the problems being created now, but also addresses the frightening long-term problems America was going to face anyway to pay for Social Security and Medicare in coming decades.

It sounds like the president’s game plan all along has been to ram through a huge increase in government spending and then maneuver his political opponents into sharing the responsibility for the resulting tax increases.

In the words of Benjamin Franklin, “necessity never made a good bargain.” Are there any other ideas out there?

Fix taxes – Some fiscal conservatives remain keen on reinventing the tax system. Thus, under the FairTax proposal, income taxes and payroll taxes would be replaced by a national sales tax. The IRS would be disbanded. Hundreds of billions of dollars in tax compliance costs would be eliminated, and there would supposedly be less opportunity for tax evasion by people working off the books.

To ensure that the country would not wind up with a national sales tax and an income tax, the 16^th Amendment (providing for an income tax) would be repealed. Or so it is said. In practice, amending the Constitution in this regard would be easier said than done.

SAFE agrees the tax law should be simplified, and we would probably line up behind the FairTax proposal if it gained traction. We would also support other approaches to tax simplification, such as a flat tax or radical overhaul.

But genuine tax reform may prove elusive, and even if achieved it would not rein in government spending covered by borrowing.

Spending cap – Imagine a Constitutional amendment requiring Congress to balance the budget every year. In addition, total spending would be limited to a stated portion (say 20% or 25%) of Gross Domestic Product, except in times of declared war or when authorized by a 2/3 majority of both houses of Congress. Wouldn’t that be nice?

Maybe, but it would not be enough. The government is in a huge fiscal hole, and explicit action would be required to adjust its unsustainable commitments for Social Security, Medicare and Medicaid. Without such action, a spending cap would only restrain expenditures for the functions of government, e.g., national defense, that fall under the heading of “discretional” spending.

The idea of a balanced budget amendment is not necessarily dead. During the concluding session of the conference, NTU Chairman David Stanley reminded everyone that a balanced budget amendment passed the House in 1995 and came within one vote of the required 2/3 vote in the Senate. Maybe the NTU will have another go at it, he said.

With a rapidly deteriorating situation, what should fiscal visionaries try to do?

We are not inclined to count on “one-shot” solutions, such as a SAFE Commission or balanced budget amendment, although we would be willing to support them. The crux of solving the fiscal problem is applying sustained pressure in the right direction.

Perhaps “smaller, more focused, less costly government” is not in the cards right now, but it is also hard to imagine the fiscal problem being solved while the government continues to expand its influence at the expense of the private sector.

Unless someone puts an axe to government programs and spending, this country is headed for a big fall – and it could happen quicker than people think.

It was not our idea, but the next round of TEA (taxed enough already) parties in Delaware – scheduled for Thursday, July 2, in Wilmington (two locations), Dover, and Georgetown – will protest the Administration’s plan for healthcare reform.

April 15^th marks the day when over 2000 Delawareans added their voices to over 1 million voices in every state in this Country. The cry then was to stop the reckless spending. These voices will once again unite in Delaware stating, not only [stop] the reckless spending, but present a health care reform plan that will actually solve the health care problems facing our Country.

Such a theme has some logic. The Administration’s plan would cost a ton of money (on top of hundreds of billions already being spent on Medicare and Medicaid), the government is running record deficits now, and taxes would inevitably be raised. People who are “taxed enough already” do not want to pay higher taxes. So make a sign, everyone, and let’s go.

Except for one little detail! If we the taxpayers intend to not only protest the Administration’s healthcare plan but also demand an alternative, what do we want? Here are the criteria posted by the Delaware Tea Party (restated in the interest of brevity):

Put patients first -- keep medical decisions between doctors and patients – do not give an advantage to the government, insurance companies, or pharmaceutical companies – ensure that healthcare will no longer be a big business – place healthcare choices in the hands of patients, guided by their physicians, and provide tools to make this happen – do not cause our children to pay for our mistakes.

The foregoing represents a wish list and nothing more. How can one expect that “healthcare will no longer be a big business,” for example, when it represents about 1/6 of the U.S. economy? What specific changes are desired from the status quo, and how would they be brought about? Would the plan save money or cost money? If costs increased, who would pay?

Our ideological opponents might seek to co-opt the demonstrations. “Why, of course you should have all these things, and that is exactly what the Administration’s healthcare reform plan would do!” Whether or not anyone believed them, the impact of the planned rallies would be blunted.

The media would dismiss the second round of tea parties as meaningless. Delaware members of Congress would feel no pressure to reconsider their votes. And taxpayer activists would be discouraged, making it difficult to call on them in the future – as suggested by this posted comment.

April 15 many of us stood in the rain at a tea party in Georgetown. Was anything accomplished besides being criticized by the mainstream news media (and getting wet)? Will anything be accomplished by meeting in Georgetown in July? I don't mind being criticized by the news media (or standing in the rain) as long as it means something. I think the only thing that will cause our President and Congress to pay attention is for millions to rally in front of the Capital Building or White House--probably more than 1 or 2 times. -- Carole Cullen

A Washington, D.C. event is planned on September 12, and the July 4^th round of tea parties around the country will lay the foundation. 6/11/09, Freedom Works Foundation.

But Ms. Cullen’s feelings are understandable, and they underscore our conviction that the upcoming tea parties need to be well handled. Some suggestions follow.

First, emphasize the connection to taxpayer interests rather than healthcare reform as such. For example:

• Experts say the Administration’s healthcare plan would cost some $1.5-2.0 trillion over the next 10 years.

• The government is already on track to run $9 trillion in deficits over the next 10 years, which could lead to a reduced U.S. government credit rating, sharply higher interest rates, and double-digit (or worse) inflation.

• Raising taxes to pay for increased healthcare spending is no answer. Any additional tax revenues should be applied to reduce deficits – not used to pay for additional spending.

Second, he (she) who succeeds in framing the issue will win the debate, according to communication experts. Remember that the fundamental problem with the healthcare system is not the 46 million or so Americans (including illegal aliens) without insurance coverage, it is skyrocketing costs that threaten to make healthcare unaffordable for all concerned. A “ready, aim, fire” approach to healthcare reform, 3/30/09.

Stay on message! Here is what you should say, for instance, if asked about the people without healthcare insurance. “That’s an interesting question, but we need to get healthcare costs under control first.”

Third, why are healthcare costs growing so fast? Government subsidies and controls come to mind, which undermine personal/family responsibility for medical decisions and reward treatment vs. disease prevention. Reining in healthcare costs is complicated, and some of the steps involved would be controversial. SAFE plan for healthcare reform is “government-lite,” 4/6/09. But here are some broad principles on which participants should be able to agree:

• Thoughtfully consider all responsible options; there should be no rush to enact a healthcare bill that has not even been written yet. Biggest Shift in U.S. Healthcare Needs 45-Day Sprint, 6/17/09, Bloomberg.com. “Haste makes waste,” as the saying goes, and in this case the waste could turn out to be colossal.

“I don’t think we’ve ever had anything this large in American history aimed to go this quickly that touches everybody’s lives,” said Robert J. Blendon, a professor of health policy and political analysis at Harvard University in Cambridge, Massachusetts, in a telephone interview. “They’re moving at a pace we’ve never seen before.”

• Do not authorize new government interventions in the healthcare sector. They would increase costs, not reduce them, unless government bureaucrats were empowered to make medical decisions for people. That would represent rationing, and we do not want it.

• Stop nickel and diming family doctors, and protect them from the trial lawyers by capping medical malpractice awards (e.g., no punitive damages).

• Encourage competition in the healthcare sector and empower patients and their families to make informed treatment decisions.

6/15/09 – Whatever happened to the greatest financial crisis of our time?

Released in January of 2009, “The End of Wall Street As We Know It” by Dave Kansas covers the financial turmoil that erupted in 2008 – why a speculative bubble in housing got started a few years back, how big Wall Street firms and Fannie Mae/Freddie Mac made matters worse, and what happened when the bubble burst.

The story is not over of course. Important developments have taken place since January, such as a $787 billion economic stimulus bill and the prepackaged bankruptcies of Chrysler and GM. And it remains unclear how the story will end.

Although Kansas speaks in terms of “the greatest financial crisis of our time,” perhaps to hype the book, he seems more optimistic about the future than we are as of this writing.

Timing – It is suggested (p. 192) that the timing of the crisis was somewhat fortuitous in that the newly elected president and his “top-rate economic team” would have “time to act boldly to solve problems outside the glare of election-year politicking.”

Thus far, the performance of the president’s economic team has been uneven, politics came to the fore from the start, and there is limited evidence of an economic recovery.

Consider the $787 billion economic stimulus bill, which was enacted in February on an essentially party line vote. Members of the opposition party complained that (a) they were not consulted about the details, and (b) the bill was pushed through without much opportunity for debate or even time to read the final text.

The stimulus bill did not meet the “timely, targeted and temporary” criteria that most of the participants supposedly subscribed to, and it might more properly have been labeled a spending bill. Economic stimulus package: what’s the rush? 2/2/09.

At an evening press conference on February 9, the president urged speedy passage of the bill as a means to “save or create up to 4 million jobs, because that's what America needs most right now.”

The stimulus bill was enacted, but the U.S. jobless rate has continued to climb: 7.6% for January, 8.1% February, 8.5% March, 8.9% April, 9.4% May, stay tuned for the June number in early July.

Critics point to continuing job losses as evidence that the stimulus bill was not properly designed to achieve its ostensible purpose. The president and his advisers say the bill is “working,” and has “saved or created 150,000 jobs” to date, but the support for this claim is primarily anecdotal. Obama’s plan stimulates the deficit, not the economy, Washington Examiner, 5/19/09.

On June 8, after the jobless rate for May was reported, the president pronounced himself “not satisfied” with the results of the stimulus program so far. Although reiterating that “at least 150,000 jobs” had been saved or created, he promised to push for faster spending and said another 600,000 jobs would be saved or created in the next 100 days. Obama to hurry recovery effort amid rising doubt, Jon Ward, Washington Times, 6/9/09.

Maybe, but overall joblessness is expected to go higher. According to the Congressional Budget Office, economic growth is likely to resume in the second half of 2009, but the jobless rate (a lagging indicator) will be on the rise for another year and peak at over 10%. Reuters, 5/21/09.

Opportunity for reform – New regulations of the financial sector are inevitable; they will be proposed (naively in our view) as a means of ensuring that no crisis of this nature ever happens again. Kansas suggests (p. 120), however, that the Administration may take advantage of this opportunity to redo the regulatory system from the ground up.

Traditionally, regulatory reform has simply meant more regulations and regulators. It would be shrewd to start over and discuss what exactly is the right kind of regulation and remake the system in the cleanest, most technologically sophisticated way possible. Grafting onto the old system, which creaking under the seventy-five years of legacy, would simply create a regulatory behemoth without actually addressing the issues of the 21^st century in an intelligent manner.

As expected, the president and Treasury Secretary Tim Geithner have proposed new federal oversight over financial derivatives and financial institutions considered “too big to fail” (including hedge funds and traditionally state-regulated insurance companies). See, e.g., Geithner Unveils Massive Regulatory Agenda, CBN News, 3/26/09.

But there may be a lot of resistance to reining in the regulatory functions already being exercised by various federal and state agencies. Lobbyists and agency rivals fight to shape the new Wall Street, Stephen Foley, The Independent (UK), 6/7/09.

The Commodities Futures Trading Commission and the Securities and Exchange Commission seem to have fought off the Treasury's plan to merge them, keeping the regulation of securities separate from derivatives. Regulation of the commercial banks, too, is likely to remain partly fragmented after turf wars between the Federal Deposit Insurance Corp, which protects depositors, and two other organisations which examine banks.

On the whole, we would be inclined to bet on a “more regulations and regulators” outcome.

Duration – What about the possibility that the current recession will turn into a long, drawn-out affair? Unlikely, says Kansas (p. 196):

. . . don’t expect long soup lines and tattered men selling apples from a bucket. The references to the Great Depression are hyperbolic and the product more of reduced memories [of what actually happened in the 1930s] than of reality.

We are not so sure. There is an eerie similarity between the present situation and the Great Depression, which boils down to the government’s capability to make a bad economic situation worse by responding inappropriately.

The stock market crash of 1929 marked the onset of the Depression. A nasty shock, no doubt, but it took three government blunders to create an economic disaster – tight monetary policy, the infamous Smoot-Hawley tariff bill, and a major tax increase to balance the budget. The U.S. economy sank into a deep trough as a result, and despite the New Deal programs of the Roosevelt Administration it remained weak until World War II. Big Spending and Easy Money Will Produce a Recovery: The question is whether policy errors will cause another dip, Michael Darda, Wall Street Journal, 5/6/09.

Today, the government could again make blunders that would prolong the current recession or cause another downturn in the near future.

#The monetary policy of the Federal Reserve under Chairman Ben Bernanke, formerly a professor at Princeton University who spent years studying policy errors during the Depression, has been aggressively expansionary – a vast departure from the policies of the 1930s.

The Fed may have gone overboard, however, and it will soon be forced to either (a) rapidly drain the financial system of excess liquidity in order to avert double-digit inflation, or (b) maintain course and allow such inflation to happen. Either way, the economic consequences will be ugly. Get Ready for Inflation and Higher Interest Rates, Arthur Laffer, Wall Street Journal, 6/11/09.

Now the Fed can, and I believe should, do what it must to mitigate the inevitable consequences of its unwarranted increase in the monetary base. It should contract the monetary base back to where it otherwise would have been, plus a slight increase geared toward economic expansion. Absent this major contraction in the monetary base, the Fed should increase reserve requirements on member banks to absorb the excess reserves. Given that banks are now paid interest on their reserves and short-term rates are very low, raising reserve requirements should not exact too much of a penalty on the banking system, and the long-term gains of the lessened inflation would many times over warrant whatever short-term costs there might be.

Alas, I doubt very much that the Fed will do what is necessary to guard against future inflation and higher interest rates. If the Fed were to reduce the monetary base by $1 trillion, it would need to sell a net $1 trillion in bonds. This would put the Fed in direct competition with Treasury's planned issuance of about $2 trillion worth of bonds over the coming 12 months. Failed auctions would become the norm and bond prices would tumble, reflecting a massive oversupply of government bonds.

# No one is considering a tariff hike, to our knowledge, but the Waxman-Markey bill and other environmental proposals under consideration in the name of combating global warming could inflict just as much damage on the economy. The high cost of “green energy,” 5/25/09.

So not only are these proposals misguided over the long term, but negative results (in the form of another economic downturn) could begin to show up before the next election. Now there is an argument that even politicians with a short attention span should be able to appreciate.

# As for raising taxes, the idea seems to be gaining currency despite the president’s promises to the contrary (95% of Americans were supposed to get a tax cut). Moreover, the driving force is to cover the cost of new spending programs – notably the president’s healthcare plan – rather than to reduce the huge deficits that are projected. We interrupt this program for a special announcement, 6/1/09.

Ultimately, higher taxes may be needed. But rushing the increases through could imperil a much-desired economic recovery, and fiscal visionaries should insist – as a minimum – that the proceeds of any tax increases be used for deficit reduction. 6/8/09 letter

Once again, whatever happened to the “greatest financial crisis of our time”? We fear it is still out there waiting to happen. So let’s press the country’s political leaders to keep their eye on the ball, and in the meantime refrain from risky initiatives that would grow the government and further undermine the private sector.

In three previous entries (5/11/09, 5/18/09, 5/25/09), we reported on plans afoot to restructure the U.S. energy sector in the name of averting a global warming crisis.

On the legislative front, the Waxman-Markey bill, which would institute a “cap and trade” regime and much more, has passed the House Energy and Commerce Committee.

On the regulatory front, the Environmental Protection Agency (EPA) proposes to classify CO2 and other greenhouse gas emissions as “pollutants,” thereby justifying regulations to force the reduction of such emissions. Furthermore, the president has announced an accelerated phase-in of higher mileage standards for new motor vehicles, to be accomplished by joint action of the EPA and the Department of Transportation.

The need for action is dubious. These initiatives would be costly and disruptive. The effect on global temperatures would be insignificant.

Fine, fiscal visionaries should prevail – if we can make our case effectively. This entry will offer some suggestions for doing that.

STRATEGY – Resistance to proposals for expanding the reach and cost of government is generally not enough; alternatives must be offered as well. How to win: be proactive, not reactive, 10/29/07.

Instead of simply opposing tax increases, for example, SAFE advocates making the tax law simpler and fairer. Let’s stop tinkering with taxes and reboot the system, 11/19/07.

While opposing the president’s healthcare plan, we have offered a plan for real healthcare reform. SAFE plan for healthcare reform is “government-lite,” 4/6/09.

Although not in favor of government-mandated conservation measures (e.g., mileage standards) to achieve “energy independence,” SAFE favors easing government restrictions on domestic drilling in order to reduce the need for oil imports. To drill or not to drill, that is the question, 7/7/08.

But if ever a government plan deserved a “no” response, the forced reduction of CO2 emissions is it! SAFE does not intend to suggest alternative ways to reduce CO2 emissions; we will concentrate on pointing out deficiencies of the “green energy” proposals on offer.

Who are our opponents? Some people sincerely believe that global warming represents a threat to the human race. There are also business executives, lobbyists, attorneys, and political leaders who hope to benefit from the green energy agenda. For convenience, we will collectively refer to all of the above as the Climate Scare Lobby (CSL).

Alas, the alleged threat of manmade global warming has been so uncritically and repeatedly reported by the mainstream media that many people think it must be true. People who are skeptical about global warming, therefore, may be reluctant to expose themselves to possible embarrassment by asking questions.

TACTICS – Multiple audiences need to be addressed, and the message and mode of delivery will vary depending on the situation. Here are some illustrative examples of efforts to sway public opinion.

# One of the CSL’s favorite talking points is the alleged consensus of scientific opinion about manmade global warming. The implication: “resistance is futile, come out with your hands up.”

In this vein, the president (then president-elect) said the following on 11/19/08:

Few challenges facing America and the world are more urgent than combating climate change. The science is beyond dispute and the facts are clear.

Really? Over 100 scientists (including David Legates of the University of Delaware) signed an answering statement, which the Cato Institute ran as a full-page ad in the New York Times, Washington Post, Chicago Tribune, Washington Times, and Los Angles Times on 3/30/09.

We, the undersigned scientists, maintain that the case for alarm regarding climate change is grossly overstated. Surface temperature changes over the past century have been episodic and modest and there has been no net global warming for over a decade now. After controlling for population growth and property values, there has been no increase in damages from severe weather-related events. The computer models forecasting rapid temperature change abjectly fail to explain recent climate behavior.

Mr. President, your characterization of the scientific facts regarding climate change and the degree of certainty informing the scientific debate is simply incorrect.

#The EPA’s proposed finding that CO2 and other manmade greenhouse gas emissions represent “pollutants” for purposes of the Clean Air Act was published in the Federal Register (25-pages of three-column text) on 4/24/09. The verbiage is dense and hard to follow. We doubt that many people will download and read this document, even though it is posted on the Internet.

Further, the EPA finding references “a technical support document (TSD) which synthesizes major findings from the best available scientific assessments that have gone through rigorous and transparent peer review.” Anyone with the time to locate and read the TSD must be truly dedicated, good luck to them!

Comments may be submitted until June 23, but it would be easy to rationalize that doing so is useless. Having expended the time and effort to create this pile of paperwork, how likely is it that the EPA will give any weight to critical comments?

Unless critics refute the EPA finding, however, it will be cited repeatedly as showing that manmade global warming poses a grave risk, so we decided to make the effort.

Our 6/4/09 letter makes the following points about the EPA’s proposed finding: (1) the gravity of the alleged global warming threat is exaggerated, (2) the principal sources relied on are hopelessly biased, and (3) the EPA should reverse its previous decision and conduct “a new assessment of the scientific literature.”

We cited some solid sources in the letter, which in sum demonstrate that many scientists are skeptical of the manmade global warming theory – and understandably so because the known facts do not support the theory very well.

By way of follow-up, SAFE sent a 6/8/09 letter to members of Congress from Delaware to advise of the position we have taken. Hopefully, contacts of this nature can start to erode Congressional support for the green energy agenda – and Congress has ample power to tell the EPA to “back off.”

# Short of submitting formal comments on the EPA’s proposed findings, there is an easy way to get your “two cents worth” in. The Friends of the U.S. Chamber of Commerce have created a message board on “The Environmental Protection Agency Runs Amuck,” and comments received will be forwarded to Carol Browner, the Administration’s energy czar. Among the comments posted to date:

"I just wish you and I could be alive to see you all with egg on your faces. This is just a theory and not a very good one. Stop all the madness!!!" Posted By: Joyce Neidlinger (Denver, Co) Posted on June 2 @ 3:04 PM

"Assessment reports of the IPCC and CCSP are hopelessly biased. You should have conducted "a new assessment of the scientific literature." Do it over!" Posted By: William Whipple III (Middletown, DE) Posted on June 1 @ 8:37 PM

"Though I am not an expert I am informed. If you look at the hundreds of solar experts, geologist, and climate scientist you find that this is a bogus tax ploy" Posted By: Shawn T. Chriest (Anchorage Alaska) Posted on May 31 @ 4:02 PM

We urge readers to access the link, type in their comments (up to 160 keystrokes), and click “broadcast to feed.” Your comment will instantly show up as the latest in the series, providing you with the satisfaction of having done your part.

#At a 6/2/09 conference in Washington, D.C, sponsored by the Heartland Institute and attended by SAFE director Bill Morris and many others, an 800+ page report was distributed that reviews the scientific literature on global warming and reaches dramatically different conclusions than did the 2007 assessment report of the UN-sponsored International Panel on Climate Change (IPCC) [one of the EPA’s key sources]. Climate Change Reconsidered: The Report of the Nongovernmental International Panel on Climate Change [NIPCC], Craig Idso and S. Fred Singer, The Heartland Institute, 2009.

On the most important issue, the IPCC’s claim that “most of the observed increase in global average temperatures since the mid-twentieth century is very likely due to the observed increase in anthropogenic greenhouse gas concentrations [emphasis in the original],” NIPCC reaches the opposite conclusion – namely, that natural causes are very likely to be the dominant cause. Note: We do not say anthropogenic greenhouse gases (GHG) cannot produce some warming or has not in the past. Our conclusion is that the evidence shows they are not playing a substantial role.

As for why this project makes sense and the results should be heeded, the following explanation is offered.

When a nation faces an important decision that risks its economic future, or perhaps the fate of the ecology, it should do the same. It is a time-honored tradition in science to set up a “Team B,” which examines the same original evidence but may reach a different conclusion.

#The green energy agenda would entail huge costs, whether manifested in higher taxes, higher prices, or a reduced level of economic output. This is not a favored theme of the CSL, so fiscal visionaries should ensure that the public is informed of the economic realities. See, e.g., Son of Waxman-Markey: More Politics Makes for a More Costly Bill, William Beach et al., Heritage Foundation, 5/18/09.

By 2035, says the Heritage team, the Waxman-Markey bill (as revised) would (a) reduce aggregate gross domestic product (GDP) by $9.6 trillion; (b) destroy 1.1 million jobs on average (2.5 million jobs in peak years); (c) raise inflation-adjusted electricity rates by 90%, inflation adjusted gasoline prices by 74%, and residential natural gas prices by 55%; (d) raise an average family’s annual energy bill by $1,500; and (e) increase inflation-adjusted federal debt by 26% ($29,150 per person).

Hmm, seems that people will need to make up their minds just how worried about global warming they really are.

#As suggested earlier, some people may be supporting green energy for reasons that are not completely altruistic. Bjorn Lomborg, a well-known global warming skeptic, reflects on the activities of firms that stand to benefit, including appearances at international climate change forums and the growing use of high-powered lobbyists to jockey for preferential treatment. The Climate-Industrial Complex, Wall Street Journal, 5/22/09.

U.S. companies and interest groups involved with climate change hired 2,430 lobbyists just last year, up 300% from five years ago. Fifty of the biggest U.S. electric utilities -- including Duke [Energy] -- spent $51 million on lobbyists in just six months.

Some observers question whether the opposition party, which generally considers itself as pro business, will stand up to corporate boosters of green energy mandates and subsidies. Cap-and-trade as corporate welfare, Timothy Carney, Washington Examiner, 5/21/09.

Can Congressional Republicans, fond of calling themselves "pro-business," and accustomed to defending corporate America from Ralph Nader-type attacks, convincingly argue against corporate-welfare draped in green?

Well, that is up to the opposition party, but we don’t think they have much choice if they hope to be on the winning side in this debate.

#Science & Public Policy Institute – There is some fascinating information on the SPPI Website, such as:

•A 5/27/09 account by Joseph D’Hippolito of how “Al Gore Rakes in the Green” from crusading against global warming. It is alleged that the former vice-president’s net worth has grown from $2 million to $100 million since he left government service.

•Announcement of the results of a study by Lord Christopher Monckton, which allegedly demonstrated that IPCC computer models overstated CO2’s effect on global temperatures by 500-2000%. Proof: There is no climate crisis, SPPI, 7/15/08.

•Several essays by Lord Monckton, an eminent scientist with a flair for writing and speaking, including 35 Inconvenient Truths: The errors in Al Gore’s movie, 10/18/07.

Some of the foregoing initiatives required enormous time, energy and expertise, notably the NIPCC report and the Heritage economic impact study.

Others were simple, such as posting comments about the proposed EPA findings on a message board.

So if you are not able to take on one of the big jobs, find alternative ways to promote a rational understanding of the manmade global warming theory.

“Many hands make light work,” as the saying goes, and this debate can be won if we all pitch in and make things happen.

We have it on the highest authority that the U.S. government is “out of money,” and everyone knows what that should mean – adjustments on the spending side. Here is an old story, which makes the point.

So we decided to cover the breaking story. Tune in next week for suggestions on combating the climate scare lobby.

Statement – The president’s comment was made during a C-SPAN interview that aired on May 22. He had laid out his ideas for healthcare reform, and host Steve Scully asked a question: “At what point do we run out of money?”

“Well, we are out of money now,” the president said, and “operating in deep deficits.” He attributed the situation to “the crisis that we’ve seen” and to “our failure to make some good decisions on healthcare over the last several decades.”

As for solutions, the president did not speak of deferred initiatives, spending cuts, or even tax increases. Instead, he advocated making healthcare “investments” now “that are going to reduce costs, even if they don’t reduce them this year or next year, but 10 years from now or 20 years from now.”

Our view – The statement about being out of money may not be literally true, but things are headed in that direction. And rapid growth in healthcare spending has been a major factor in the deterioration of the government’s fiscal situation.

Thus, Medicare + Medicaid outlays rose from 4% of federal spending in 1968 to 20% in 2008, with no end in sight. Citizen’s Guide, The Peterson Foundation, March 2009.

As for the president’s healthcare plan helping to solve the government’s fiscal woes, however, forget it. Providing healthcare insurance for an additional 46 million Americans would not come cheap, and the president’s 10-year budget projection identifies precious little in the way of offsetting cost savings. Healthcare plan will not pay for itself, 3/23/09.

Furthermore, action is needed now to avert the “fiscal meltdown” SAFE has been warning about. Not the current recession, which is hopefully waning, but a crisis due to a loss of confidence in the financial soundness of the U.S. government, which would lead to curtailment of credit, send interest rates soaring, and create a well nigh irresistible temptation to resort to printing money.

Such situations have developed elsewhere (from Argentina to Zimbabwe), with disastrous results. Avoiding a similar fate for the United States is far more important, in our opinion, than reducing the number of Americans without healthcare insurance.

No one can say when the U.S. government’s turn might come, but there has been fiscal irresponsibility aplenty and international investors have clearly taken notice.

#Federal deficits for FY 2009 and FY 2010 are now estimated to total $3.1 trillion, $176 billion higher than the corresponding estimates in February. Deficits soar even with rosy Obama budget assumptions, David Lightman, McClatchy, 5/11/09.

#Edmund Conway of the UK Telegraph suggests in a 5/26/09 blog post that the next stage of economic/financial turmoil will be “a sovereign debt crisis.” Spain and Ireland have been downgraded already, the UK and other European countries may follow, and “even the US’s AAA status is under question.”

#Dallas Federal Reserve Bank President Richard Fisher says a “perception of risk” has been created by the Fed’s purchases of Treasury bonds, etc. This practice is weighing on the minds of financial officials in China, Japan, Singapore and Korea. Don’t Monetize the Debt, Mary O’Grady, Wall Street Journal, 5/23/09.

He has just returned from a trip to China, where "senior officials of the Chinese government grill[ed] me about whether or not we are going to monetize the actions of our legislature." He adds, "I must have been asked about that a hundred times in China."

#Despite Fed purchases of U.S. Treasury bonds, the rates on these securities and other debt obligations are trending up – which market observers attribute to fears of renewed inflation. Bond Vigilantes Confront Obama as Housing Falters, Liz McCormick and Daniel Kruger, Bloomberg.com, 5/29/05.

“The bond-market vigilantes are up in arms over the outlook for the federal deficit,” said Edward Yardeni, who coined the term in 1984 to describe investors who protest monetary or fiscal policies they consider inflationary by selling bonds. He now heads Yardeni Research Inc. in Great Neck, New York. “Ten trillion dollars over the next 10 years is just an indication that Washington is really out of control and that there is no fiscal discipline whatsoever.”

Other skeptics – We are not the only ones who think the president’s healthcare plan would boost government spending, and question assertions to the contrary.

#Star Parker, president of the Coalition on Urban Renewal & Education, says “we already have massive government involvement in healthcare,” which led to a big expansion in healthcare spending. Why add fuel to the fire?

In 1960, 60 percent of Americans' healthcare expenditures were out of their own pocket. Today it is 12 percent. So massive growth in healthcare spending and cost escalation correlates directly with increasing government involvement in this marketplace and decreasing consumer control over their own expenditures. Does this tell you something?

#Michael Tanner of the Cato Institute supports the idea of healthcare reform, but he says the president’s plan would result in de facto rationing, the demise of most private insurance plans, and at least $1.5 trillion in higher federal outlays over the next 10 years. The Obamacare to Come, National Review, 5/21/09.

#Financial commentator Larry Kudlow dismisses the cost-cutting claim out of hand. Obama’s Public Health[care] Plan Will Bankrupt the Nation, Townhall.com, 5/14/09.

Does anybody really believe that adding 50 million people to the public health-care rolls will not cost the government more money? About $1.5 trillion to $2 trillion more? At least. So let’s be serious when evaluating President Obama’s goal of universal health care, and the idea that it’s a cost-cutter. Can’t happen. Won’t happen. Costs are going to explode.

Supporters – Business Week says “covering the uninsured could add anywhere from $1 trillion to $2 trillion to the federal budget over 10 years.” Three payment options are identified: raise taxes, cut payments to medical providers, or ration care. Healthcare Reform: Who Pays Is So Taboo, Catherine Arnst, 5/20/09.

Omission of cost savings from the list, plus discussions of three politically unpalatable alternatives, shows that no one really believes the president’s plan would pay for itself.

RAISE TAXES - An increase in the Federal excise tax on tobacco was included in the SCHIP expansion bill enacted in early February to pay for the additional spending.

Tax increases ($318 billion over 10 years, by tinkering with income tax deductions for upper income taxpayers) were proposed in the Fiscal Year 2010 budget proposal, with the proceeds to be earmarked for the cost of the president’s healthcare plan. “A New Era of Responsibility,” Office of Management and Budget, 2/26/09, pp. 29-30.

On May 20, the Senate Finance Committee (chaired by Senator Max Baucus, D-Montana) issued a 39-page report on “Financing Comprehensive Healthcare Reform.” The prime focus is on ways to raise taxes, e.g., (a) restrict tax exclusion for employer-provided healthcare benefits, (b) repeal itemized deductions for medical expenses, (c) raise excise tax on alcoholic beverages, and (d) impose an excise tax on sugary drinks.

Finally, there is said to be growing interest in a national sales tax or “value added” tax (VAT) – not to replace the income tax (FairTax proposal) but on top of it. Once Considered Unthinkable, U.S. Sales Tax Gets Fresh Look, Lori Montgomery, Washington Post, 5/27/09.

A White House official said a VAT is "unlikely to be in the mix" as a means to pay for health-care reform. "While we do not want to rule any credible idea in or out as we discuss the way forward with Congress, the VAT tax, in particular, is popular with academics but highly controversial with policymakers," said Kenneth Baer, a spokesman for White House Budget Director Peter Orszag.

Still, Orszag has hired a prominent VAT advocate to advise him on health care: Ezekiel Emanuel, brother of White House chief of staff Rahm Emanuel and author of the 2008 book "Health Care, Guaranteed." Meanwhile, former Federal Reserve chairman Paul A. Volcker, chairman of a task force Obama assigned to study the tax system, has expressed at least tentative support for a VAT.

"Everybody who understands our long-term budget problems understands we're going to need a new source of revenue, and a VAT is an obvious candidate," said Leonard Burman, co-director of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, who testified on Capitol Hill this month about his own VAT plan. "It's common to the rest of the world, and we don't have it."

Also, this could be a very bad time for a big U.S. tax increase. [Dr. Nouriel] Roubini says U.S. economy may dip again next year. Reuters.com, 5/28/09

So we are not about to buy into a tax fix to keep the spending spree going, and “Mainstream America” may not be on board either. 77% See Politicians Unwillingness to Cut Government Spending as Bigger Problem Than Voter Resistance to Tax Hikes, Rasmussen Reports, 5/22/09.

As is frequently the case, the gap between Mainstream America and the Political Class [government employees and lobbyists?] on the question is wider than that between political parties. While 90% of Mainstream Americans see the bigger problem as a failure to cut government spending, the Political Class is evenly divided over whether voters or politicians are more to blame.

On May 11, representatives of the healthcare industry pledged to shave increases in healthcare spending (their revenues) by $2 trillion over the next 10 years. Not all the savings would go into the federal government’s coffers, but still this would represent a big step (if the industry delivered) in financing the president’s healthcare plan. Health savings first step in long fight, Washington Times, 5/12/09.

There is an open question as to what is going on, however, and the real question may be who is getting fooled.

#The Wall Street Journal characterizes this “vague, probably illusory promise” as a Faustian bargain, which in time would “result in price controls and restrictions on care.” Signing on to an Obama Dream, 5/13/09.

The implicit assumption in the providers' deal announced [Monday] seems to be that the private companies will do the price controlling so the government won't have to do it for them. But when the savings prove illusory, as in the past, the feds will step in and order them to do so.

#Columnist Timothy Carney says healthcare insurers and other players may hope to get more out of the deal than they committed to put into it, i.e., the real loser might be the general public. Washington Examiner, 5/11/09.

1) Some of the proposals include a federal mandate that individuals maintain health insurance. Yes, Ted Kennedy wants to require you to buy Blue Cross's product, and Paul Krugman is wondering why Blue Cross is supporting Ted Kennedy.

2) All regulation creates a barrier to entry. Adding costly regulations and new mazes of government bureaucracy, while making top-shelf lobbyists a must keeps out new competitors.

#Michael Cannon of Cato Institute sees the industry pledge as a gambit to pacify the Congressional Budget Office. Healthcare Reform? Maybe Next Year, NPR.org, 5/11/09.

Senate Finance Committee chairman Max Baucus (D-MT) has spoken openly about getting the CBO to change its mind. If reformers can say that even the industry is committed to achieving savings with these reforms, that might make it easier to get the CBO to relent, and allow health care reform to pass without the necessary payment cuts or tax increases — even if there's still no evidence that the assumed savings will appear. Don't call it cooking the books. Call it the new math of universal coverage.

Don’t expect supporters of the president’s healthcare plan to talk about “rationing,” but Larry Summers, the president’s chief economic adviser, came close in an April 19 appearance on Meet the Press. Rationing healthcare, Washington Times, 4/21/09.

"Whether it's tonsillectomies or hysterectomies ... procedures are done three times as frequently [in some parts of the country than others] and there's no benefit in terms of the health of the population. And by doing the right kind of cost-effectiveness, by making the right kinds of investments and protection, some experts ... estimate that we could take as much as $700 billion a year out of our healthcare system."

“Let’s be clear,” the newspaper’s editorial continues, U.S. healthcare expenditures could not conceivably be cut by 30% per year under a government-managed plan without rationing.

There is plenty of waste in healthcare spending, which needs to be eliminated somehow. We see the solution (basically) as patient empowerment, but rationing could work. If that’s the game plan, however, this should be acknowledged up front so the public can make an informed decision.

As of this writing, efforts to put the president’s healthcare plan over the top appear to be gearing up – while leaving the government’s dire fiscal situation to be dealt with down the road. Obama says healthcare changes must come this year, Phillip Elliott, Breitbart.com, 5/28/09.

The president said the costs of the nation's $2.5 trillion health care system are crushing families and businesses and pose the largest threat to the economy.

The White House is leaving it to lawmakers to work out the details of a health care plan, but Obama has said it should ensure choice and lower costs, while extending coverage to the 50 million Americans now uninsured. The [10-year] cost of accomplishing that has been estimated around $1.5 trillion, and figuring out how to pay is emerging as a major challenge for Congress and the White House.

Last week’s entry presented three arguments against the proposed cap and trade system: (a) the necessity of curbing greenhouse gas (GHG) emissions is dubious, (b) a cap and trade system would be a nightmare to administer, and (c) a carbon tax would be simpler and more effective, but has little support because the cost is readily apparent.

If it can be shown that the cap and trade system would be costly as well, a disguised carbon tax if you will, that should clinch our case. But making this claim is not enough; specifics must be provided. That is what we will attempt to do in this entry.

Context: Cap and trade is one of several energy policies that have been adopted or proposed in the name of reducing oil imports, conserving energy resources, and/or combating global warming. Here are some others:

• The December 2007 energy bill mandated higher mileage standards for new motor vehicles (35 miles per gallon on average for automobiles and light trucks), to be achieved by 2020. The bill also mandated growing use of biofuels and a switch to compact fluorescent (CFL) light bulbs. Bush signs energy bill, CNN Money, 12/19/07.

• On the negative side of the ledger, federal and state restrictions on domestic drilling for oil and gas in unexploited areas (principally offshore and in Alaska), reinforced by nonstop environmental lawsuits, have contributed to rising oil imports. 7/7/08 entry. Removal of these obstacles is not being pushed by the Administration.

• Similarly, an expansion of the nuclear power industry cannot be expected unless and until an understanding is reached about the disposal or reprocessing of nuclear waste. (8/4/08, 8/11/08, 8/18/08 entries). Moving in the other direction, the Administration recently pulled the plug on the proposed nuclear waste depository at Yucca Mountain, Nevada, after two decades of study and expenditures of $11 billion, without identifying an alternative. Nuclear chief says Obama shuns science, Washington Times, 4/23/09.

• In addition to establishing a cap and trade system, the Waxman-Markey bill would mandate and/or subsidize production of electricity from renewable energy sources (Sec. 101); plug-in electric drive vehicles (Sec. 122); “smart grid” distribution of electricity (Sec. 144); energy-efficient buildings (Sec. 201), lighting fixtures (Sec. 211), and household appliances (Sec. 212); energy-efficient industrial plants (Sec. 241); etc.

• On May 19, the president announced that a reduction of GHG emissions for new motor vehicles will be achieved by moving up the already established 35 miles per gallon mileage standard (average for cars and light trucks) from 2020 to 2016. The Department of Transportation (DOT) and Environmental Protection Agency (EPA), which apparently have the requisite regulatory authority under existing law, would jointly take this action.

De facto tax: With a carbon tax, it would be relatively easy to track the revenues being collected by the government and therefore taken from the private sector. Divide the total tax revenues by the population or number of households for a figure people can relate to.

The opposition party attacked the cap and trade proposal in this fashion, saying it would cost American households an average of $3,100 per year. Cap and Trade, a “Declaration of War,” Say Republicans, CBSNews.com, 5/1/09.

According to [House Minority Leader John] Boehner's office, the $3,100 number is based on a Massachusetts Institute of Technology (MIT) study released earlier this year that examined cap-and-trade legislation from 2007. Republicans believe the new legislation for 2009, in its final form, will be similar to the 2007 bill.

The $3,100 per household annual cost figure was disputed from the start, and it is no longer operative because 85% of GHG permits will initially be given away. Proposed Allowance Allocation, Congressmen Waxman and Markey, 5/14/09.

Assuming that $465 ($3,100 x 15%) per household would be a ballpark estimate of the residual tax effect, the figure would be too small to impress anyone. Opponents of the cap and trade proposal should make other arguments.

Energy costs: For the foreseeable future, fossil fuels will represent the low cost sources of energy for running motor vehicles and generating electricity. Biofuels are not about to beat oil on a cost basis for powering cars, nor will wind and solar power be as cheap as coal-fired power. Nuclear power might be cost competitive, but it is not on the “green” agenda.

A forced transition to alternative energy sources would inflate energy prices – whether the price increases were passed on to consumers or subsidized by U.S. taxpayers. Either way, overall economic activity would be depressed, with net job losses (more regular jobs lost than “green” jobs created) and less tax revenue for the government.

By 2035, the Heritage team reported on 5/18/09, the Waxman-Markey bill (as revised) would (a) reduce aggregate gross domestic product (GDP) by $9.6 trillion; (b) destroy 1.1 million jobs on average (2.5 million jobs in peak years); (c) raise inflation-adjusted electricity rates by 90%, inflation adjusted gasoline prices by 74%, and residential natural gas prices by 55%; (d) raise an average family’s annual energy bill by $1,500; and (e) increase inflation-adjusted federal debt by 26% ($29,150 per person).

These costs are for the cap and trade program, without regard to other provisions of the Waxman-Markey bill. The “economic cost of cap and trade hobbled further by mandates” would likely be higher.

The Washington Examiner cited the Heritage findings in a 5/18/09 editorial, calling the Waxman-Markey bill “a prescription for wrecking American prosperity for decades to come.”

Thinking along somewhat similar lines, perhaps, the Congressional Budget Office is expected to “score” the Waxman-Markey bill as either a major tax increase or a massive expansion of the federal government (no kidding!). Climate-bill foes likely to seize on CBO’s scoring, Washington Times, 5/19/09.

We also appreciated an off the cuff reaction from Charlie Munger, the long-time business partner of Warren Buffet who normally lets the “Sage of Omaha” do the talking. CNBC interview, 5/1/09.

Well, I think it would be monstrously stupid to do [cap and trade] right now. It would be a huge shock to the economy, and it wouldn't accomplish very much. Given the fact that the vast majority of the [pollution], or, rather, the CO2 is coming from a place like China. It would almost be demented if we would rush into cap and trade right now in the middle of this economic crisis.

Who’s in charge: Another drawback of cap and trade and the “green” agenda in general, hard to quantify but important nevertheless, is the shift of decision-making power from business leaders who are (or should be) focused on serving customers, running their businesses efficiently, and making money for their shareholders, to government leaders who, being in the reelection business, are more interested in favorable headlines (e.g., Senator X supports bold new plan).

Business firms face competition, they must comply with government regulations (actual or at times prospective), and they work with their own money. There is little to keep government agencies on their toes except public scrutiny, and the public has a short attention span. No wonder the track record of government in managing business operations is poor, dating back to examples like the nationalization of the phone system during World War I (it was turned over to the post office or “postalized”). Why Government Can’t Run a Business, John Gordon, Wall Street Journal, 5/20/09.

We do not mean to suggest the private sector is above reproach. As former Federal Reserve Chairman Paul Volcker observed in October 2008, this country could probably do with “more civil engineers and electrical engineers and fewer financial engineers.” After all, civil and electrical engineers design and build needed structures and facilities. By creating derivatives and leveraging balance sheets to the max, financial engineers may have done more harm than good.

But it might equally well be suggested that there is a surplus of lawyers and bureaucrats in this country. The work they spawn is time-consuming, expensive, and largely non-productive. Far from allowing the number of people engaged in such activities to keep increasing, it might be beneficial to reverse the trend.

Moreover, government intervention in the workings of the economy is a distraction. Before you know it, corporate executives will be spending more time in Washington, D.C. seeking favors and handouts than they do working with customers, suppliers, and people within their own companies to achieve business results in the traditional way.

A number of big companies (e.g., BP America, Conoco Phillips, Dow, DuPont, Ford, GE, and GM) have joined the U.S. Climate Action Partnership. Perhaps this reflects genuine concern about global warming, but these companies may also envision government-supported business opportunities. Thus, the USCAP consensus report is described as

. . . a direct response to federal policymakers who recognize, as we do, that well-crafted legislation can spur innovation in new technologies, help create jobs and provide a foundation for a vibrant, low-carbon economy.

The Climate Exchange that has been established in Chicago would grow like Topsy if the U.S. established a cap and trade system. No doubt many financial firms would love to participate in or facilitate the trading of carbon emission permits; this could be the biggest thing since subprime mortgages and credit default swaps.

Power companies are potential supporters too, provided they get enough emission permits for free. The same goes for companies interested in selling alternative energy equipment, “green” investment firms, and hired lobbyists.

Thus, as global warming skeptic Bjorn Lomborg puts it, an “unholy alliance” is emerging of “self-interested businesses, grandstanding politicians and alarmist campaigners.” The Climate-Industrial Complex, Wall Street Journal, 5/22/09.

The decline and fall of the Big Three represents a cautionary tale. While the U.S. auto companies made plenty of mistakes over the years, government policies hurt too – notably the mileage standards for new motor vehicles that began during the Carter Administration. Don’t bail out the Big Three, but an apology would be nice, 11/17/08.

Against our advice, the last Administration advanced bailout funds to Chrysler and General Motors (Ford managed to do without). Additional funds were provided by the current Administration, but Chrysler had to declare bankruptcy anyway and General Motors is expected to follow suit around the end of May.

Chrysler will probably have been acquired by Fiat, when the dust settles, and the government will control General Motors. The UAW will own big blocks of stock in both companies. Although nominally remaining independent, Ford will have little interest in rocking the boat. So the government will be in a position to dictate strategic decisions of the “Big Three,” including the kind of cars they will be making. Many observers fear the consequences. See, e.g., Federal control of General Motors is game changer, Daniel Howes, Detroit News, 4/29/09.

Government Motors could be a bulwark of infinitely patient capital married to major stakeholders whose goals aren't shareholder return, operational efficiency and market penetration but the social goals of maximized employment, environmental trend-setting and political (damage) control.

The new pecking order was apparent on May 19, when the president announced the accelerated phase-in of the new mileage standards. Among those present, and apparently all in favor, were Secretary of Transportation Ray LaHood, EPA Administrator Lisa Jackson, several state governors including Arnold Schwarzenegger of California, UAW President Ron Getelsfinger, and unnamed representatives of ten auto companies (U.S. and foreign).

Why did the auto companies accept this announcement so meekly? First, there was a silver lining, namely the threat of three conflicting sets of regulations (by the DOT, the EPA, and a group of states led by California) was being replaced by a single set. Second, although the president did not mention it, there was an understood quid pro quo – sizable tax subsidies for purchasers of fuel-efficient cars. Obama at the Auto Buffet, Holman Jenkins, Wall Street Journal, 5/21/09.

So far, the Obama administration has yet to lay out its magical thinking on how the homegrown auto makers are to become "viable" when required to subordinate every auto attribute that consumers find desirable in favor of achieving a passenger-car average of 39 miles per gallon [35.5 miles per gallons is the average for cars and light trucks] by 2016. Nonetheless the answer has quietly seeped out: Taxpayers will write $5,000 or $7,000 rebate checks to other taxpayers to bribe them to buy hybrids and plug-ins at a price that lets Detroit claim it's earning a "profit" on its Obamamobiles.

Fuel-efficient vehicles are not necessarily bad. (The author likes his Volkswagen Jetta diesel, which averages 50 miles per gallon.) But this is America, and buyers should be able to choose the type of vehicles they want. Moreover, the Big Three can hardly be faulted for tailoring their product lines to meet market demand.

Whether legal or not, the proposed regulations would be unwise. And the U.S. auto companies would continue to struggle, probably resulting in a continuing drain on the U.S. Treasury.

To meet the mileage requirements, motor vehicles would be made smaller, lighter and less powerful. The resulting cars would be more dangerous to drive than big cars, so there would be more traffic deaths. Fuel efficient cars can kill you, Washington Examiner, 5/20/09.

And consumers dissatisfied with the new cars would tend to keep their old cars on the road longer, thereby slowing the reduction of real pollutants such as ground level ozone, particulate matter, carbon monoxide, and sulfur dioxide. Light Cars Are Dangerous Cars: And other unintended consequences of strict fuel-economy standards, Robert Grady, Wall Street Journal, 5/22/09.

Whether we like it or not, the Waxman-Markey bill has strong support in the majority party. The House Energy and Commerce Committee approved it on May 21, by a 33-25 vote. Panel OKs cap-and-trade proposal, Washington Times, 5/22/09.

As for tightening the mileage standards for motor vehicles, the only safeguard are the notice and hearing requirements to which the DOT and EPA are subject.

So how can SAFE and those who agree with us fight back? We’ll present some ideas in next week’s entry, and in the meantime we would welcome your suggestions.

Last week, we characterized EPA regulation of CO2, etc. as “a bad idea from any angle.”

Global warming threat exaggerated – not proven that manmade greenhouse gases are the main cause – economic tradeoffs would be ignored – regulatory process is ponderous and political – lack of Congressional accountability.

With a legislative approach, members of Congress would presumably consider the economic interests of their constituents. They would also, at least in theory (the time lag might provide cover in practice), be accountable for the results.

So would a forced cutback in greenhouse gas (GHG) emissions go better if Congress handled matters? Don’t count on it!

1. It remains debatable whether a reduction in GHG emissions should be forced instead of allowing energy sources (fossil fuels, solar, wind, or nuclear) to be chosen based on availability, cost and performance.

Congress has heard plenty of testimony about the gravity of the manmade global warming threat, which will supposedly necessitate a switch from fossil fuels to renewable energy sources. Consider these extracts from testimony before the House Energy and Commerce Committee (HECC) during the week of April 24.

#EPA Administrator Lisa Jackson: Legislation is needed “to tackle greenhouse-gas pollution, which threatens to leave to our children and grandchildren a diminished, less prosperous, less secure world.”

#Secretary of Energy Steven Chu: “There are two dangers, either one of which could dramatically weaken America’s future. The first is that the world will fail to take action on climate change in time to prevent its worst potential effects. The second is that the United States will fail to seize this opportunity to lead, and the new clean energy jobs will be created overseas rather than in America.”

#Former Vice-President Al Gore: “I am here today to lend my support to one of the most important pieces of legislation ever introduced in the Congress. I believe this legislation has the moral significance equivalent to that of the civil rights legislation of the 1960’s and the Marshall Plan of the late 1940’s.”

Among the ills that Gore attributed to global warming: melting of the Greenland ice sheet, increased frequency of glacial earthquakes, CO2 pollution changing the chemistry of the oceans, Canadian forests “contributing CO2 to the atmosphere rather than absorbing it,” and more intense hurricanes.

Not everyone agrees there is a climate crisis, and efforts were made to have a well-known global warming skeptic (who challenged Gore to a televised debate in 2007 and is still awaiting a response) testify before the HECC. However, these efforts were rebuffed. “The House Democrats don't want Gore humiliated,” suggested Lord Christopher Monckton of the UK, “so they slammed the door of the Capitol in my face.” Climate Depot.com, 4/23/09.

Nevertheless, there has been a fair amount of testimony questioning the gravity of the manmade global warming threat and/or suggesting less disruptive ways to address it.

# Lord Monckton assured a subcommittee of the House Ways and Means Committee on March 12 that “any restriction on the emission of carbon dioxide is unnecessary.”

It is simple to establish theoretically, and has been so established, that the UN’s climate panel has exaggerated the true effect of carbon dioxide enrichment on global temperature sevenfold. To confirm that theoretical result it is simple to verify empirically, and has been so verified by direct and repeated satellite observation, that the diminution over time in the outgoing long-wave radiation from the Earth is one-seventh of that which the UN’s computer games had been instructed to predict. Carbon dioxide is accumulating in the air at less than half the rate the UN had imagined. Not one of its games had predicted the rapid global cooling of the past seven years. Sea surface temperatures have fallen for five years. Sea level has not risen for three years, and is predicted to rise by little more than a foot this century. Worldwide hurricane intensity in October 2008 was at its least for 30 years. Global sea ice shows little trend in 30 years. The ice sheets of Greenland and Antarctica are thickening. The Sahara is greening. There is no “climate crisis”. The correct policy response to the non-problem of “global warming” is not to cap or tax carbon dioxide emissions. It is to have the courage to do nothing.

#William Happer of Princeton University offered another useful viewpoint in his testimony before the Senate Energy Committee on 2/25/09. Professor Happer agrees that (a) global warming has been occurring (albeit with intermittent reversals, such as the last 10 years during which “warming has ceased”), and (b) manmade CO2 emissions have contributed. In his opinion, however, the warnings of catastrophic consequences are “wildly exaggerated” (much as Prohibition advocates once exaggerated the evils of alcohol) and more CO2 in the atmosphere may on balance “be good for mankind.”

#Former Speaker of the House Newt Gingrich delivered the primary response to Al Gore’s testimony before the HECC. While not challenging the desirability of importing less oil or reducing GHG emissions, Gingrich panned the Administration’s plans for addressing these issues.

Wrong for national security - - - wrong for the economy - - - would “inevitably lead to fraud and corruption.” The right answers, said Gingrich, would include domestic drilling for oil and gas, more nuclear power plants (the Administration is pushing wind and solar energy), and aggressive support for the new energy technologies that would be required to effect the reductions in GHG emissions that are contemplated.

2. A cap and trade system might or might not be effective to reduce GHG emissions. In any case, it would be a nightmare to administer.

As a starting point, here are the basic elements of the cap and trade concept – which represents a variation on the theme of setting and enforcing limits on GHG emissions.

• Issue GHG emission permits to participants in the system (households and small businesses would be exempted), which they can either use or sell.

• Participants that can reduce GHG emissions inexpensively will presumably do so, while selling their permits to firms with higher reduction costs.

• Gradually cut the number of permits, thus forcing attainment of the reduction targets.

There are some difficult design issues. Where would the line be drawn between big and small business? How many emission permits would be issued? Would recipients be charged for permits or get them for free? Would the system provide a windfall for firms that have never tried to reduce their GHG emissions, and therefore can reduce them cheaply now (while selling their permits for more)?

Set the bar too high and a cap and trade system would tank the economy. Set it too low and nothing would happen, as was reportedly the result of initial stabs at cap and trade by the European Economic Community. Cap and Trade Woes in Europe, Don Irvine (citing a New York Times report), 6/20/08.

This week, the European Environment Agency reported that emissions from factories and plants that trade pollution permits rose 0.4 percent in 2006 over the previous year, and 0.7 percent in 2007, the first two years of the system’s operations.

The European program has been beset by friction between countries, lobbying by energy-intensive industries, and reluctance of firms to invest in cleaner technologies until it becomes clearer how the rules of the game will evolve.

Would similar issues arise with a cap and trade system in this country? You bet, as has been amply demonstrated by the discussions going on in Washington.

In late March, Congressmen Henry Waxman (D-CA) and Edward Markey (D-MA), who respectively chair the HECC and a subcommittee thereof, released a draft bill to launch a cap and trade system and accomplish related purposes. A target was proposed of eliminating 83% of GHG emissions by 2050, with interim targets as shown in the table below. Highlights of draft bill to curb global warming, Washington Times, 3/31/09.

Strong opposition to the Waxman-Markey bill surfaced, notably from states that produce coal, are heavily reliant on coal-produced electric power, or have major manufacturing plants or oil refineries. Much of the opposition came from members of the majority party. Global Warming Overreach, Kimberly Strassel, Wall Street Journal, 4/24/09.

During opening statements, [Congressman Jim Matheson from Utah] detailed 14 big problems he had with the bill, and told me later that if he hadn't been limited to five minutes, "I might have had more." Mr. Matheson is one of about 10 moderate committee Democrats who are less than thrilled with the Waxman climate extravaganza . . .

Messrs. Waxman and Markey scrambled to win over the holdouts. Although Waxman denied that he was offering special deals, others saw things differently. To get votes, Waxman offers cap-and-trade breaks, Susan Ferrechio, Washington Examiner, 4/23/09.

On May 5, with the bill apparently stalled, a delegation of HECC members from the majority party went to the White House for a 90-minute meeting. There the president reportedly told them “to put together an energy bill that does not hurt low-income consumers or the ability of U.S. industries to compete internationally.” Dems hint energy compromise could be near, Susan Ferrechio, National Examiner, 5/6/09.

A revised version of the Waxman-Markey bill (900+ pages) was released on May 15. The reduction targets for GHG emissions remain intact, but it is now reported that the “revised plan would give away 85 percent of the plan’s carbon permits for free.” Energy deal clubs Obama tax hopes, Washington Times, 5/16/09.

Mr. Obama had campaigned for a plan to auction all of the carbon permits under the system to avoid problems encountered in the European Union after regulators gave away all of their permits to affected industries without charge.

Mr. Obama was banking on projected revenues of some $646 billion from the cap-and-trade auctions to cover his promised tax cuts over seven years, but the House proposal looks as if it will pull in significantly fewer dollars for the federal government.

Are all the controversies about the mechanics of the cap and trade system now resolved, paving the way for quick Congressional passage? We doubt it, because this proposal still has some glaring weaknesses.

#Households and small businesses emit a lot of GHGs in the aggregate, yet they are effectively exempted from the proposed cap.

#No matter how artfully the system was adjusted, there would still be winners and losers between the regions/industries/plants affected – not to mention that well-connected insiders could and would game the system. Talk about Enron on steroids!

#If manmade global warming is a real problem, it applies on a global basis. There would be little point in making a big push to cut back on the use of “dirty” fossil fuels in this country if China, India, et al. continued to build coal-fired power plants.

And if the United States levied import duties on goods from countries that were not curbing their GHG emissions, as Energy Secretary Steven Chu suggested in March Congressional testimony, the fallout could be severe. Cap and trade war, Wall Street Journal, 3/30/09.

The Chinese certainly heard Mr. Chu, with Xie Zhenhua, a top economic minister, immediately responding that such a policy would be a "disaster" and "an excuse to impose trade restrictions." Beijing's reaction shows that as a means of coercing international cooperation, climate tariffs are worse than pointless. China and India are never going to endanger their own economic growth -- and the chance to lift hundreds of millions out of poverty -- merely to placate the climate neuroses of affluent Americans in Silicon Valley or Cambridge, Massachusetts. And they certainly won't do it under the threat of a tariff ultimatum.

3. A tax on fossil fuels (aka “carbon tax”) would be simpler and more effective than a cap and trade system, but a “hard sell” politically.

Some environmentalists favor a carbon tax because it would operate more predictably than cap and trade, require far less regulatory oversight, and cover all energy consumers. Putting a Price on Carbon: An Emissions Cap or a Tax, Yale environment 360, 5/7/09.

Jeffrey D. Sachs, director of the Earth Institute at Columbia University. – A straightforward carbon tax has vast advantages. It can be levied upstream at a few dozen places — at the wellhead, the mine face, and the liquid natural gas depot — rather than at thousands or tens of thousands of businesses. A carbon tax covers the entire economy, including automobiles, household use, and other units impossible to reach in cap-and-trade. A carbon tax puts a clear price on carbon emissions for many years ahead, while a cap-and-trade system gives a highly fluctuating spot price.

Other environmentalists counter that cap and trade provides a clear goal for GHG emissions reduction, against which results can be monitored.

Frances Beinecke, president of the Natural Resource Defense Council. – A carbon cap is a more effective approach to solving global warming than a tax. First and most importantly, it sets a clear goal for emissions reductions. With a tax, we are guessing about how much it will reduce carbon emissions, and it may not be sufficient to change the course of global warming. A declining cap gives you firm reduction targets and a system for measuring when you hit them.

Policy considerations aside, polls have consistently shown that the public does not want to pay higher taxes on motor fuel. 81% Oppose Gas Tax Hike to Encourage Sales of More Efficient Cars, Rasmussen Reports, 5/11/09. We doubt that stiff taxes on heating oil, coal-generated electric power, etc. would be any better received – so do not expect a carbon tax to be proposed any time soon.

4. The proposed cap and trade system would have substantial economic costs, which should be weighed against the perceived benefits in order to make a rational decision.

How much cost and who would bear it? These are not easy questions, and we are out of space. Tune in next week for further discussion.

The Environmental Protection Agency (EPA) has issued a proposed finding, a decade in the making, that carbon dioxide (C02) is a pollutant that endangers public health and welfare. Based on the finding, it is proposed to regulate CO2 emissions under the Clean Air Act, starting with the beleaguered automotive industry.

But wait, C02 is a natural component of the atmosphere, essential to life on this planet. Animals exhale it; plants consume it to make food. How can CO2 be called a pollutant?

In an attempt to make sense of all this, we reviewed (and recap below) the 26-page EPA document that was published in the Federal Register on April 24, 2009.

Background - In October 1999, the International Center for Technology Assessment and 18 like-minded organizations petitioned the EPA to regulate greenhouse gas emissions (CO2, methane, nitrous oxide, and hydrofluorocarbons) from new motor vehicles under the Clean Air Act. It was claimed that said emissions contribute to global warming.

In August 2003, the EPA declined to act on grounds that (1) it lacked statutory authority to regulate greenhouse gas emissions, and (2) in any case, such regulation would have been unwise at the time.

The petitioners went to court; they were ultimately vindicated by the U.S. Supreme Court in Massachusetts, et al. v. EPA, 549 U.S. 497 (2007). The majority (5-4) decision held that the EPA’s grounds for denying the petition were inconsistent with its responsibilities under the Clean Air Act, wherefore the case was remanded for further consideration.

In short, EPA has offered no reasoned explanation for its refusal to decide whether greenhouse gases cause or contribute to climate change. Its action was therefore “arbitrary, capricious, . . . or otherwise not in accordance with law.” 42 U. S. C. §7607(d)(9)(A). We need not and do not reach the question whether on remand EPA must make an endangerment finding, or whether policy concerns can inform EPA’s actions in the event that it makes such a finding.

On 7/30/08, in an Advance Notice of Proposed Rulemaking, the EPA announced that it was preparing to decide whether CO2, etc. were pollutants under the statute.

On 4/24/09, after considering comments on the advance notice, the agency issued a proposed finding that (a) concentrations of CO2 and five other greenhouse gases, in combination, are endangering public health and welfare under the Clean Air Act, and (b) emissions of these substances (excluding perfluorocarbons, and sulfur hexafluoride) from new motor vehicles/engines are contributing to the problem. Ergo, the enumerated greenhouse gases are subject to regulation as pollutants.

No limits on emissions of greenhouse gases by new motor vehicles/engines have been proposed as of now, but standards are being developed that the EPA “will be ready to propose for public comment several months from now.”

Basis for finding – The EPA presents a sobering assessment of the global warming threat, which it attributes primarily to manmade greenhouse gas (GHG) emissions.

#The effects of climate change observed to date and projected to occur in the future – including but not limited to the increased likelihood of more frequent and intense heat waves, more wildfires, degraded air quality, more heavy downpours and flooding, increased drought, greater sea level rise, more intense storms, harm to water resources, harm to agriculture, and harm to wildlife and ecosystems – are effects on public health and welfare within the meaning of the Clear Air Act.

#Because atmospheric greenhouse gas concentrations are expected to climb for the foreseeable future, temperatures will continue to rise and the overall rate and magnitude of human-induced climate change will likely increase, such that risks to public health and welfare will likewise grow over time so that future generations will be especially vulnerable; their vulnerability will include potentially catastrophic harms.

#The heating effect caused by the human-induced buildup of greenhouse gases in the atmosphere is very likely the cause of most of the observed global warming over the past 50 years.

U.S. motor vehicles/engines are identified as a significant source of manmade GHG, albeit not the only source. Note that while the six types of greenhouse gases enumerated earlier (CO2, methane, etc.) are included in the GHG data, water vapor (about 95% of greenhouse gases in the atmosphere) is excluded.

On the EPA wavelength, the source categories (motor vehicles in the U.S.) accounted for 24% of U.S. GHG emissions (vs. 34% from electrical generation)/ 4.3% of global GHG emissions. And as James Benefiel of Dunedin, Florida, suggested in a letter to the Wall Street Journal published on 5/4/09, the percentages would be much smaller if water vapor was taken into account. However, we are dubious about Benefiel’s statement that only 3.2% of the CO2 in the atmosphere is manmade.

The EPA concedes that a major reduction in GHG emissions from U.S. vehicles would have only a minor effect on the global situation, but it says everyone must “do their part.”

If the U.S. and the rest of the world are to combat the risks associated with global climate change, contributors must do their part even if their contributions to the global problem, measured in terms of percentages, are smaller than typically encountered when tackling solely regional or local environmental issues.

As for the propriety of proposing to regulate CO2, etc. emissions by new motor vehicles/engines while not (at least for now) addressing CO2, etc. emissions of other sectors (e.g., the power industry), the EPA apparently relies on the step-by-step rationale articulated by the U.S. Supreme Court in Massachusetts, et al. v. EPA:

Agencies, like legislatures, do not generally resolve massive problems in one fell regulatory swoop. They instead whittle away at them over time, refining their preferred approach as circumstances change and as they develop a more-nuanced understanding of how best to proceed. That a first step might be tentative does not by itself support the notion that federal courts lack jurisdiction to determine whether that step conforms to law. [Citations omitted.]

Sources – In support of its view of global warming, the EPA has prepared a technical support document (TSD) that “synthesizes major findings from the best available scientific assessments that have gone through rigorous and transparent peer review.” The TSD “relies most heavily on the major assessment reports of both the Intergovernmental Panel on Climate Change (IPCC) and the U.S. Climate Change Science Program (CCSP),” rather than “conducting a new assessment of the scientific literature.”

As we understand it, both the IPCC and CCSP are institutionally invested in proving that manmade global warming is a huge problem. Using their assessment reports as the primary sources ensures a one-sided view of the issue. Consider these comments by Patrick J. Michaels, a climatologist with links to the University of Virginia, Marshall Institute, and Cato Institute, and also a contributing author and reviewer for the IPCC.

Cato Scholar Comments on IPCC Synthesis Report, 11/19/07 - Unlike the sober scientific assessment that the IPCC published last May – which the Synthesis Report was supposed to summarize – the new document is, to say the least, novel. The May document actually reduced median estimates of sea-level rise from previous reports, and projected temperature increases in coming decades that are quite similar to what has been observed in the last three decades, about one degree (F). The new report, instead, projects up to 6 degrees. Also, it conveniently ignores the fact that there has been very little net warming in the last ten years.

Record Low For Climate Science, Cato Institute, 8/31/08 - I found two changes in the thousands of pages of the last (2007) IPCC report - after I sent in a 30,000-word point-by-point review. I'll be lucky to get even that much attention after my equally long critique of a new CCSP report, Global Climate Change Impacts in the United States. The sum of my analysis: This is the worst document in this genre I have ever seen.

Process – Notably lacking from the EPA’s proposed finding is any discussion of the economic implications of regulating CO2 emissions for the automotive industry or its stakeholders (e.g., consumers, suppliers, and workers). Indeed, the word “cost” appears only twice in the 26-page document and the word “expense” not at all.

We do not mean this as a criticism of the EPA, because the provisions of the Clean Air Act probably do not require (may not even allow) the consideration of compliance costs. But, in our opinion, no sensible decisions can be reaching concerning the advisability of measures intended to combat global warming without considering the costs involved as well as the benefit (or avoidance of harm) expected.

If Congress were to consider imposing limits on CO2 emissions, it would presumably consider evidence as to the economic tradeoffs – and hopefully conclude that such limits are unjustified. Five Reasons the EPA Should Not Attempt to Deal with Global Warming, Ben Lieberman and Nicholas Loris, Heritage Foundation, 4/23/09.

The extraordinary perils of CO2 regulation for the American economy come with little, if any, environmental benefit. In fact, analysis by the architects of the endangerment finding, the EPA, strongly suggests that a 60 percent reduction in carbon-dioxide emissions by 2050 will reduce global temperature by 0.1 to 0.2 degrees Celsius by 2095.

Many environmentalists are equally unenthusiastic about EPA regulation, being well aware of how cumbersome and political the regulatory process can be. Thus, Congress initially established the EPA in order to demonstrate “action” on leaded gasoline (a far more logical target than CO2) without taking responsibility for banning it. The EPA did not step up to the problem, and leaded gasoline remained on the market for another 15 years. The EPA’s Faustian Bargain, David Schoenbrod (professor at New York Law School, senior fellow at Cato Institute), Regulation, Fall 2006.

Why have federal lawmakers mandated a system that is so bad for their constituents? Because it is good for the lawmakers. Congress outsources the rulemaking to the EPA so that the legislators can claim credit for protecting health while the agency bears the inevitable blame for delays, disappointments, and costs.

Politically, the calculation is that the threat of EPA regulation will serve as a prod to force action by Congress on limiting CO2, etc. emissions, e.g., by instituting a “cap and trade” program. EPA’s CO2 Finding: Putting a Gun to Congress’s Head, Bryan Walsh, Time Magazine, 4/18/09.

Feedback – There will be public hearings on the proposed finding, on May 18 (Arlington, VA) and May 21 (Seattle, WA). The deadline for comments is June 23.

We do not know whether comments in opposition to the proposal will be seriously considered, but some of you may want to give it a shot. Contact information is provided in the EPA’s proposed finding (page 18886). Here’s the link again.

Next week we will take up the status of “cap and trade” legislation in Congress, the other prong of the push to restructure the energy infrastructure of the U.S. economy.

Hey, folks, did you know this is entry 100 of SAFE’s blog? Seems like we have covered a lot of ground, hopefully to good effect, since entry one was posted in June 2007 after the National Taxpayer’s Conference.

AYMK, there is also another milestone in the news, the president’s first 100 days in office. Much has already been written about it, e.g., by eight Townhall.com columnists on April 29 (Day 100) alone, Time Magazine, the Wall Street Journal, and Fox News.

But perhaps we can sum things up and offer some useful insights. Our review will cover the build-up, the victory lap, the stakes, and the outlook.

BUILD-UP – Opinions about the first 100 days vary, as will be related, but most observers agree on one point: the president has been extraordinarily visible during this period. Thus, as columnist David Broder put it (Washington Post, 4/23/09):

Hardly a day has gone by in the first three months that Americans have not seen Obama on their TV screens in a variety of roles -- chiefly as economic salvage director for seriously shattered housing, credit and employment systems. But they've also seen him as commander in chief of armed forces fighting two wars, diplomatic traveler engaged with world leaders, and agenda-setter for Congress -- to say nothing of first father, first fan, first consort of Michelle and first master of Bo.

The president’s high visibility is part of the strategies for selling his policies. According to Jim Vandelei and John Harris (Politico.com, 4/23/09), senior advisers angled to implant the following themes in the 100 days coverage: The president is (1) a promise-keeper, (2) a game-changer, (3) the decider, (4) not in the bubble (cut off from real life), (5) not FDR (will need more time), (6) FDR (and Bush is Hoover), and (7) one cool cucumber.

Most of the mainstream media coverage has been favorable – one might even say fawning. A Hundred Days of Media Love, Brent Bozell, Townhall.com, 4/29/09.

There was even an unauthorized (but no complaints from the White House) picture of the president in a red (color altered) swimsuit on the May cover of Washingtonian magazine.

Surveys indicate the public is favorably impressed. Most give Obama thumbs up on first 100 days, polls say, CNN Politics, 4/29/09.

According to a CNN poll of polls compiled Wednesday, 63 percent said they approve of how Obama is handling his duties. Twenty-nine percent disapprove.

As most presidents start with favorable ratings, however, these results may be less impressive than they seem. Barrack’s in the basement, Washington Times, 4/28/09.

President Obama's media cheerleaders are hailing how loved he is. But at the 100-day mark of his presidency, Mr. Obama is the second-least-popular president [after Clinton] in 40 years.

VICTORY LAP – On April 29 (Day 100), the president flew to Arnold, Missouri for a town hall meeting with “ordinary people.” In touting his economic policies at this event, the president took a swipe at the tax day tea parties. According to the president, “certain news channels on which I’m not very popular” had covered “folks waving tea bags around” – while he was prepared to have “a serious conversation” about cutting down healthcare costs in the long run, stabilizing Social Security, and achieving greater discipline in federal spending.

The president then flew back to Washington for an evening press conference at the White House. Hmm, when does he find time to run the country?

The television networks were asked to cover the evening news conference in lieu of their normal commercial programming. After three evening news conferences in as many months, however, the characterization of these events as “news” is starting to wear thin.

Fox Network (as distinguished from Fox News) declined to cover the third news conference, although the other major networks did not follow suit, and the Washington Times complained the president was getting what amounted to an “unpaid political ad.”

The morning after media coverage was curiously muted, e.g., there was no story about the news conference on the front page of the [Wilmington] News Journal. Also, ratings for the event were down. The Live Feed, TWR.com, 4/30/09.

The telecast to mark Obama’s 100th day in office was viewed by 28.8 million people, according to Nielsen. That's a 29% drop from the president's last press conference, on March 24, and a 42% fall since his first, on Feb. 9.

As for what was said, the president kicked off the news conference with an update on the H1N1 [swine] flu virus. He is requesting Congress for $1.5 billion in emergency funding; rest assured that the government is “prepared to do whatever it takes” to deal with this situation. The president also offered some advice for the general public.

And, finally, I've asked every American to take the same steps you would take to prevent any other flu: Keep your hands washed; cover your mouth when you cough; stay home from work if you're sick; and keep your children home from school if they're sick.

The president praised the House and Senate for passing “a budget resolution today that will serve as an economic blueprint for this nation’s future.”

Glowing economic accomplishments were claimed: Recovery Act [Economic Stimulus Bill] – housing plan – “new investments” in education, renewable energy and healthcare – “new savings that will bring down our deficit.”

The president also said his Administration was beginning to end the war in Iraq, had forged a strategy with NATO to root out al-Qaida in Afghanistan and Pakistan, and was closing the Guantanamo detention center, banning torture without exception, and renewing diplomatic efforts to deal with a host of global challenges.

But some things remain to be done. The president cited high unemployment, credit still not flowing freely enough, tough times for families and communities touched by the auto industry, foreign threats, and pandemic flu. Also, “our projected deficits are still too high, and government is still not as efficient as it needs to be.”

The pace would continue in the second 100 days and beyond. “We will rebuild a stronger nation, and we will endure as a beacon for all of those weary travelers beyond our shores who still dream that there's a place where all of this is possible.”

Two questions touched on the prospect of the government becoming a major stockholder in General Motors and Chrysler. “I would love to get the U.S. government out of the auto industry as quickly as possible,” said the president.

Some observers believe otherwise, however, based on how his Administration has been steering the situation. See, e.g., Gettelfinger Motors: The mauling of GM bondholders reveals Treasury’s political hand, Wall Street Journal, 4/30/09. We plan to say more about this situation in a future entry.

The reporters called on by the president failed to ask some obvious questions in the economic realm: Just what are those “savings that will bring down our deficit?” How do you propose to reduce healthcare outlays by spending more money? Why should the U.S. economy be saddled with immensely costly new energy restrictions during a recession?

STAKES – Critics say the president is trying to steer the country toward the left. The result would be bigger government, more government spending, tighter regulation of business, and huge increases in taxes.

Thus, talk show host Larry Elder writes (Townhall.com, 4/30/09) of a “100-day assault on America.” His favorite weapons appear to be sarcasm and rhetorical questions.

Given the government's vast business expertise, Obama proposes spending gobs of money to "invest" in green jobs. - - - He wants taxpayers to guarantee, presumably to all who request it, a "world-class education" -- whatever that means. - - - Do the President and members of Congress, many of whom never operated so much as a T-shirt concession booth, really believe that they can "modernize" health care, thus "saving" taxpayers buckets of money? Yes. - - - Will the President's budget really double the national debt within a few years and then increase still more beyond that? Yes.

Financial commentator Larry Kudlow condemns the takeover of one industry after another. The current victims are financial firms and auto companies; energy and healthcare will follow. 100 day lurch to the left, Townhall.com, 4/30/09.

Nowhere is the Obama vision of government interference more evident than on the banking front. The White House and Treasury are using TARP as a bullying club to force government control on the country’s financial institutions. There is no exit strategy; no endgame in sight. Quite the opposite: News reports suggest that six major banks could be subjected to government ownership, putting them in the same club as Fannie Mae, Freddie Mac, AIG, GM, and Chrysler.

Kudlow also decries the tax increases contemplated to pay for the spending spree that is in process.

The Obama budget already will raise taxes on overseas corporate earnings and oil-and-gas companies at home. It will elevate taxes on capital gains and dividends for investors and will lift the top tax rate for successful earners. And more is coming.

But this is the wrong direction for economic growth. Instead, business tax rates should be slashed -- which, by the way, would repatriate corporate earnings for domestic investment. We need a capital-gains tax holiday. We should be flattening individual tax rates across-the-board. And all manner of loopholes and special-interest deductions should be repealed to broaden the taxable-income base.

But let’s face it; “liberals” feel much the same way in reverse. Indeed, polarization of the body politic has reached an extraordinary level. Partisan Gap in Obama Job Approval Widest in Modern Era, Pew Research Center, 4/2/09.

For all of his [purported] hopes about bipartisanship, Barack Obama has the most polarized early job approval ratings of any president in the past four decades. The 61-point partisan gap in opinions about Obama's job performance is the result of a combination of high Democratic ratings for the president -- 88% job approval among Democrats -- and relatively low approval ratings among Republicans (27%).

OUTLOOK – Perhaps we are whistling in the dark, but it seems to us that the current situation is not as bleak as it appears.

Yes, the president is popular and a force to be reckoned with. As Newt Gingrich stated in a 4/29/09 letter, “President Obama’s first 100 days have been spectacularly successful.”

His control of Washington Democrats has been so masterful, and his policies so successful, that he has officially claimed ownership of the American economy.

But there are flaws in the policies that the president and his party are trying to peddle, and we are not the only ones to have spotted them. The most basic flaw is undisclosed costs – taxes, healthcare rationing, soaring energy prices, etc. – that could easily outweigh the benefits on offer. The Liberal Hour, Wall Street Journal, 4/29/09.

What's striking is that Mr. Obama betrays no sense that maybe all of this isn't achievable, much less affordable, all at once. In contrast to Bill Clinton, he has abandoned any deficit concern, building in red ink of at least 4% of GDP for the next decade. And that's assuming the revival of rapid economic growth, and before counting the real cost of health care.

One of the keys to the president’s success thus far is a gift for expressing himself in a way that makes everyone think he is listening to them – as for example by saying he is serious about tackling the deficit at the same time that he is running it up – but government entails choices and this technique may not keep working. 100 Days: “Harry, I Have a Gift,” Daniel Henninger, Wall Street Journal, 4/30/09.

Already, the polls indicate widespread skepticism about the president’s policies. The Seeds of His Own Destruction, Obama’s Hundred Days, Dick Morris and Eileen McGann, Townhall.com, 4/29/09.

By 42 percent to 8 percent, the Fox News poll (conducted on April 22-23) found that voters felt Obama had expanded government rather than contracted it (42 percent said it was the same size), and by 46 percent to 30 percent they reported believing that big government was more of a danger to the nation than big business. (They said Obama felt big business was more dangerous by 50 percent to 23 percent). By 62 percent to 20 percent, they said government spending, under Obama, was "out of control."

As for why the president’s personal ratings have nevertheless remained high, here is a theory:

[The voters] are like the recently married bride who took her vows 100 days ago. It would be a disaster for her if she decides that she really doesn't like her husband. But she keeps noticing things about him that she can't stand. It will be a while before she walks out the door or even comes to terms with her own doubts, but it is probably inevitable that she will.

We will refrain from joining Morris and McGann in predicting a time when “the Obama administration crashes and burns, with approval ratings that fall through the floor.”

But the words of Abraham Lincoln do come to mind: “It is true that you may fool all the people some of the time; you can even fool some of the people all the time; but you can’t fool all of the people all the time.”

If enough people ask good questions and demand real answers about the economic policies that are being proposed, rather than allowing themselves to be treated like children, then things may go better than many “conservatives” are currently expecting.

SAFE generally focuses on federal taxes and spending because about two-thirds of all the government spending in this country is at the federal level. Also, it is tough to monitor the fiscal management of 50 states and thousands of counties, cities, and school districts.

Although state and local (S&L) governments must balance their budgets every year, this does not preclude fiscal folly. These governments can and do (1) borrow for capital projects, (2) enter into future commitments (e.g., “gold-plated” pension plans) that will be tough to meet, and (3) ratchet up spending during good economic times in ways that cannot readily be reversed during downturns.

And S&L spending has hardly been static. It more than doubled as a share of the U.S. economy over the past century or so, even with federal grants for designated S&L programs (notably education, healthcare, and roads) counted as federal spending.

Some S&L governments are doing OK from a fiscal standpoint, many are just getting by, and a few are on the verge of foundering. So for realistic evaluation, the results must be reviewed case by case. This brings us to this week’s subject, an illustrative review of the fiscal situation in an individual state.

Delaware has done well in holding down taxes. It is one of only a handful of states with no general sales tax; the others are Alaska, Montana, New Hampshire, and Oregon. Property taxes are generally lower than in neighboring states. The state’s income tax rates have been reduced to reasonable levels, as former Governor Pete DuPont recounted in a 3/17/09 Wall Street Journal column.

[After I was elected governor in 1976:] Spending was held nearly flat for eight consecutive years, the budget was balanced every year, and income tax rates were cut almost in half--from 19.8% to 10.3% in the top bracket. The next governor made further cuts, down to the current 5.95% for the top tax bracket. The result was real economic progress. Jobs increased substantially, income tax revenues increased by 200% over the next 20 years, and there were no budget deficits in any of those years.

One key to holding down tax rates has been finding special sources of revenue. Delaware has traditionally succeeded in getting interstate companies to incorporate and/or locate business operations here, thereby reaping corporate income and franchise tax revenues. It also enjoys profits from three casinos operated in conjunction with racetracks.

Delaware has been less successful in containing the growth of its S&L governments, at least in recent years. Thus, as reported in the 2007 Economic Report for Delaware:

#Between 2001 and 2007, Delaware government employees in the Public Administration sector increased by 14% (17% higher real wages) vs. a 5% (7% higher real wages) increase for the U.S. as a whole. (p. 14)

#As of 2007, government entity employees (including some 5,000 federal employees), accounted for 14.8% (this figure is now over 15%) of the state’s nonfarm payroll. (p. 15)

Reflecting recent job losses in the private sector, government employees currently account for over 15% of nonfarm employment in Delaware.

The fiscal outlook for Delaware was dimming before the recession hit, and over the past year, with one cutback after another in projected tax revenues, it has deteriorated sharply. Newly elected Governor Jack Markell and the state legislature face the challenge of closing a projected gap for Fiscal Year 2010 of some $750M (million) – nearly one-quarter of annual expenditures.

#Spending reductions ($331M) – In addition to department-by-department adjustments and general belt tightening, e.g., a moratorium on nonessential travel, there would be an 8% across the board cut in the salaries of all state employees ($91.7M) plus other pay adjustments ($2.2M) to “save the equivalent of 1,500 layoffs.”

#Federal economic stimulus funds ($155M); a sports lottery and up to three new casinos ($55M); reallocation of special funds ($40M); and fines & fees ($12M).

Although “fiscal conservatives” reportedly welcomed the spending cuts, it was clear from the outset that some elements in the plan would face stiff opposition. Markell Urges Drastic Action on Budget, Ginger Gibson, [Wilmington] News Journal, 3/20/09.

SAFE director Jerry Martin, our resident expert on Delaware fiscal matters, thinks the Markell budget needs some adjustments.

An across the board 8% pay cut for state employees is “dead on arrival.” It would really hurt many state employees at the low end of the pay scale ($20K to $30K).

I agree with the increase in payroll deduction for health care, but the Administration needs to dig into the state pension system and revamp it. For example, all overtime counts towards average annual earnings for calculating pensions. Some workers are milking this system - big time!

Expanding slots from 3 to 6 sites would not accomplish much. That’s like a guy ordering a pizza and the vendor asks, "Do you want me to slice it in quarters?" The guy says, "No, I'm hungry today, cut it in eight slices."

Raising the tax rate on taxable income over $60,000 by one percentage point may sound innocuous, but this would represent an increase of almost 17% (6.95/5.95).

Higher taxes on out-of-state companies incorporated in Delaware could backfire. I'm sure the federal government plus other states are looking at this stream of revenue very carefully – and "enviously."

The increased tax on cigarettes is a highly regressive levy, which would come on top of a big increase at the federal level. If taxes on cigarettes are raised too high, they will promote bootlegging and bring in far less revenue than is being counted on.

During the campaign, Jack promised to do a top to bottom review of state functions and drop those functions that are not serving the general public very well. He has now requested every state department head to submit a review of ways to reduce spending and increase efficiency, but a more top-down process may be needed to get real results.

For example, a consolidation of Delaware’s school districts (from 19 into 4, one for each of the 3 counties plus a state-wide vo-tech district) could achieve savings for Delaware taxpayers on the order of $45M per year.

Now I realize that it would take time to smoothly consolidate the school districts, but with the push to shore up the government’s finances right now this would be a great time to get started.

The envisioned savings would be achieved by reducing the number of school district administrators, support personnel and headquarters facilities. Greater responsibility would be placed on principals, school staffs, and, yes, even parents.

The potential savings were verified by a study sponsored by the LEAD Committee (Leadership for Education Achievement in Delaware), and conducted by the Boston Consulting Group. Among the study findings was a suggestion that a start be made by consolidating functions now, leading to consolidating districts later.

Reportedly, some functional consolidations may be in the works, but “there are not yet any estimates of actual cost savings or decreases in salaried positions.” Consolidated school district services could go even further, [Wilmington] News Journal, 4/21/09.

School district consolidation has been successfully implemented elsewhere. North Carolina’s Charlotte-Mecklenburg School District now has over 124,000 students, who are achieving excellent test scores (Wall Street Journal, 12/2/05). Several states have county-wide districts, including Florida and Maryland.

Others have characterized the budget proposal as a short-term fix for a longer-term problem because the Delaware economy (and tax revenues) will take several years to snap back. “Cinderella provision” complicates recovery, [Wilmington] News Journal, 4/11/09.

Delaware faces a $750 million shortfall for the next fiscal year. The federal stimulus will help in certain budget categories. - - - So what happens when the stimulus money disappears? - - - If Delaware can't cover its shortfall this year, how will it be covered in 2012?

Accordingly, we would favor taking a hard look at the franchise and cigarette tax increases and tempering the pay cut for lower level employees.

To make ends meet, a general increase in Delaware income tax rates (but not a “temporary” sales tax) should be considered – in harmony with the principle of “shared sacrifice” – rather than simply raising the tax rate on income above $60,000.

Finally, now is the time to get started on structural changes to government spending programs. The consolidation of school districts is one worthy idea, but there are others – notably finding ways to rationalize Delaware’s Medicaid program.

Medicaid enrollment rose from 137 thousand in FY 2005 to an estimated 157 thousand (over 17% of the total population) in FY 2009. See page 11 in the following presentation.

In FY 2007, the latest year for which we could find data posted, the total expense of Delaware’s Medicaid program was $976M (50.2% covered by federal funding), an average of about $6,800 per person enrolled.

“In less than a decade,” according to one study, “the combined spending on Medicaid in the State of Delaware will exceed the amount spent on Education [currently the area with the most state spending] by $600 million.”

Although 4/5 of Medicaid participants in Delaware are working age adults or children, the per-enrollee costs for the aged ($17,419) and the blind/disabled ($17,108) are substantially higher than average and expenditures for the aged can be expected to soar as the baby boomers retire. Medicaid in Delaware, Charlie Copeland [Republican candidate for Lieutenant Governor in the 2008 election], circa 2007.

The predictable consequence of allowing selected programs, e.g., Medicaid, to grow uncontrollably is to starve other programs of merited support and/or necessitate unwise tax increases. For a sobering case in point, consider how the New York City subway system (subsidized by government) is teetering on the brink of disaster due to soaring spending for education and Medicaid coupled with lax management of union contracts. New York’s Subway Woes Could Have Been Avoided, Nicole Gelinas, Wall Street Journal, 4/25/09.

A rate hike in some form is certain (and inflation-linked hikes are appropriate). But the real fix will only come if the state prioritizes the MTA in its budget by cutting spending elsewhere to free up transportation funding. City and state officials should stand together to demand labor reforms, including raising the retirement age and increasing pension contributions for new workers, and requiring all city and state employees to pay more for their health benefits.

What can be done about Medicaid here, before it bankrupts the state government? Without claiming to have the answers, we think the time has come for a fresh look at eligibility requirements, services covered, and options for providing needed services more cost effectively.

Some may envision the federal government providing a rising share of the funding for Medicaid, but this seems unlikely. Indeed, having grave fiscal problems of its own, the federal government may be forced to cut back in this area.

What about some form of mandated healthcare coverage, which Governor Markell advocated during the last election? Based on the experience elsewhere, e.g., in Massachusetts, a plan of this nature would compound Delaware’s budgetary problems rather than solving them. The Price of Romney Care, Wall Street Journal, 7/29/08.

As [the] public option [for subsidized healthcare coverage] gets overwhelmed, budget gaskets are blowing everywhere. Mr. Patrick had already bumped up this year's spending to $869 million, $144 million over its original estimate.

If there is a solution for Medicaid, we believe it will be found by dialing back the government role in healthcare and relying to a greater degree on free market mechanisms. SAFE plan for healthcare reform is government-lite, 4/6/09.

In short, Delaware has done a generally good job of managing its taxes and spending over the years – but some problems have accumulated and they need to be dealt with. This is no time for band-aid solutions and wishful thinking.

And although we have focused on the state budget in this entry, painful decisions will also be needed for New Castle County, the City of Wilmington, and other local governments. It would be unfair to expect taxpayers to shoulder the entire burden of projected deficits. Cost cuts will be necessary, probably including pay cuts (5% proposed) and/or layoffs. NCCounty, Wilmington must cut costs somehow, [Wilmington] News Journal, 4/24/09.

Let’s all challenge state and local leaders to come up with better solutions, both here in Delaware and around the country.

Tax day tea parties took place around the country on April 15, as previewed in last week’s entry, and from what we can gather they were a success. But were the nation’s political leaders listening, and what will all those protestors do for an encore?

Action: It is unclear how many tea parties took place; we have seen figures ranging from “more than 300, perhaps even 500” (Washington Times) to 2,000 (Karl Rove, who generally has his facts straight, in the Wall Street Journal).

Based on an incomplete recap of estimated attendance at individual events, nationwide participation was at least 250,000 and possibly several times higher. Furthermore, the people who turned out were not there just for fun. Million Taxpayer March, Michelle Malkin, Townhall.com, 4/17/09.

. . . the Tax Day Tea Party demonstrations featured small-business owners, working taxpayers and families. This wasn't a weekend or holiday, mind you. A quarter-million people took time off in the middle of the workweek to raise their voices against reckless taxing and bipartisan spending.

Planning for the tea parties was a bit haphazard, and in some cases amateurish. Thus, several demonstrations in Washington, D.C. (epicenter of the big government follies) were stymied by failures to obtain the prerequisite clearances.

One million tea bags delivered to Lafayette Park were reloaded and sent away because tea party organizers did not have the proper permit, protest organizer Rebecca Wales told FOX News.

And a D.C. rally scheduled to take place outside the Treasury Department was cancelled when the U.S. Secret Service prevented protesters from gathering outside for lacking a permit.

Overall, the attendance figures were not high enough to seriously worry the nation’s political leaders. But many were taken aback by the manner in which these events sprang up, like mushrooms after a rain, without the benefit of any central organizing or funding.

Also, regrettably, somebody did toss a tea bag over the White House fence. Not quite the terrorist attack depicted in a recent episode of “24,” but you can bet the Secret Service did not take the matter lightly. Hail the tea bag, weapon of terror, Washington Times, 4/17/09.

Some readers probably saw the Glenn Beck show coverage leading up to the tea party in San Antonio, Texas. The façade of the Alamo in the background underscored that participants intended to draw “a line in the sand” about reckless government spending. Beck presided in an avuncular fashion, and everyone seemed to be up for the occasion.

As for the tea party in Wilmington, Delaware, it went off smoothly despite a rainstorm that drove the event inside (an abandoned section of the Riverfront shops). Attendance estimates range from 700 to 1,000, with the lower figure probably being about right.

From start to finish, the Wilmington event was coherent, orderly, and peaceful – whoever put it together (Founders Values, Delaware Tea Party, etc.) deserves a lot of credit.

Bearing in mind that “a picture is worth a thousand words,” click on the following link for a 3-minute video clip. Note the reasonable tone of the petition, the earnest faces of the speakers, including Bill Morris (holding up a “s-a-f-e.org” sign), and the gusto with which the “tea bags” were tossed in the Christina River.

Also, here is a video clip (3+ minutes) of the talk by Bill Rivers, a 20-year-old student at the University of Delaware. His remarks suggest that the younger generation is aware that reckless spending is threatening their financial futures. “Government needs to leave the kids alone!”

Reaction: Critics painted the tea parties as special interest protests, mean-spirited (or worse) attacks, or annoying distractions – in short, anything but authentic expressions of concern about the magnitude and trend of government spending. Here are some examples of the Empire striking back.

#Is there any chance that the president may be having second thoughts about the government actions, past and proposed, that are driving up spending and debt by leaps and bounds? Absolutely not, if his “new foundation” speech at Georgetown University on April 14 is any indication.

This is not to say the president ignored the need to rein in spending and get the deficit under control, but his fiscal responsibility game plan is a charade. “The Sting in Four Parts,” Charles Krauthammer, Townhall.com, 4/17/09.

•The whopper – claiming that $2 trillion in fiscal savings have already been identified, when the primary saving that can be pointed to is the declining level of military expenditures in Iraq.

•The puzzler – boasting of the declining share of discretional spending in the overall budget, which is primarily due to soaring entitlements and debt service.

•The non sequitir – presenting his healthcare, energy, and education proposals as the key to ensuring that nothing like the current recession ever happens again, although the policies these initiatives would change did not cause the recession in the first place.

•The swindle – equating his healthcare plan with getting Medicare/Medicaid spending under control when it would substantially increase the government’s healthcare tab.

#At the White House on April 15, the president obliquely acknowledged the tea parties by citing plans to simplify the “monstrous” tax code. He also implied that the demonstrators were being manipulated into acting against their own interests.

For too long, we've seen taxes used as a wedge to scare people into supporting policies that increased the burden on working people, instead of helping them live their dreams. That has to change, and that's the work that we've begun.

With all due respect, Mr. President, the tea parties were not about the need for tax simplification – as worthy an idea as that might be – and we will be the judges of our own motivations.

#Representative Jan Schakowsky (D-Ill.) blasted the tea parties. According to her, the participants were right-wing activists, fueled by Fox News coverage, seeking to mislead the public about the Administration’s economic plan. Schakowsky: Tea parties “despicable,” Thehill.com, 4/16/09.

It's despicable that right-wing Republicans would attempt to cheapen a significant, honorable moment of American history with a shameful political stunt," she added. "Not a single American household or business will be taxed at a higher rate this year. Made to look like a grassroots uprising, this is an Obama bashing party promoted by corporate interests, as well as Republican lobbyists and politicians.

#Speaker of the House Nancy Pelosi (D-Calif.) painted the tea party protestors as diehard members of a clueless minority party. Pelosi talks tea parties, partisan politics, abclocal.com, 4/15/09.

They are the people who are funding what is supposed to look like a grass roots operation but is really an Astroturf initiative on the part of those who liked the status quo under George Bush, the failed economic policies that got us where we got today.

#Economist [and dilettante columnist] Paul Krugman, who wrote about the tea parties before most of them took place, offered lines like “it doesn’t feel right to make fun of crazy people.”

His column went on to level charges that not only prefigured some of Nancy Pelosi’s lines on April 15, but say a good deal about his own mindset. Tea Parties Forever, Paul Krugman, New York Times, 4/13/09.

Last but not least: it turns out that the tea parties don’t represent a spontaneous outpouring of public sentiment. They’re AstroTurf (fake grass roots) events, manufactured by the usual suspects. In particular, a key role is being played by FreedomWorks, an organization run by Richard Armey, the former House majority leader, and supported by the usual group of right-wing billionaires. And the parties are, of course, being promoted heavily by Fox News.

But that’s nothing new, and AstroTurf has worked well for Republicans in the past. The most notable example was the “spontaneous” riot back in 2000 — actually orchestrated by G.O.P. strategists — that shut down the presidential vote recount in Florida’s Miami-Dade County.

#Much of the media coverage was slanted to minimize the importance of the tea parties. Twisted Media Misuses Poll in Attempt to Downplay Tea Parties, Matt Towery, Townhall.com, 4/17/09.

Thus, attendance figures were grossly underestimated and tea party sponsorship was characterized in dismissive terms.

Many reports referenced “hundreds of people,” when the turnout at a given protest might actually have been in the thousands. Additionally, many said the tea parties were sponsored or fueled by “right-wing activist groups” or “conservative talk show hosts and Fox News.” Wow! Did they ever identify the groups that supplied huge numbers for rallies for Obama during his campaign, or attribute special coverage to a more “left-of-center” TV news organization?

Even worse, in Towery’s opinion (and he is a professional pollster), was the misuse of a Gallup Poll finding to characterize tax protestors as out of touch when they are actually ahead of the pack. In the survey, 48% of respondents said the “amount of income tax they pay is about right.” This is unsurprising under present circumstances (there has not been a federal tax rate increase since 1993 and 50% of the public pays nearly zero income taxes), but it ignores perceptions about what lies ahead.

[The tea parties] were protests over massive spending that will result in an unsupportable tax burden on future generations. They were protests over the growth of government and its intrusion into every aspect of the private sector. They were protests designed to start a movement that will be primed when the Democrats’ new tax policies go into effect. And we aren’t talking just about income tax. Even those who are promised a tax cut under the Democrats’ plan run the risk of seeing hidden taxes -- such as the proposed fees on energy -- lead to a net loss of money in their pockets.

#To be complete, there was some favorable coverage of the tea parties – emanating primarily from the minority party. Republicans and the Tea Parties, Karl Rove, Wall Street Journal, 4/16/09.

According to political strategist Rove, “the concerns driving people to tea parties are real, growing and powerful. Politicians ignore them at their peril.”

And he obviously hopes that his party will step up to the plate, while seeing little chance that the opposition will do so.

Some liberals believe that the recession has made tax-and-spend issues passé. But political movements are often a reaction against aggressive overreach by those in power. Mr. Obama's response to the financial crisis -- a government power grab and budget explosion -- has put spending and taxes back on the front burner. The tea parties are an early manifestation of that. More is sure to follow.

The path forward: The idealism and inclusiveness of the tea parties was markedly at odds with the critics’ invective about rightwing extremism, misguided efforts to preserve tax cuts for the rich, and alleged shortcomings of the minority party.

For the most part, they were organized and run as nonpartisan events, and rightly so. Fiscal responsibility and holding down taxes are not red issues or blue ones, everyone has a stake. Let’s by all means keep the spirit of transcending party loyalties alive.

Ultimately, however, debates about fiscal responsibility versus social needs will come down to cases. What are the facts and theories? Of the plans being offered, which make the most sense. Are current political leaders helping or hurting, and is there anyone out there who would be likely to do better and has a realistic chance of getting elected?

There is much to be done besides organizing demonstrations, notably asking tough questions and demanding real answers. That is something SAFE has been trying to do, hopefully with some success. See, e.g., the 2/11/08 entry – “If you want good answers on healthcare, ask good questions!”

But let’s face it folks, we need help. When is the last time that you wrote a letter to the editor, or contacted a member of Congress to ask about all the spending, debt, etc., or spoke your mind when someone started spouting off about how big government is the answer to all of the country’s problems?

If everyone started pulling together, building on the energy that was displayed at the tea parties, no telling what we could accomplish.

Talk show host Glenn Beck will promote an April 15 “tea party” in San Antonio, Texas. Similar events are planned in Atlanta (Sean Hannity); New York City (Newt Gingrich); Sacramento, California (Neil Cavuto); and Washington, D.C. (Greta Van Susteren).

In addition to these headliner events, many other tea parties are scheduled around the country on tax day. This map is illustrative, although it does not show tea parties organized since April 1.

We began warning about “the big pork, big government express” that is barreling down the tracks several months ago (see 12/15/08 entry). SAFE was a bit ahead of the pack, but more and more people are recognizing that – whether the country’s political leaders say so or not – reckless government spending will result in major tax increases and/or soaring government debt. Note the Website url (“theythinkyouare stupid”) for the San Antonio tea party; it was not chosen by accident.

There is plenty of emotion involved in organizing tea parties, as shown by the energetic but somewhat haphazard planning for the San Antonio event. Check out the videos posted (scroll down), especially the “Glenn plays it” clip (106 seconds).

Beck’s show will be on the scene from 4 to 5 p.m. on April 15, followed by a local radio personality (5 to 6) and the “tea party” proper (from 6 to 8). There is limited indication of what will be said and done, except that the demonstration will be conducted in a peaceable, lawful, and polite manner. READ THE RULES!!!

Tea parties around the country are loosely linked with Beck’s 912 project, this name signifying the state of national unity that existed on the day after 9/11. It is visualized that such unity can be recaptured (we are not so sure of this) by honoring the 9 principles and 12 values (honesty, reverence, hope, etc.) posted on the Website.

The 912 principles do not directly refer to taxes, but, like the Constitution itself, they harmonize with the idea of a federal government that does not spend the taxpayers’ money in an effort to cure every ill of society. For example:

6. I have a right to life, liberty and pursuit of happiness, but there is no guarantee of equal results.

7. I work hard for what I have and I will share it with [whom] I want to. Government cannot force me to be charitable.

8. It is not un-American for me to disagree with authority or to share my personal opinion.

In contrast to the tea party in 1773, at which demonstrators dumped tea into the Boston Harbor rather than pay taxes on it to the British crown, this year’s events lack a clear-cut focus. Federal taxes have not been raised yet (except for a big tax hike on cigarettes), and – as we noted in a prescient statement nearly a year ago – it is tough to get people excited about government spending per se. A line in the sand on taxes (5/26/08 entry).

People only fret about wasteful government spending, but they get excited about taxes. Witness the Boston Tea Party and the French Revolution.

The points being made at tea parties are all over the lot, as illustrated by some of the slogans. Stop punishing success and rewarding failure – no taxation without deliberation – why work, government will take it all – keep the change, we’ll keep our freedom – don’t mortgage my future (sign carried by a young girl). In sum, “We the People” seem to be in a feisty mood.

The first wave of tea parties in February was a big success, and it led to more. “The Taxpayer Tea Party Movement Is Growing,” FreedomWorks, 2/23/09.

The volunteer, grass roots flavor of these events is apparent from the pictures. Check out the Charlotte, NC slideshow for some fine examples. Tea Party Update, Brendan Steinhauser, FreedomWorks, 4/6/09.

In our neck of the woods, a tea party is scheduled on Wednesday, April 15 (4-6:30 p.m.) at the Wilmington riverfront. SAFE founder Bill Morris will be giving one of the speeches. We urge you to contact the event organizers (Founders Values) for further details and attend if possible.

There is also plenty of tea party activity in nearby Pennsylvania, as reported in this 4/6/09 entry from the Lehigh Valley political blog.

Ideally, tea parties should not be a one-time event. Those disposed to show ongoing support might consider displaying Taxed Enough Already (T.E.A.) bumper stickers on their vehicles. These stickers are currently available for “free,” although there is a modest shipping and handling charge.

But be careful, because if the company making the bumper stickers has borrowed money from a bank that got TARP funds from the federal government, you might wind up being charged as an accessory to a crime.

Really? Just kidding, the 1^st Amendment has not been interpreted out of existence yet, but it is true that opposition to tax and spend government is not universally appreciated. Attacking the Tea Party Movement, Lorie Byrd, Townhall.com, 4/7/09.

When I recently wrote a blog post letting readers know how to find the April 15 tea party in their area, liberal commenters posted attacks on the movement ranging from those disputing my statement that thousands were turning out at the tea parties, to those saying the tea party protesters didn’t know what they were doing because they didn’t bring a PA system to one of the tea parties.

And there may be some reverse or anti tea party events. Thus, protestors in faux colonial attire recently poured bottled water (because it comes in plastic bottles and private companies earn a profit from it) into the Boston Harbor. Activists say plastic bottles don’t “hold water,” Boston Herald, 3/26/09.

Public officials may not welcome input on policy issues either. Consider what happened after Ed Failor Jr., president of Iowans for Tax Relief, was overheard speaking with the media (gasp!) at a hearing on proposed state tax increases. (To be complete, there had been some booing earlier.) Hundreds of Iowans thrown out of public hearing, Des Moines Register, 3/31/09.

Inevitably, some of the tea party fervor will be directed against state and local tax increases that are being implemented right now rather than, as in the case of federal taxes, coming in a year or two.

The lust to raise taxes in California and New York is well known, and a number of other states (including Delaware) are also considering broad-based tax increases. More States Look to Raise Taxes, Leslie Eaton, Wall Street Journal, 4/9/09

In all fairness, however, state and local governments have an obligation to balance their budgets and their budgetary excesses generally pale in comparison to the spending spree being cranked up at the federal level.

Instead of knee jerk opposition to any tax increases at the state and local level, we would urge that proposed increases be considered on a case-by-case basis. By way of example, Delaware’s budgetary equation will be reviewed in next week’s entry.

We close this entry with a question: Will the tea parties have a lasting impact, or are they simply a vehicle for folks to blow off steam?

Demonstrations alone cannot prevent spending and tax increases. To succeed, fiscal visionaries must acknowledge concerns of the general public and make a convincing case that there are better solutions than throwing money at them. That is why SAFE is advocating an alternative approach to healthcare reform, offering information about “global warming,” and the like.

It is all too easy, however, for political leaders to ignore quiet and reasoned feedback on their ideas. A large, vocal, grassroots outpouring – as exemplified by the tea parties – may receive more respect (at least in the short run).

Hopefully there will be a huge turnout at the Wilmington riverfront tea party on April 15. Charlie Copeland is scheduled to speak. I don't know if there's just one or there are more organizations involved [we gave the credit to Founders Values, but there may have been others involved]. Charlie has an ancestor who was the youngest member of THE Boston Tea Party. He was 15 and held the lantern so the others could see what they were doing. SAFE director

Our last entry identified the leading problem with healthcare (soaring costs) and its root causes (government policies, consumer behavior, and ossified industry structure). Now, here is how to make the healthcare system more affordable without sacrificing quality, rationing services, or excluding the poor or disadvantaged from access.

1. Scrap the president’s plan (3/17/09 entry), which would use the government’s clout (and our money) to mandate near universal healthcare.

In addition to being unaffordable (3/23/09 entry), this plan would block restructuring of the healthcare industry. The Innovator’s Prescription: A Disruptive Solution for Health Care, Christensen, Grossman and Hwang, Harper-Collins (2008), p. 408.

. . . we urge our readers, our lawmakers, and our fellow American citizens not to look to a government-controlled single-payer system as a solution to our healthcare crisis. It is a route that is relatively easy to get onto, but it is in fact a one-way street heading in the wrong direction. And there is no exit.

By the way, healthcare will be at the top of the legislative agenda when Congress reconvenes in mid-April. The first issue will be whether the majority party will seek to invoke the “reconciliation” process, thereby enabling its version of healthcare reform to be rammed through the Senate on a party line vote. Healthcare reform battle begins, Sean Lengell and Kara Rowland, Washington Times, 4/4/09.

This tax exemption represents an unjustifiable subsidy. First, the cost involved is deductible by employers (just as additional salary would be), so there should be corresponding income to employees. Second, employees of companies offering healthcare benefits come out ahead of other taxpayers, who can only buy healthcare insurance (or cover healthcare expenses) from their after-tax income.

The existence and operation of employer healthcare plans, in conjunction with government plans, fosters wasteful consumption of healthcare. So long as a third party pays most of the bills, consumers tend to ignore cost in making their healthcare decisions. The Cure: How Capitalism Can Save American Health Care, Dr. David Gratzer, Encounter Books (2006), p. 43.

Walk into a grocery store, and every item has a sticker indicating its price; but have you ever walked into a doctor’s office and seen a list of prices? Has it even occurred to you to ask what a procedure or test will cost?

The annual loss of revenue to the federal government from the healthcare benefit exemption is some $250 billion. Add that amount to direct government spending for healthcare, and it will be seen that the federal, state and local governments are covering nearly 60% of U.S. healthcare costs. Congressional Budget Office study, December 2008, p. 18.

Taxing employer-provided healthcare benefits is not proposed as a revenue raiser; the object would be to impose taxes in a more equitable manner. We would expect offsetting tax cuts in other areas, e.g., through elimination of the Alternative Minimum Tax.

Some employers might drop their healthcare plans if the cost was taxable to employees, while others would not – fielder’s choice. Such plans are fine if employees prefer healthcare benefits to an equivalent amount of cash, just so long as the government does not use the tax law to subsidize them.

However, we do support favorable tax treatment for one form of healthcare insurance coverage, which, as discussed under the next heading, offers unique advantages in combating soaring healthcare costs.

3. Encourage catastrophic coverage insurance combined with health saving accounts to cover outlays for routine healthcare services.

The predominant form of healthcare insurance today is not really insurance, at least in the classic sense of covering large and relatively infrequent losses (as with car insurance), but rather a healthcare service contract. Gratzer pp. 31-32.

Car insurance premiums aren’t particularly heavy, especially when people purchase high-deductible plans; but the average family’s health premium tops $9,000 a year. What would car insurance cost if people insisted on plans that had limited deductibles? Or policies that included not just major bodywork, but also oil changes and gas and a paint job every time you spouse got tired of the car’s color?

Healthcare service contracts generate lots of costly paperwork; they also insulate consumers from the payment process with the adverse results already noted. These disadvantages do not apply with catastrophic coverage (high deductible) insurance.

As for Healthcare Savings Accounts (HSAs), they are rather like Individual Retirement Accounts (IRAs) in which contributions can either be made from pretax income or deducted on one’s tax return. Disbursements from an HSA for healthcare expenses are not taxable; unspent amounts can be carried forward for future healthcare needs.

With an HSA + catastrophic coverage, the individual manages routine healthcare expenditures, thereby minimizing administrative overhead. He or she can choose the services desired without obtaining referrals, etc. And the individual has a financial incentive to stay well.

Do people really need a financial incentive to stay well? Evidently they do, for some 70% of total healthcare expenditures are for the treatment of chronic diseases (treatable but not curable). The aggregate cost would be far lower if the subjects made lifestyle changes when their conditions were first diagnosed, began taking preventive medication, and/or joined a network (e.g., Alcoholics Anonymous) in which people suffering from the condition exchanged information and supported each other.

Many people intend to do these things – starting next week – but fail to get around to it if there is a substantial time lapse between failure to act and unfavorable consequences from the condition in question. In such cases, a financial incentive may be more compelling than one’s physical well-being. The Innovator’s Prescription, pp. 172-173.

It turns out that for most people who have chronic diseases with deferred consequences, “improve my financial health” is a much more pervasively experienced job than “maintain my physical health.”

For example, recent research findings demonstrate that “smokers who are paid to quit succeed far more often than those who get no cash award” – never mind the well-known health hazards from smoking. Wall Street Journal, 2/16/09.

4. Have the states assume full responsibility for Medicaid and SCHIP programs, with the federal government providing block grant funding and not attempting to dictate what coverage should be provided.

Like most people, we believe the poor and disadvantaged should be afforded decent healthcare because it is the right thing to do. Ideally, such support would come through private charity, but government programs will probably be needed as well.

That said, there are major problems with the Medicaid and SCHIP programs as presently constituted, not the least of which is that joint funding by the federal and state governments creates an incentive for states to keep expanding their programs in order to qualify for more and more federal funding. The Cure, p. 104.

Consider that the average federal contribution is 57 cents on every Medicaid dollar, meaning that an enterprising governor can offer his citizens new services without spending much from his state treasury. Historically, expanding Medicaid has been a good deal for the states. In fact, for every dollar of new state spending required for, say, a children’s health program in West Virginia, Washington will pony up three “free” dollars.

On finding that they have underestimated costs, states often attempt to rein in their Medicaid (and probably SCHIP) expenditures by cutting reimbursement rates to the bone, thereby jeopardizing the delivery of adequate healthcare services for participants. The Cure, pp. 107-108.

Compared with private insurance and even Medicare, state governments’ reimbursement is modest. In fact, for every dollar a physician collects for a service from Medicare, he or she will probably get 30 to 50 percent less from Medicaid for the same service. With so little pay, many physicians opt out, choosing not to treat Medicaid patients.

For example, consider what happened after the Massachusetts Medicaid plan – under pressure to save money – slashed its already low reimbursement rates for basic dental services. The Innovator’s Prescription, p. 377.

Additional free care was still available in community health centers funded by the state through a different pool of funds, but those were much less convenient to access for many of the poor. Within three years of the reimbursement cuts, 100,000 fewer MassHealth patients received dental services that were reimbursed by MassHealth.

Meanwhile, a lot of Medicaid funding has been diverted into providing long-term care in nursing homes for older members of families that could quite possibly pay the bill. The Cure, pp. 116.

A Rhode Island man with, say, three Mercedes Benz cars and a large Newport mansion can still qualify for Medicaid. That may sound ridiculous and morally dubious – but it is completely legal. (When it was revealed that Carol Moseley-Braun, a Democrat from Illinois, had done “asset-shifting” to get her mother qualified for Medicaid, she still managed to win her Senate race in 1992.)

Once the aggregate level of Medicaid block grants to the states has been set, the commitment should be indexed for inflation – not permitted to continue growing in real economic terms. The states would be compelled to run their Medicaid programs in a businesslike manner, with the details to be determined at their discretion. Federal budget savings over time would be substantial.

If block grants are a good idea, why did no one ever think of them before? Turns out the idea was unsuccessfully proposed in the early 1980s. The Cure, p. 103.

President’s Reagan’s idea – which passed the Senate in 1982 with bipartisan support but was dropped from budget negotiations – would have left states with a fixed amount of money to spend as they saw fit. With such a move, the administration hoped that state governments would rethink the program, reining in costs along the way.

Critics might question whether the states are qualified to run their Medicaid programs. Look at the results of state efforts under federal supervision: soaring enrollment (crowding out private insurance) and cost, coupled with cut-rate reimbursement schedules that defeat the purpose of providing basic healthcare services to those least able to afford them.

As joint federal/state responsibility has worked so poorly, however, why not try something else?

Also, state management of Medicaid programs would provide flexibility for experimentation. Some approaches would work and presumably spread. Others would fall by the wayside.

As an example of upside potential, consider the innovative Medicaid program for which Governor Bobby Jindal of Louisiana recently requested a federal waiver. The idea is to steer Medicaid recipients into private managed-care plans, with the state to pay a fixed per patient amount (risk adjusted) for coverage, instead of continuing to reimburse healthcare providers on a fee for service basis. This is not a new idea, but it sounds like a good one – particularly for a state where the healthcare system is in a mess (half of the population is on Medicaid or uninsured). Jindal’s medicine: Louisiana’s governor pushes a creative Medicaid reform, Wall Street Journal, 11/24/08.

In addition to adopting a block grant system for Medicaid funding, the federal government must eliminate obstacles to serving the healthcare needs of the indigent more effectively. One needed step is discussed under the next heading.

5. Repeal the federal statute requiring hospital emergency rooms to admit all comers.

Although enacted with the best of motives, this statute has proven costly. Moreover, it impedes the kind of restructuring of the healthcare industry that is needed to provide lower cost, more convenient healthcare services – not just for the general public but also for the very people that guaranteed emergency room access was meant to help.

U.S. hospitals have a tradition of trying to do everything for everyone, which generates enormous overhead costs that cannot be allocated logically to any given service and drive up the cost of all hospital services. The Innovator’s Prescription, pp. 73-105.

The requirement to accept all comers in emergency rooms is far from the only thing that needs to change, but it contributes to the broken business model problem.

Also, it is irrational to guarantee hospital access to the indigent – for any medical complaint – while failing to provide walk-in clinics that could serve their needs more effectively in most cases. The Innovator’s Prescription, p. 255.

The medical expenses foremost on the minds of most of the uninsured are not those resulting from catastrophic hospitalization. Rather, they are the costs of day-to-day care for acute infectious diseases and routine medications. When we . . . allow physicians’ groups to block the licensing of affordable retail clinics in poor neighborhoods, those we are hoping to help have little access to the non-catastrophic care so essential to their daily well-being.

Finally, the emergency room access requirement is much abused. According to a recent report from Texas, for example, nine patients logged 2,678 visits to hospital emergency rooms over six years at an average cost of about $1,000 per visit. Comcast News, 4/1/09.

Eight of the nine patients have drug abuse problems, seven were diagnosed with mental health issues and three were homeless. Five are women whose average age is 40, and four are men whose average age is 50 . . .

6. Phase out traditional Medicare coverage, providing capped funding for private insurance coverage of future retirees.

It may sound radical to recommend the end of traditional Medicare, but we have no doubt the country would be better off if this program had never been established.

#Medicare’s cost reimbursement schedules amount to a price control regime for the healthcare industry. The schedules make some diagnostic and treatment procedures very profitable (creating a strong incentive to promote them), while failing to provide adequate compensation for other procedures (notably preventive medicine to keep people well). The Innovator’s Prescription, p. 235.

#Medicare regulations impede the type of restructuring that is needed in the healthcare industry. For example, licensing requirements for reimbursement typically lag “many years behind changes in technology.” The Innovator’s Prescription, p. 385.

#And, of course, the rapidly growing cost of Medicare is a big contributor to the overall fiscal challenge facing the federal government – as we and other fiscal visionaries have pointed out so often. The Cure, p. 126.

Given the millions of people looking to Medicare for coverage of their post-retirement healthcare needs and the difficult transition issues that would be involved in outright termination, a compromise seems necessary. The Innovator’s Prescription, p. 398.

We believe that Medicare can be transformed into a neutral force in the industry – still able to fulfill its mission of providing care to the elderly, yet not inhibiting innovation that can help everyone. * * * We need to initiate change in portions of the industry that are beyond Medicare’s reach [note the importance of not extending the reach of government within the healthcare sector], rather than trying to change Medicare directly. And we need to control the ballooning costs of Medicare through regulatory change that enables or facilitates disruptive business models.

In one way or another, Medicare reform proposals generally replace traditional Medicare with private insurance or managed care coverage. Thus, per the House Republican Budget Alternative, April 2009, p. 28.

To make [Medicare] sustainable and dependable, those 54 and younger will enroll in a new Medicare Program with health coverage similar to what is now available to Members of Congress and Federal employees; and they will receive a premium support payment equal to 100 percent of the Medicare benefit.

Such an approach would give Medicare participants more choices about their healthcare coverage, but we would be surprised if it proved effective in curbing the rapid growth in Medicare spending – as must be done.

Accordingly, we propose an alternative arrangement – which would be somewhat analogous to the current procedures for Medicare Part C (Medicare Advantage plans) and Part D (prescription drugs) coverage.

#Traditional Medicare coverage for Part A (Hospital insurance) and Part B (Medical Insurance) would not be offered for Medicare participants retiring after a given date, e.g., January 1, 2012.

#Private insurance companies would be empowered to offer Senior Healthcare plans with specified terms (insurance coverage, deductibles, etc.) to subsequent retirees. Medicare would pay the insurance companies a fixed amount per senior insured, hereinafter referred to as the Medicare Contribution, thereby enabling the insurance companies to quote lower premiums.

#The Medicare Contribution would be adjusted for age and individual health problems (as identified at time of retirement) to avoid creating a disincentive for insuring high-risk seniors.

#The average Medicare Contribution would be indexed for inflation, thereby stabilizing Medicare’s outlays per senior in real economic terms. Over time, major savings in Medicare outlays could be expected versus the current system.

#Medicare’s role in directly paying healthcare providers, which has impeded innovation in the industry, would fade away. As explained in The Innovator’s Prescription, the results should be beneficial for all concerned.

Our list of cost saving ideas is not meant to be exhaustive, but we cannot resist one more. Punitive damage awards in medical malpractice cases represent a windfall to recipients and the attorneys who represent them, at the expense of everyone else involved with the healthcare system.

Malpractice insurance premiums for doctors are raised, which in turn leads doctors to raise their billing rates, move to another state, or retire. Also, doctors and hospitals order every medical test to man, whether needed or not, in hopes of avoiding potential legal liabilities.

Likewise, drug companies are motivated to expand the size of their clinical trials for new pharmaceuticals, and to spend inordinate effort identifying and listing potential adverse effects on product inserts that most people never read. Prescription drug prices are set higher in an effort to recover the resulting costs.

Surely doctors and other healthcare providers should be liable for actual damages if they blunder. Beyond that let’s put a cap on it!

We hope that these ideas will strike a responsive chord with readers. Feedback please, this subject is far too important to “leave it to the experts.”

And next week, we promise – after four straight entries on healthcare – to introduce a new topic.

The last two entries posed a dilemma: no one is happy with the U.S. healthcare system, but the Administration’s plan for fixing it appears unaffordable.

3/16/09: The president is pushing hard for near universal healthcare coverage, with government mandates and/or subsidies visualized to achieve it. The impetus for change is widespread dissatisfaction with the soaring cost of and perceived lack of access to healthcare.

3/23/09: Despite claims that the healthcare plan would “pay for itself,” most of the cost involved (perhaps $1.5 trillion over the next 10 years) would apparently be covered by tax increases. With the economy in recession and the government facing a dangerous and growing fiscal gap, such a use of resources seems questionable at best.

Some skeptics may decide to hold their fire. Well, the healthcare plan sounds expensive, but it might save money in the long run. Perhaps the best idea is to go along, asking just enough questions so I can claim to have opposed the plan if it does not work out.

As though to invite such a reaction, the president continues to glibly talk about cutting healthcare costs. Consider this comment at his March 24 evening press conference:

[Let’s] invest in health information technologies. Let's invest in preventive care. Let's invest in mechanisms that look at who's doing a better job controlling costs while producing good quality outcomes in various states and let's reimburse on the basis of improved quality, as opposed to simply how many procedures you're doing. Let's do a whole host of things, some of which cost money on the front end, but offer the prospect of reducing costs on the back end.

“If you’re making all these long-term cuts,” asked Chip Reid of CBS News, “why does [the deficit] continue to go up in the out-years [of the 10-year budget projection]?”

Patience, responded the president, “a budget is a snapshot of what we can get done right now.” He relegated Medicare and Medicaid “reforms” to future talks, as though the subject was separate and distinct from healthcare reform – and considerably less urgent.

There's been a lot of talk about entitlements in Medicare and Medicaid. The biggest problem we have long-term is Medicare and Medicaid. But whatever reforms we initiate on that front -- and we're very serious about working on a bipartisan basis to reduce those deficits or reduce those costs -- you're not going to see those savings reflected until much later.

Why all the fancy footwork? Cynics might see the healthcare plan as a “bait and switch” scheme, likely to have much the same results as Romney care in Massachusetts. National Health Preview, Wall Street Journal, 3/27/09.

First create vast new entitlements that can never be repealed, then later take the less popular step of rationing care when it's [the] last hope to save the federal fisc.

For those who disapprove of the healthcare plan – or think entitlement outlays should be reined in before committing to spend another $1.5 trillion over the next 10 years – or want some alternatives considered as a matter of due diligence – we would like to suggest a healthcare plan that would accomplish more and cost less.

Our presentation will (1) identify the key problem with the healthcare system (READY), (2) discuss its root causes (AIM), and (3) offer a proposed solution (FIRE).

The basic problem – Spending on healthcare has risen rapidly over the past half century, not just in dollars but also in real economic terms. Indeed, healthcare expenditures as a percentage of Gross Domestic Product (GDP) have tripled since 1960.

There is no sign that the growth of healthcare spending is abating. It could consume nearly half of the U.S. economy by 2082 (see graph from the PGPF blog) based on the current growth trend, although we suspect the trend line will level off before then.

As healthcare spending rises, the issue of who pays for it becomes increasingly important. Individuals, private employers, and state & local governments are all finding it difficult to keep up. Even the federal government is not “too big to fail,” and healthcare outlays will be a big part of the reason if a fiscal meltdown does take place.

Proponents of healthcare reform acknowledge that rising costs are a problem, but most of them place more weight on the number of Americans (currently said to be about 46 million) without healthcare insurance (HCI).

We would recommend caution in making major decision based on this statistic. For one thing, lack of HCI is not synonymous with lack of access to healthcare. Uninsured? So What? John Goodman, National Center for Policy Analysis, 9/6/06.

It is far more important to make medical care easily accessible than it is to make health insurance easily accessible. Beyond that, health care reformers are simply using the uninsured as a excuse to hawk reforms they want enacted anyway.

Take the oft-repeated proposal to make health insurance mandatory, just like automobile liability insurance. Health policy expert Greg Scandlen points out that although 47 states make auto insurance mandatory, the national uninsured rate for drivers is almost the same as the health uninsurance rate (13.2 percent vs. 15.7 percent in 2004).

Millions of people counted as uninsured have ready access to healthcare. What Do We Really Know About the Uninsured? William Snyder, Wall Street Journal, 11/21/08.

Many Americans believe that the uninsured are too poor to purchase coverage and that government programs aren't available to them. But a study published in Health Affairs in November 2006 estimated that 25% of the uninsured were in fact eligible for public coverage, and another 20% probably could afford coverage on their own.

On the other hand, millions of people enrolled in government healthcare programs (and therefore considered insured) are not receiving adequate care. What Medicaid Tells Us About Government Healthcare, Dr. Scott Gottlieb (American Enterprise Institute), Wall Street Journal, 1/8/09.

Reimbursement rates [for Medicaid] are so low, and billing the program so complicated, that it is hard for internists like me to get beneficiaries access to specialized care or timely interventions. For my patients as well, many of whom are uneducated or don't speak English, Medicaid is replete with paperwork, regulations and rejections that make the program hard to navigate.

In sum, mandating HCI for everyone would not necessarily produce better healthcare for the poor and disadvantaged, let alone better healthcare at lower cost for everyone. We therefore feel quite comfortable in concluding that the key problem with the healthcare system is rapidly rising spending (aka cost).

Root causes – Several explanations have been offered for the high and rising cost of healthcare, all of which have some validity – and limitations as well.

GOVERNMENT POLICIES: Surging healthcare spending over the past half century has been accompanied by a dramatic expansion (under presidents of both parties) of the federal government’s role. Among the milestones: Medicare and Medicaid enacted in 1965; Medicare eligibility extended to people under 65 with long-term disabilities in 1972; access to hospital emergency rooms provided to all comers in 1985; State Children’s Health Insurance Program (SCHIP) enacted in 1997; prescription drug benefit for Medicare enacted in 2003.

Government programs have (a) increased the aggregate demand for healthcare, (b) imposed substantial costs and restrictions on service providers, and (c) reduced the incentive for consumers to take cost into account in making healthcare decisions.

Meanwhile, advances in medical technology have created a profusion of treatment options that did not formerly exist. For example, the prime treatment for a heart attack used to be bed rest. Now the options include bypass surgery, angioplasty and pacemakers.

Given the foregoing, the surge in healthcare spending has been inevitable and can be expected to continue until some of the underlying causes change. The Cure: How Capitalism Can Save American Health Care, Dr. David Gratzer, Encounter Books (2006).

Gratzer’s confidence in Capitalism is appealing, especially given our predilection for smaller, more-focused, less costly government. After all, the U.S. Constitution says nothing about doctors or hospitals, and the 10^th Amendment must be there for some reason.

But we recognize that healthcare is run by the government in many countries, which spend considerably less per capita on healthcare than the United States does and may well get more for their money. For example, life expectancies in some of these countries are longer than here. See our 8/14/07 entry, “Healthcare by the numbers.”

Longevity is a function of many things besides the quality of healthcare available, of course, and for people in need of heavy-duty medical treatment, the U.S. system is first rate. Thus, according to Gratzer’s book:

The World Health Organization, in partnership with the International Union Against Cancer, compiles five-year survival rates for various types of cancers. The United States consistently beats Europe. The reasons include access to physicians and specialists, aggressiveness of treatment, and use of new technology and pharmaceuticals.

In the healthcare systems held up as a model for the United States, moreover, costs are typically held in check by restricting access to (aka rationing) healthcare. “Too Old” for Hip Surgery, Nadeem Esmail, Wall Street Journal, 2/9/09, relates several “horror stories” from Canada, including this one.

In Ontario, Lindsay McCreith was suffering from headaches and seizures yet faced a four and a half month wait for an MRI scan in January of 2006. Deciding that the wait was untenable, Mr. McCreith did what a lot of Canadians do: He went south, and paid for an MRI scan across the border in Buffalo. The MRI revealed a malignant brain tumor. Ontario's government system still refused to provide timely treatment, offering instead a months-long wait for surgery. In the end, Mr. McCreith returned to Buffalo and paid for surgery that may have saved his life. He's [now] challenging Ontario's government-run monopoly health-insurance system [in court].

Similarly, a 2007 report of the Healthcare Commission noted numerous failings in the UK, from hospital patients left unwashed in soiled bedding to two-year waits for psychological therapies and hearing aids. NHS patients face humiliating treatment, UK Telegraph, 12/6/07.

Opposition MPs said the report provided a "damning indictment" of the NHS after more than a decade of Labour government, which has seen huge increases in investment.

Funding has increased from £55 billion in 2002-3 to almost £90 billion in 2007-8, and the workforce has increased by 29 per cent.

EXCESSIVE CONSUMPTION – In addition to covering the healthcare expenditures of many Americans, the government provides favorable income tax treatment for employer-provided healthcare benefits (cost is deducted by the employer; benefits are not taxable for employees).

Given the prevalence of government and employer-paid healthcare plans, direct payment for services by consumers has been the exception rather than the rule. Payment of the bills by intermediaries fosters the illusion that healthcare is free, and many people make healthcare decisions without much regard to cost.

So what, surely people will not undergo unnecessary medical tests and procedures or take medicine they do not need. Or will they?

It is common experience that drugs tend to be over-prescribed (perhaps by several different doctors, none of whom is aware of all the drugs being taken).

Medical tests or procedures may be recommended by doctors (and accepted by their patients) even if the risk-to-benefit ratio is problematic, especially if the Medicare reimbursement schedules that basically set prices in the U.S. healthcare system provide leeway for an attractive profit. Three “Inconvenient Truths” about Healthcare, Victor Fuchs, New England Journal of Medicine, 10/23/08.

Overutilization of careis another problem that is not easily solved, partly because unnecessary or marginally useful tests, prescriptions, operations, and visits generate income for providers.

Last but not least, treatment is all too often required for illnesses, such as childhood obesity or early onset diabetes, which could have been prevented by sensible lifestyle adjustments.

For an in-depth review of the foregoing, see The Last Well Person, Nortin M. Hadler, M.D., McGill-Queen’s University Press (2004). (Caveat: Dr. Hadler surveys a wide range of medical problems/ treatment options. For a balanced view, we recommend that you also consider the opinions of other medical professionals.)

INDUSTRY STRUCTURE – In many industries, such as computers for instance, advances in technology have led to lower costs and better products. Customers get more and more for their money.

Advances in medical technology, on the other hand, create new uses for healthcare dollars while doing little or nothing to reduce costs. The reason: healthcare providers are organized to provide treatment on a fee for service basis. With limited incentive for efficiency gains, players in the industry continue operating in a dysfunctional manner.

# Hospitals serve wildly disparate functions, from cutting edge diagnosis and treatment to helping whoever shows up in the emergency room, which cannot be intelligently managed under one roof.

# Family doctors have become gatekeepers for referrals to specialists; time and effort spent counseling patients on how to stay well or manage their infirmities is poorly compensated. Young doctors seek to become specialists so they can earn more money providing lucrative tests and procedures.

# Pharmaceutical companies spend hundreds of millions of dollars to test and obtain approval of new drugs of general application. Such drugs benefit only a fraction of the people who take them, and they may result in crushing legal liabilities if all applicable side effects have not been identified and noted in the product inserts (which many people do not read).

# Insurance companies rule on reimbursement requests. They have a built-in incentive to disapprove expenditures (even if merited on a long-term basis).

# Government healthcare regulations, notably Medicare reimbursement schedules, serve to preserve the status quo rather than promoting constructive change.

Enormous cost savings could be achieved by rebooting the healthcare industry, but the changes required would be disruptive for most of the players involved, including consumers (i.e., the general public), and they cannot be implemented on an ad hoc basis. The Innovator’s Prescription: A Disruptive Solution for Healthcare, Christensen, Grossman and Hwang, Harper-Collins (2008).

Christensen et al. visualize a top-down change process in which the needed changes would be driven on a systemic basis by large employers, long-term HMOs organized along the lines of Kaiser Permanente, or if need be the government.

Sorry, we have run out of space. Our proposed plan to fix healthcare will have to wait until next week. Meanwhile, we would welcome reader input about the “right answer” to an undeniably difficult problem.

The president promised more and better healthcare at lower cost during the campaign last fall (10/20/08 entry), and he has continued on message. Thus, at the Forum on Health Reform on March 5, he claimed that his healthcare plan could help rein in the rapidly growing costs of Medicare and Medicaid.

Medicare [and Medicaid?] costs are consuming our federal budget. I don't have to tell members of Congress this. Medicaid is overwhelming our state budgets. I don't need to tell governors and state legislatures that. - - - Making investments in reform now, investments that will dramatically lower costs, won't add to our budget deficits in the long term. Rather, it is one of the best ways, in fact maybe the only way, to reduce those long-term costs.

OK, sounds great, except where are the savings supposed to come from that would more than offset the cost of ensuring coverage for the 46 million or so American residents (including illegal aliens) that do not have healthcare insurance? Here is a possible answer excerpted from the President’s budget proposal (hereinafter “Budget”), page 11.

Costs vary widely across areas of the United States, but evidence suggests that the high-cost areas do not generate better health outcomes than the lower-cost ones. Costs are twice as high at some of our Nation’s leading medical centers than at others – and again the high-cost centers do not generate better outcomes than the lower-cost ones. Academic researchers suggest that costs could be reduced by as much as 30 percent – or roughly $700 billion a year – while protecting the quality of healthcare delivered if the high-cost areas and hospitals adopted the practices of the low-cost ones.

Hmm, what if the low-cost areas and hospitals adopted the practices of the high-cost ones instead? After all, previous expansions of the government role in healthcare (e.g., the launching of Medicare in the 1960s) fueled rising healthcare costs.

But we digress, for the contemplated $700 billion a year savings from adopting best practices nationwide are not claimed in the Budget. Instead, there is a $634 billion “reserve fund” over the 10-year period (see pp. 28-30, 127-128), which purports to represent how the president’s healthcare plan would be funded. The composition of the reserve fund follows, along with our comments:

$318 billion in tax increases, to be achieved by reducing the value of income tax deductions for upper income taxpayers.

There is no apparent connection between tax increases for “the rich” and healthcare benefits for “the poor.” It would seem more logical to allocate the assumed tax increases to government expenditures in general.

$177 billion in savings from eliminating the average 14% “overpayment” (versus traditional Medicare coverage) for Medicare Advantage plans.

This change would (a) reduce benefits for seniors who have chosen Medicare Advantage plans, (b) eliminate competition for traditional Medicare coverage, and (c) increase Medicaid costs. The Success of Medicare Advantage: What Seniors Should Know, Robert Moffit, Heritage Foundation, 6/13/08.

To compare two different insurance systems with different levels of benefits and suggest overpayment because one is covering the benefits that the other is not is a classic apples-to-oranges comparison, and it only highlights the traditional Medicare program's serious gaps in not covering services that many seniors need and for which nine out of 10 must pay extra for supplemental insurance. As noted, Medicare Advantage payments include the payments for the extra benefits and services not included in traditional Medicare . . .

$139 billion in savings that primarily fall under the heading of tightening the screws on drug companies and insurance companies.

After all the claims about cost savings, such cuts (totaling 1.4% of baseline Medicare + Medicaid outlays for the 10-year period, see p. 117) seem underwhelming. Healthcare: Obama’s Budget Skimps on Cost-cutting, Catherine Arnst, Business Week, 3/5/09.

Although the president’s healthcare plan has not been priced out at this point, and perhaps fairly so as the details are to be developed by Congress, it is acknowledged (Budget, p. 27) that the total cost would exceed the amount of the reserve fund.

The President recognizes that while a very large amount of money and a major commitment, [more than] $630 billion is not sufficient to fully fund comprehensive reform. But this is a first crucial step in that effort, and he is committed to working with the Congress to find additional resources to devote to healthcare reform.

According to budget experts outside the government, e.g., John Sheils of the Lewin Group and John Rother of AARP, the cost of the president’s healthcare plan over the next ten years would be on the order of $1.5 trillion. MyWay.com, 3/17/09.

So how can the president’s healthcare plan be squared with the fiscal sustainability principle he espouses?

The [healthcare] plan must pay for itself by reducing the level of cost growth, improving productivity, and dedicating additional sources of revenue. [Budget, p. 28]

Simple, the additional savings and revenue to zero out program costs are TBD (to be determined). Budget, p. 128.

Rumors that the imputed value of employer-provided healthcare benefits would be taxed are already flying. Administration Open to Taxing Health Benefits, Jackie Calmes & Robert Pear, New York Times, 3/14/09.

Proposing to tax healthcare benefits would be a bit awkward for the president, who ripped his opponent on the campaign trail last fall for suggesting the idea (even when packaged with an offsetting tax credit). So the game would be to have Congress propose the tax and “go along with it.” Vindicating McCain, Wall Street Journal, 3/21/09.

In a deeply cynical turnabout, the White House now says a tax on employer benefits is acceptable as long as someone else proposes it.

To sum up: (a) the alleged savings from the president’s healthcare plan have not been explained (let alone quantified), and (b) the costs of his plan would be covered primarily by tax increases. It is far from clear the tax increases would be borne only by “the rich.”

Claiming that this plan would “pay for itself” seems absurd, and we decline to buy into the deception.

The big picture: Our political leaders should concentrate on getting the financial system back and planning how to address the government’s existing fiscal problems before embarking on costly new initiatives.

As though a gold-plated healthcare plan would not be bad enough, the Administration is also pushing costly “clean energy” and education initiatives. “The young and the reckless” are trying to bite off more than they can chew (3/2/09), and the consequences of letting them do so would be disastrous (3/9/09).

Evidence and analysis that support our “put first things first” advice (11/24/08, 12/1/08) continue to accumulate:

Economists say the president’s proposals to raise marginal rates and diminish the value of mortgage interest deductions for upper income taxpayers would work against a recovery in the housing market. Destroying housing market: More taxes, fewer deductions are twin killers, Washington Times, 3/16/09.

AIG bonuses are minor in comparison to the $173 billion in taxpayer funds that have been injected into AIG, but the furor about them – notably House passage of a 90% tax on bonuses paid to firms (including AIG) that received $5 billion or more in TARP funds – could undermine efforts to restore confidence in the financial markets. Obama’s AIG Panic, Wall Street Journal, 3/19/09.

What a time for the Treasury’s proposal for a public-private partnership to buy toxic assets! Treasury readies bank cleanup plan, Washington Times, 3/21/09.

While the toxic loan cleanup program has been much anticipated in financial markets, it debuts amid dark clouds hanging over the Treasury's bank bailout program. The possibility of getting new funding for the program any time soon seems remote, given the public furor and backlash in Congress this week over bonuses paid to the biggest bailout recipient -- American International Group.

Also, banks and private investors have grown wary about participating in the bailout program because of stiff restrictions on pay enacted by Congress, including a move this week to claw back bonuses from employees at AIG and other banks. The hedge funds the government hopes will participate in the toxic loan program cater to some of the highest paid executives and wealthiest investors in the world. Moreover, they are secretive and jealously guard information about their pay, perks and profits.

In addition to being feckless, the 90% tax on bonuses might be deemed unconstitutional if applied retroactively. “Congress Betrays Ideals of America’s Founding,” National Center for Public Policy Research, 3/20/09.

The Federal Reserve announced plans on March 18 to purchase $300 billion of Treasury bonds and an additional $750 billion of mortgage-backed securities. There can no longer be any doubt that the Fed is “printing money,” and you know what that means. Secretary of the Fed, Wall Street Journal, 3/20/09.

With its announced plan to make a mammoth purchase of Treasury securities, the Fed essentially said that the considerable risks of future inflation and permanent damage to the Fed's political independence are details that can be put off, or cleaned up, at a later date. Whatever else people will say about his chairmanship, Ben Bernanke does not want deflation or Depression on his resume.

Barron’s panned the Budget in a March 2 article by Jules Epstein, predicting that “foreigners may eventually grow tired of accumulating our debt” and “may even start liquidating [their holdings], which could unleash a selloff in the dollar that could in turn hammer our capital markets.” And why not, given:

Permanent ratcheting up of federal spending – [unrealistic] assumptions for growth in gross domestic product – boosting taxes on the rich [with at least some] retarding effects on growth – no respite from chronic fiscal deficits

Foreign lenders may be getting restive already. Consider the comments of Chinese Premier Wen Jiabao at a recent press conference.

"We have lent a huge amount of money [roughly $1 trillion] to the U.S., so of course we are concerned about the safety of our assets. Frankly speaking, I do have some worries," Mr. Wen said in response to a question. He did not offer specific suggestions on economic policy to the U.S. government, but called on it to "maintain its credibility, honor its commitments and guarantee the security of Chinese assets."

The immediate response from the Administration (per Press Secretary Robert Gibbs) was don’t worry because the president’s Budget is fiscally responsible.

I think the best thing we can do to assure anybody in Washington, America or throughout the world that we're serious is to pass the President's budget and put ourselves back on the path towards fiscal sustainability and fiscal responsibility. The President's budget will cut the deficit in half in four years, because the President understands that we cannot continue to do what we've been doing for years and years, and spending money that we don't have. Instead, we need to put ourselves back on that path in order to give everybody confidence that we're serious about not only dealing with those challenges but not wasting taxpayer money.

The president is apparently on the same page. At a March 18 rally in California, he defended raising taxes on upper income bracket taxpayers and urged supporters to push for swift approval of the Budget. Obama: Rich can afford tax hike, Washington Times, 3/19/09.

Mr. Obama's main thrust was to sell the budget blueprint he submitted to Congress as a long-term investment in the next generation, and said too often people look at the document as a spreadsheet of numbers instead of realizing "It's about your lives; it's about your future."

Earlier in the day the president released a Web video urging people on his 13-million-strong e-mail list to knock on doors and make phone calls in support of his budget plan.

The CBO further clouded the picture on March 20 by releasing an analysis indicating deficits over the next 10 years will be $2.3 trillion higher than projected by the White House. A Preliminary Analysis of the President’s Budget and an Update of CBO’s Budget and Economic Outlook, Congressional Budget Office, March 2009.

The CBO’s baseline projection (continuation of existing policy) indicates deficits of $4.4 trillion over the next 10 years, which would increase to $9.3 trillion if the Budget were approved.

The president’s Budget (p. 115) shows baseline deficits of $9.0 trillion over the next 10 year being shaved to $7.0 trillion. Quite a different picture! For further detail, see the following table.

Budgets over the next 10 years depend on many assumptions, and it would be unwarranted to consider the CBO data more “correct” than those of the Administration without a detailed comparison. However, the CBO analysis has heightened concerns about projected deficit spending – which is a good thing.

The latest figures, even worse than expected by top Democrats, throw a major monkey wrench into efforts to enact Obama's budget, which promises universal healthcare for all and higher spending for domestic programs like education and research into renewable energy.

The dismal deficit figures, if they prove to be accurate, inevitably raise the prospect that Obama and his allies controlling Congress would have to consider raising taxes [by more than is already planned] after the recession ends or paring back his agenda.

There has been no indication the president is prepared to back away from “a clear, renewable energy future,” however, nor from a “complete and competitive education for every American child.” As for healthcare, he has drawn a line in the sand. Obama: Budget priorities won’t change, Christina Bellatoni, Washington Times, 3/21/09.

To those who say we have to choose between healthcare reform and fiscal discipline, I say that making investments now that will dramatically lower healthcare costs for everyone won't add to our budget deficit in the long-term — it is one of the best ways to reduce it."

If you are dubious about the president’s healthcare plan and would like to hear about alternatives, stay tuned. Our suggestions for real healthcare reform are on the way.

The Fiscal Responsibility Summit (February 23) and the Healthcare Summit (March 5) were both held at the White House, with a similar number of participants, over the course of an afternoon. Otherwise, the two events differed profoundly.

FRS - As previously reported (3/2/09), the Fiscal Responsibility Summit was a “top down” event convened with little advance preparation. All participants were prominent people, the breakout sessions addressed disparate aspects of the fiscal equation, and the only immediate result was the president’s promise to cut the currently huge deficit in half over four years.

A report summarizing the breakout discussions was promised within 30 days, and there was much talk about recognition of fiscal realities and bipartisan cooperation. But the path forward remains murky for now.

In particular, the idea of appointing an independent commission to study the fiscal problem and propose a comprehensive solution was raised without being embraced. Consider the following comments during the closing session (chaired by the president).

I would agree with Kent [Senator Kent Conrad, D-ND, Chairman of the Senate Budget Committee] that we agree we need a special process. We didn't come to final agreement on exactly what that process would be -- would it be a task force or a steering committee within the Congress, or a commission from without Congress? That's still an issue to be resolved. But I don't think it's an issue we can't resolve. And we moved towards discussion of some sort of hybrid of the two.

You mentioned in January about the need to achieve a grand bargain involving budget process, Social Security, taxes, healthcare reform. You are 110 percent right. We need to do that. The question is, how do we do it? Candidly, I think it's going to take some type of an extraordinary process that engages the American people, that provides for fast-track consideration. And with your leadership, that can happen. But that's what it's going to take, Mr. President.

HCS – The euphemistically named “Forum on Health Reform” marked the culmination of a series of healthcare workshops conducted around the country ( see 12/15/08 entry). Seven workshop leaders attended the HCS, and the second of three speakers at the opening session was Travis Ulerick, a firefighter/EMT from Dublin, Indiana.

Mr. Ulerick acknowledged six other HCS attendees and 30,000 Americans nationwide who had participated in healthcare workshops in their communities. He summed up the already prepared report (presented to the president on 3/5) as follows:

. . . Americans agree on the problems with the system, that costs are too high and accessing quality coverage is too difficult. Some groups submitted stories that sound familiar to me, especially, about people who were afraid to go to the hospital for treatment because they didn't know if they could afford it. The most common theme is that Americans don't believe the current healthcare system works for them.

The speaker went on to introduce the president, who spoke forcefully about the need to get started on an overhaul of the healthcare system this year – economic crisis or not – because the system was broken and reform could not be put off any longer.

Even from a fiscal standpoint, the president claimed, healthcare reform can reduce the burden of Medicare and Medicaid on the federal government’s budget (and in the case of Medicaid, state budgets as well).

. . . healthcare reform is no longer just a moral imperative, it's a fiscal imperative. If we want to create jobs and rebuild our economy and get our federal budget under control, then we have to address the crushing costs of healthcare this year in this administration.

Making investments in reform now, investments that will dramatically lower costs, won't add to our budget deficits in the long term. Rather, it is one of the best ways, in fact maybe the only way, to reduce those long-term costs.

The president stated the purpose of the forum as starting to determine how to “lower costs for everyone, improve quality for everyone and expand coverage to all Americans.”

As for how all of these goals could be achieved while reducing government outlays, he pointed to potential cost savings opportunities: “modernize our system and invest in prevention . . . ensure people aren’t overcharged for prescription drugs or discriminated against for preexisting conditions . . . eliminate fraud, waste and abuse in government programs.”

No sacrifices by healthcare consumers were called for: “[If] somebody has insurance they like, they should be able to keep that insurance . . . keep their doctor . . . just pay less.”

The road ahead would involve a search for common ground, without rigid ideas as to what the new healthcare system should look like.

In this effort, every voice has to be heard. Every idea must be considered. Every option must be on the table. There should be no sacred cows. Each of us must accept that none of us will get everything that we want, and that no proposal for reform will be perfect. If that's the measure, we will never get anything done.

The only obstacle was said to be overcoming “entrenched interests” [presumably healthcare providers and insurance companies] so “we will not “arrive back at the same stalemate that we've been stuck in for decades.”

The commitment was “to enact comprehensive healthcare reform by the end of this year.”

Would the president’s healthcare plan truly pay for itself? We have previously scoffed at such a notion. 10/20/08 – Both candidates offer “pie in the sky” healthcare plans.

But it must be conceded that the president’s opening remarks were well crafted and delivered with conviction. Furthermore, we do agree that the healthcare system is seriously flawed; the question is how it should be fixed.

So this entry will focus on the president’s healthcare meeting and agenda, with our own views to be presented in future entries.

As at the FRS, the participants broke into smaller groups after the opening session, but the groups were apparently focused on the overall problem (versus subsets of it) this time and the president’s sendoff was “let’s go to work” versus his oblique reference at the FRS to “the breakout sessions that are starting right now.”

Some of the action in the breakout rooms was covered by “live blogger” Rebecca Adelman of DHHS, although we were unable to access the linked video clips (perhaps you will have more success).

2:07: Now I'm sitting in a breakout session in the Executive Office building. It's quite a group - former HHS Secretary Donna Shalala, Marian Wright Edelman, Senators Rockefeller, Bingaman and Wyden, are among the participants. The group is moderated by Larry Summers and Hz’s Neeta Tanden.

2:20: US Chamber of Commerce President Tom Donohue addresses the panel, saying there is a "vigorous understanding" that improvement is needed and healthcare costs need to be lower. It's an intense discussion, but productive.

2:32: On to the 3rd floor of the Executive Office building to another panel. Moderating this discussion are Valerie Jarrett and OMB's Zeke Emanuel. Majority Leader Steny Hoyer, Senators Chris Dodd, Robert Bennett, Debbie Stabenow, and Bernie Sanders are among the 22 panelists. Chip Kahn of the Federation of American Hospitals and Pfizer's Jeff Kindler are also part of the discussion.

3:05: I just entered another one of the five breakout sessions as Sister Carol Keehan from the Catholic Health Association was passionately addressing her fellow panelists about the need for reform. Budget Director Peter Orszag and Secretary Shinseki are moderating.

3:16: Dan Danner from the National Federation of Independent Businesses urged Orszag's panel to pay special attention to the voices of small business owners in the health reform debate, who are struggling to insure their workers because of skyrocketing costs. Danner told the lawmakers, including Congressmen Patrick Kennedy, Eric Cantor, and Senator Barbara Mikulski that "The status quo is not acceptable."

3:25: Ron Pollack from Families USA just closed Orszag's panel. He stressed to the assembled members of Congress that President Obama's budget was the first important step in helping make health coverage affordable.

Then it was back to the East Room, now set up in a town hall style with the president’s podium in the middle. Travis Ulerick et al. were sitting in the first row behind the podium. The ensuing session featured calls for action by surprise guest Senator Ted Kennedy and the president.

4:20: The President passes the microphone to Senator Kennedy, who [says] "the time for action is now." He said he looked forward to being a foot soldier in the reform effort and firmly stated: "This time we will not fail." The room erupts in applause again.

5:15: The President closed with some marching orders - he asked the groups to stay involved, he promised a summary report describing the views aired today, and stressed it was time to move aggressively to achieve healthcare reform. He then addressed the notion that we are taking on too much in attempting reform this year. He said when times were good - when the economy was better and we were not at war, we failed to get it done. President Obama said there is always a reason not to do it - and he could think of no better time than now. Everyone stood and cheered as the President shook hands with participants and the event concluded.

OK, what exactly would the healthcare reform that everyone cheered for consist of?

Judging from the president’s proposals during the campaign last fall, the end result would approximate universal healthcare, albeit without an immediate government takeover of the entire healthcare system.

We wrote earlier (12/15/08) that the healthcare workshops being organized around the country would “predictably support” the president’s vision, and it is now possible to test [and we believe confirm] this by reviewing the summary report.

The 3/5/09 report is lengthy, detailed, and in all fairness reports a range of opinions about how the healthcare system should be changed. Perhaps the most important section from a policy standpoint is “Roles in a Reformed U.S. Healthcare System,” which goes beyond a lower cost/ fewer problems wish list to the key question: who would sponsor and pay for the changes desired.

There was considerable support for a “single-payer” (i.e., government run) system.

Over one-quarter (27%) of the groups discussed the merits of a single-payer system, and the majority of those groups supported this idea. These groups argued that this radical change was a necessary step for reform.

But some groups favored a hybrid government/employer system due to concerns that a single-payer system “would lower the quality of service and eliminate competition.”

A provider in Maquoketa, Iowa, wrote [that] . . . "some standardization is necessary, but I worry that a single-payer plan would eliminate competition." A small group in Welaka, Florida . . . [was concerned about] inability to get care when needed and rationing of access to tests, medical procedures and qualified doctors."

And there were even suggestions that existing government programs might be at the root of healthcare problems, although “this opinion” was said to be “in the distinct minority.”

A group in Middletown, Virginia, reported [that] "The consensus of the group of 27 neighbors who attended the forum was that most of the problems with the healthcare system is a result of the complex tangle of Federal government regulations already on the books and that any additional interference would only make matters worse."

Also, the section about the cost of healthcare fails to mention skyrocketing fiscal burdens for federal and state governments.

Healthcare Community Discussion participants concluded that the American healthcare system places an extraordinary cost on individual Americans and American business. The cost of insurance, the cost of drugs, and the cost of healthcare services directly affected many participants, forcing them to make difficult choices. Participants also reported that the system's lack of transparency and cumbersome administration raise the cost of services and heighten the stress and frustration associated with healthcare.

Legislation would be necessary to bring about the kind of healthcare change that is advocated, and the word is that the president will proceed by proposing a plan in broad strokes and let Congress fill in the details. This marks a conscious, and probably well-advised change from the Clinton Administration’s failed strategy to implement universal healthcare in 1993. Obama: “No sacred cows” in healthcare summit, Liz Sidoti, D.C. Examiner, 3/5/09.

Also unlike Clinton, Obama is planning to send only broad principles to Congress of what he wants to see in the bill, such as increased coverage and controlled costs. The House and Senate will be left to do the heavy lifting. And, Obama is planning to hold a series of healthcare forums outside of Washington to solicit ideas and drum up support for his plan.

In summary, the prevalent discontent with the healthcare system has been fairly laid out. The president is engaged on this topic as he is on none other, and change is coming.

Everyone should worry about the government’s soaring entitlement outlays and general lack of budgetary discipline. Lenders will balk at some point, the government will default on its debt, and a fiscal meltdown will take place. RX: slash government spending, restructure entitlements, simplify taxes, and rationalize regulations – before it is too late.

When will such a fiscal meltdown occur unless decisive action is taken to avert it? No one knows, but “in about 5 years” might be a reasonable guess.

Focused on the longer-term problem, SAFE has tended to minimize the current economic situation.

1/14/08 – Expressed disappointment “that the experts seem more concerned about the possibility of a recession in 2008 than they are about the continuing lack of action on the government’s long-term fiscal problems.”

9/1/08 – Panned the idea of a second economic stimulus bill (spending on the order of $50-100 billion), characterizing the first one ($160 billion in tax rebates) as “bad enough.”

9/22/08 – Said tumult in the financial markets (demise of Lehman Brothers, buyout of Merrill Lynch, and initial bailout of AIG) “is not the fiscal meltdown we have so often talked about.” However, did not oppose a $700 billion fund (TARP) to shore up the financial system.

11/24/08 – Questioned whether government action would speed an economic recovery; recommended that fixing the fiscal mess take priority.

2/2/09 – Noting that the Federal Reserve had flooded the financial system with liquidity and the government was projected to run record deficits, suggested that a multi-year economic stimulus package (on the order of $1 trillion) would represent overkill.

#U.S. housing is in a prolonged slump, with pending home sales down 7.7% in January (wiping out an improvement in December and then some). Financial Times, 3/3/09.

#U.S. auto sales plummeted in February, e.g., by 53% for GM and 40% for Toyota. Chicago Tribune, 3/4/09.

#On 3/6/09, the Department of Labor reported the February jobless rate, which now stands at 8.1% vs. an average of 6.0% in the 3^rd quarter of 2008.

#The Consumer Confidence Index fell to 25 in February, its lowest level since the index began in 1967. Washington Times, 2/24/09.

#Food stamps were used by 31.5 million Americans in September 2008, surpassing a record set in 11/05 after Hurricane Katrina. Reuters, 12/4/08.

#Stock prices have fallen by over 50% since October 2007, with over 1/3 of the decline in the last four months (since the election).

HAPPENING NOW - Some experts say the current recession is extremely serious and will last several years under the best of circumstances. For example:

#Economist Nouriel Roubini (aka Dr. Doom) warned about the dangers of America’s speculative housing boom as early as 2005. His best-case scenario at this point is “a two-three year recession in advanced economies” with a 1/3 chance of a “near depression.” He advocates “much more aggressive monetary easing” and “much more fiscal stimulus.” Time, Interview by Michael Schuman, 3/3/09.

#Economist Michael Barro expects the current recession to surpass the 1982 recession, with a robust recovery possibly taking until 2012. And that’s “the bright side.” Based on empirical studies of the correlation between stock market crashes (which has already happened in this case) and economic contractions, he assigns a 1/5 probability of a minor depression (10% decline in economic output) or worse. Wall Street Journal, 3/5/09.

#Investor George Soros views the global financial system as “on life support,” with “no sign that we are anywhere near a bottom.” Reuters, 2/21/09.

Others are inclined to be more optimistic. There is nothing fundamentally wrong with the economy, the country has weathered economic setbacks before, this is all the government’s fault, etc.

And the economic assumptions embodied in the president’s FY 2010 budget proposal are relatively upbeat, as was caustically noted by Townhall columnist Jonah Goldberg in a 3/7/09 column.

But there's good news! According to his budget -- which he assures us is an "honest accounting" of our predicament -- the economy will shrink by only a measly 1.2 percent this year (it fell by a 6.2 percent annual rate in the final quarter of 2008) and then take off next year with 3.2 percent growth and soar for years to come.

But let’s cut to the chase. The current economic situation is indeed more serious than we anticipated a year ago, and a quick rebound no longer seems likely.

As a review of the story thus far, check out a 2/17/09 PBS documentary (56 minutes) called “Meltdown.” The story has been well publicized, but watching it unfold from the standpoint of the participants adds a dimension that cannot readily be conveyed in words alone.

COMING SOON: What about the implications of the massive debt and commitments that the government – which was already overcommitted – is taking on to fight the recession?

As of 9/30/08, the government was in a $56 trillion fiscal hole (including the present value of unfunded obligations, principally for entitlements). The national debt is depicted as the “tip of the iceberg” in informational ads of the Peterson Foundation.

Factor in the deficits now contemplated, ostensibly to fight the recession, and the picture will get that much darker.

And remember that the U.S. Treasury could face losses on the massive amounts that the Federal Reserve and FDIC have extended – via loans, guarantees, etc. – to backstop the financial sector. Per one account, which is not up to date, total government commitments of this nature are in the $7 trillion range. CNBC, 11/28/08.

Not only is it an astronomical amount of money, it's a complicated cocktail of budgeted dollars, actual spending, guarantees, loans, swaps and other market mechanisms by the Federal Reserve, the Treasury and other offices of government taken over roughly the last year, based on government data and news releases. Strictly speaking, not every cent is a direct result of what's called the financial crisis, but they're all arguably related to it.

This might be a good time for some historical perspective. See The Ascent of Money: A Financial History of the World, Niall Ferguson, Penguin Press (2008).

As the book relates, governments – like anyone else – can come a cropper by taking on financial commitments they have no reasonable prospect of covering. The U.S. government is not immune.

Ferguson addressed the current outlook in a recent interview with Michael Hogan of Vanity Fair. Here are some of his key points:

Things will get worse before they get better. Unemployment could go to 10% or so by the end of 2009, which will lead to further declines in asset values. “This is worse than the early ‘80s.”

The stimulus bill, etc. are “better than nothing,” but they are merely preventive measures “to prevent a complete implosion of the economy.” The situation might be called a “Great Repression,” as the main result will be to convert excessive private debt into public debt.

To resolve matters, says Ferguson, the debt must be cancelled via either default or inflation. Stiffing China et al. would have many negative consequences. Inflating the debt would also hurt foreign lenders, not to mention decimating the savings and fixed dollar incomes of many far from wealthy Americans. Hmm, sounds like our nightmarish vision of a fiscal meltdown.

A DILEMMA: The current recession arguably justifies massive government intervention, including actions already taken and actions that have been proposed.

But such intervention could speed the onset of another crisis – the fiscal meltdown that SAFE and others have been warning about.

Picture a gymnast on the balance beam, whose right foot comes down partly off the beam. Over compensating, she winds up toppling to the left.

So while it would be unrealistic to expect the government to sit back and let the recession run its course, there is every reason to intervene with surgical precision and a clear recognition of the challenges that lie ahead.

POLICY IMPLICATIONS: The key element in the administration’s plan to fight the recession seems to be massive government spending to “jumpstart the economy.”

We opposed the economic stimulus bill ($787 billion), questioning whether that much stimulus was needed and also pointing out that much of the proposed spending was not “timely, targeted and temporary” and would therefore not achieve the bill’s ostensible purpose.

Several hundred economists had a similar view, as evidenced by their signature of the following statement:

Notwithstanding reports that all economists are now Keynesians and that we all support a big increase in the burden of government, we do not believe that more government spending is a way to improve economic performance. More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan's "lost decade" in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policy makers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.

The expansive spending reflected in the president’s recently submitted budget proposal, which projects a deficit of roundly $5 trillion for FY 2009-2013, would compound the damage and speed the coming fiscal meltdown. Also, once government spending for a program gets set at a given level, it is very hard to reduce it.

Congress should send the administration back to the drawing board, in our opinion, with the following instructions for balancing the budget over the next four years.

#Take a whack at wasteful government spending programs (agricultural subsidies, corporate welfare, government grant programs) and burdensome laws/regulations (oil and gas drilling restrictions, Sarbanes-Oxley requirements for financial reporting, CAFE requirements for auto manufacturers). There is no shortage of targets.

We recognize, however, that a revamped regulatory regime for the financial system is inevitable (and probably desirable).

Thus, former Federal Reserve Paul Volcker (who led the fight against double digit inflation in the early 1980s) recommends that commercial banks (which the government backstops) be excluded from speculative activities such as trading securities or creating financial derivatives. Other financial entities could be permitted a freer rein, says Volcker, so long as they did not get too big. “But I don’t think we need to have close regulation of every peewee hedge fund in the world.” February talk in Canada.

See also Lost Trust: The Real Cause of the Financial Meltdown, Bruce Yandle, February 2009, for a nuts and bolts (17 pages plus references) explanation of how so many dubious subprime mortgages could be securitized and marketed worldwide to investors who were not put on notice of the underlying risks.

Ultimately, 85 percent of the subprime mortgages issued were folded into structured debt obligations with an AAA rating.

#Stop pushing major initiatives that would worsen the government’s already grave fiscal problems without materially contributing to an economic recovery.

As columnist Charles Krauthammer observes, there is a long list of causes for the near collapse of the financial system and ensuing recession. But the list does not include “the absence of universal health care, let alone of computerized medical records. Nor the absence of an industry-killing cap-and-trade carbon levy. Nor the lack of college graduates.”

Re the administration’s green energy proposals, you may recall a cartoon that SAFE director Bill Morris dreamed up last summer. Look out, that puppy can bite!

#Set the wheels in motion to restructure entitlements (Social Security, Medicare, Medicaid, etc.) and radically simplify the tax system. The Fiscal Responsibility Summit on 2/23/09 was a promising start, but it needs to be followed by the formation of a working group with real clout – such as a SAFE Commission.

For a well-reasoned explanation of the rationale for such a commission (whatever the title), see the following statement by representatives of the American Enterprise Institute, Brookings Institution, Concord Coalition, Heritage Foundation, Peterson Foundation, Progressive Policy Institute, and Urban Institute.

3/2/09 – The young and the reckless

Last week, we related the stimulus bill to other initiatives in play – mortgage foreclosure plan, more financial sector rescue funds, healthcare (SCHIP + proposals on the way), “green” energy, and pressure for tax hikes.

Since then, our concerns about the big government express have been amply vindicated. Indeed, we missed two important points:

• Plans are afoot to involve the federal government in eliminating high school dropouts (“no longer an option” says the president) and raising the percentage of young people who go on to college. Details are sketchy, but a serious increase in federal outlays would doubtless be involved.

• A $410B omnibus spending bill was passed in the House (to replace a continuing resolution for nondefense discretionary spending from last fall). The bill boosted previous spending levels by 8%, and it included thousands of earmarks. (Despite his professed opposition to earmarks, there is no indication the president will fight them in this case.)

In an evening address to Congress on 2/24/09, the president called for action on all fronts. For a flash reaction, see Obama Needs a “Not To Do” List, Holman Jenkins, Wall Street Journal, 2/25/09.

Put away childish things, President Obama said during his inauguration. He couldn't have found a theme more suited to the moment. The preoccupations that he and most politicians are used to running on, and that still characterize too many of his administration's utterances, are being exposed in the global economic disaster as the soppy indulgences they always were.

http://online.wsj.com/article/SB123552068199964531.html

It would be easy to echo such sentiments, but knee jerk rejection seems futile. We intend to study the president’s proposals as details become available and formulate considered responses.

What about the overarching need to balance the budget and stop running up the national debt? The president spoke to this issue at the Fiscal Responsibility Summit (FRS) on 2/23/09.

The FRS took place at the White House, by the way, with roundly 120 attendees drawn from the Administration, Congress, and external groups (AARP, Brookings, Concord, Heritage, Peterson Foundation, etc.) As a point of interest to Delawareans, Vice-President Joe Biden, Senator Tom Carper, and Congressman Mike Castle were all invited.

After some opening remarks, the audience broke into groups to talk about social security, healthcare, tax reform, budget process, and procurement. The participants appeared energized (in the TV footage) as they headed for the breakout sessions, but we do not know what happened after that.

http://voices.washingtonpost.com/44/2009/02/23/fiscal_responsibility_summit_a.html?hpid=topnews

In speaking at the FRS, the president summarized the fiscal challenge:

This administration has inherited a $1.3 trillion deficit -- the largest in our nation's history -- and our investments to rescue our economy will add to that deficit in the short term. We also have long-term challenges -- health care, energy, education and others -- that we can no longer afford to ignore.

and offered the following commitment to get the situation under control:

And that's why today I'm pledging to cut the deficit we inherited in half by the end of my first term in office. This will not be easy. It will require us to make difficult decisions and face challenges we've long neglected. But I refuse to leave our children with a debt that they cannot repay -- and that means taking responsibility right now, in this administration, for getting our spending under control.

http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-and-the-Vice-President-at-Opening-of-Fiscal-Responsibility-Summit-2-23-09/

There were several references to an inherited “trillion dollar deficit” and “massive debt” in the president’s 2/24/09 address to Congress, and he affirmed his commitment to take action.

And yesterday, I -- I held a fiscal summit where I pledged to cut the deficit in half by the end of my first term in office. My administration has also begun to go line by line through the federal budget in order to eliminate wasteful and ineffective programs [including education programs that don’t work, fraud and abuse in Medicare programs, direct payments to large agribusinesses that don’t need them, and tax breaks for corporations that ship jobs overseas and the wealthiest 2% of Americans].

http://www.cqpolitics.com/wmspage.cfm?docID=news-000003059708

Two days later, the administration’s proposed budget for FY 2010 et seq. was released. Entitled “A New Era of Responsibility,” this document makes liberal use of the inherited problems theme.

The president’s message talks of inheriting record budget deficits and the need for a massive stimulus bill to jump-start the economy out of recession. In response, he commits to “begin the process of making the tough choices necessary to restore fiscal discipline, cut the deficit in half by the end of my first term in office, and put our Nation on [a] sound fiscal footing.”

There is also a 12-page jeremiad on “Inheriting a Legacy of Misplaced Priorities,” from which some sample lines follow:

Prudent investments in education, clean energy, healthcare and infrastructure were sacrificed for huge tax cuts for the wealthy and well-connected.

The subprime mortgage crisis is the result of a perfect storm [goes on to enumerate every factor one could possibly imagine except for the flawed government policies that were most fundamentally responsible].

Adding insult to injury, American families have entered this recession weakened by the anemic recovery from the last downturn at the beginning of the decade.

As for budget data, the projected fiscal results for the next several years are as follows – sure enough indicating a halving of the deficit.

	Surplus (Deficit)		National debt (in public hands)
Fiscal Year	Amount	% of GDP	Amount	% of GDP
2009	$(1.75)T	12.3%	$8.4T	58.7%
2010	(1.2)	8.0%	9.5	64.6%
2011	(0.9)	5.9%	10.4	67.3%
2012	(0.6)	3.5%	11.0	66.7%
2013	(0.5)	3.0%	11.5	65.8%

Is the deficit so huge as to justify taking four years to partially eliminate it? (The budget projection continues through FY 2018, showing deficits in each and every year.)

We think not! The deficit for FY 2009 is hardly a logical base point for planning future budgets, nor can the administration logically claim no responsibility for this outpouring of red ink.

The following table presents surplus (deficit) and public debt data for selected years over the past half-century. Due to inflation and economic growth, the % of GDP results provide a more meaningful standard of comparison over time than the dollar amounts.

Note that the fiscal results of FY 2009 will smash two post-1959 records – highest deficit as a % of GDP (previous high in 1983) and highest public debt as a % of GDP (previous high in 1993).

The estimated deficit for FY 2009 (which will end on 9/30/09) has quadrupled since the former president submitted a proposed budget in February 2008.

A. Reduced tax revenues as a result of the recession, to the tune of $473B. The shortfall reflected a 41% decline in corporate income taxes and a 15% decline in personal income taxes from FY 2008 levels, versus the growth that had been anticipated.

B. Estimated net cost of the $700B TARP program, discounted to present value ($180B).

C. Estimated net cost of taking over Fannie Mae and Freddie Mac ($200B), after they foundered last year, plus ongoing losses of these entities ($38B).

D. Placeholder (reserve) for potential additional financial stabilization efforts ($250B).

It seems to us that the “normal” deficit for FY 2009 might fairly be considered as $407B, with the remainder of the year’s deficit being viewed as nonrecurring.

What does it mean to say the current administration inherited the deficit, the debt, and the recession?

There is no inheritance involved in the sense of a transfer of property from a specific decedent (e.g., family member). Likewise, there is no genetic transfer of characteristics from parents or ancestors. And no one saddled the president with the current situation; he assumed it by winning the election.

So the inheritance theme boils down to “do not blame me, my predecessor created this mess.” From which, the public is apparently supposed to go along with whatever measures are proposed to deal with the situation, no matter how radical they seem.

As we just saw however, at least $436B (D+E) of the FY 2009 deficit has been rung up since the president took the helm in January 2009.

And the national debt did not soar during the Bush Administration without the support of Congress (which holds “the power of the purse”). Also, we do not recall any noticeable improvement in the handling of fiscal matters after the president’s party won control of Congress in 2006.

As for the housing bubble and all that ensued, it developed over a period of years with plenty of blame to go around. Obama: The Cliff Notes, Kim Strassel, Wall Street Journal, 2/26/09.

[The president] inherited a recession, though no economist with an IQ above 60 would suggest tax cuts caused the housing bubble. That came courtesy of easy money and loose lending standards, the latter of which Congress encouraged. Presumably, if tax cuts were responsible for the deficit and the recession, Mr. Obama wouldn't be constantly boasting that he wants tax cuts for 95% of Americans.

It will take us time to study the president’s budget proposal. But we have heard and read enough to recognize the inheritance theme as a phony excuse to keep spending recklessly and running up the national debt.

And if you think our concerns are exaggerated, consider the “secret plan” comments of liberal columnist Michael Kinsley.

Anyone who regards the prospect of double-digit inflation with insouciance is either too young to have lived through it the last time (the late 1970s) or too old to remember. Among other problems, inflation works only as a surprise or betrayal. It can never be part of any public, official plan. Plan for 10 percent inflation, and you'll get 20. Plan for 20 and you'll need a wheelbarrow to pay for your morning Starbucks. But if that's not the plan, what is?

In a nutshell, the young and the reckless have taken the wheel. They are driving very fast and veering all over the road. Before you know it, this country will wind up in a ditch.

We feel it is time for some adult supervision. If such is not provided, America, don’t say we did not warn you.

We are employing a three-track approach. The Administration, the Congress, and the American People. – Peterson Foundation

In addition to being costly, a bigger federal role in education would be ill advised. My thought: the Department of Education should be eliminated, and Congress should pay attention to the 10th amendment. – SAFE member

If anything, you are understating the problem. I fear the Fed is hiding some more problems and printed money somewhere by virtue of having injecting trillions of dollars of liquidity into the financial system that do not show up in the government accounts. – SAFE member

Expresses many of the issues being raised by the dangerous decisions being made in Washington. Thank you. – Retired finance manager

We, too, are very concerned about the budget picture and will continue to express that to Congress and the president. – National Taxpayers Union

Instead of bewailing the passage of stimulus bill, which the president signed on February 17, let’s consider how its results are likely to be assessed and the relationship of this development to other battles that are coming up.

and a 2/13/09 CBO letter that allocated the $787B (billion) price tag of the stimulus bill over the next decade

and a projection of the national debt in public hands (excluding IOUs held by the Social Security and other trust funds).

*The National Debt currently stands at $10.8 trillion, of which $6.0 trillion is in public hands.

Hmm, not a pretty picture from the standpoint of fiscal visionaries who lie awake at night worrying about how the country can avoid a fiscal meltdown (much worse than what is going on currently) when lenders focus on the true magnitude of the government’s fiscal problems.

By the way, the Peterson Foundation is using an iceberg analogy to underscore that the government is currently in a $56 trillion fiscal hole (including the present value of unfunded obligations). Take a look.

And remember, the stimulus bill is only one of several steps to shore up the economy and/or bring about social changes. If all these steps (briefly recapped below) were taken, the fiscal situation would look far worse.

# A bill to expand the State Children’s Health Insurance Program (SCHIP) was recently enacted. The cost will supposedly be covered by a big increase in the federal tax on cigarettes, but a budgetary shortfall is probable.

# One day after signing the stimulus bill, the president unveiled a program to combat mortgage foreclosures that would entail outlays of $275B (from the rapidly dwindling TARP fund, as we understand it): (a) $75B to cover subsidies for mortgage renegotiations for some 9 million homeowners, and (b) $200B more investment in Fannie Mae & Freddie Mac.

Additionally, legislation is contemplated to authorize judges to reduce mortgage amounts in bankruptcy – which would benefit some delinquent homeowners but might undermine any remaining confidence in the financial sector. Assessing the President’s Mortgage Plan: Judicial “cramdowns” could roil the markets, Alan Reynolds, Wall Street Journal, 2/18/09.

#Speaking of TARP (Troubled Asset Relief Program), it is entirely possible, indeed likely, that the administration will request further funds for shoring up the financial sector. Stay tuned.

#Then there is healthcare “reform,” generally to bridge the gap between near universal government healthcare coverage for seniors (Medicare & Medicaid) at one end of the age spectrum and expanded coverage for children (SCHIP & Medicaid) at the other.

It was said during the campaign that the cost of new healthcare programs for all children and most working age adults could be offset by computerizing medical records, etc. Realistically, the net cost to the U.S. Treasury would be substantial – as was documented by a CBO report prepared under the aegis of Peter Orzag (now the president’s budget director). Orzag’s Health Warning, Wall Street Journal, 12/29/08.

Per the CBO: (a) proposed initiatives would cost some $150-200B per year [“the real numbers will be higher” says the Wall Street Journal], and (b) the offsetting cost savings would be modest.

OK, what does the general public care about deficits and the national debt? Most people will probably be relatively content so long as the economy is chugging along, they have a job, and no one is raising their taxes.

Perhaps the most potent argument for the stimulus bill was that it would “save or create 3.5 million jobs.” Now Comes the Hard Part, Jeanne Sahadi, CNNMoney.com, 2/17/09.

To put this goal in context, adjust the latest employment data (January 2009) data by moving 3.5 million people from unemployed to employed. The jobless rate would fall from an unsatisfactorily high 7.6% rate to a more or less typical (in a dynamic economy) rate of 5.3%.

But even with “shovel ready” projects and such, the effect of the stimulus bill will take a few months to start kicking in.

Also, the jobless rate is on the rise. A Federal Reserve report released on 2/18/09 (but based on the economic outlook before the stimulus bill) projects a jobless rate of 8.5+% by yearend.

So the administration can say, with some logic, that the immediate goal is to stabilize the jobless rate – not to snap it back to normal levels (5-6%). There goes any clear-cut test for whether the stimulus bill preserves or creates 3.5 million jobs. Even if the economy was booming 18 months hence, the recovery might or might not be due to the stimulus bill.

One commentator went so far as to suggest that the stimulus bill was rushed through for fear the economy would begin recovering and deprive the president of a legislative opportunity. The Rush to Wait, Thomas Sowell, Townhall.com, 2/17/09.

The stimulus bill was sold as a painless proposition. Consider this 2/15/09 column by Senator Tom Carper (D-DE), for instance, which cites numerous purported benefits while saying next to nothing about paying for them.

. . . cut taxes for 95 percent of all American workers . . . create jobs by investing large sums of money in our nation's infrastructure . . . help people at risk of losing their homes . . . reduce pollution and our dependence on foreign oil . . . increase our nation’s use of renewable energy . . . assist hard-hit Delaware families . . . help states like Delaware repair schools and invest in community improvement projects . . . provide incentives to spur small business job growth . . . promote the use of electronic health records.

Sooner or later, however, and the president’s upcoming budget message to Congress may tip his hand, the ruling party will piously proclaim the need for fiscal responsibility and propose some tax increases – big ones.

That will get the attention of the prospective payers, no doubt, but barring overreach their displeasure cannot be expected to derail the big government express. The reason was captured (emphasis added) in a letter from R.E. Grant, London, which the Wall Street Journal published on 2/16/09.

President Obama's stimulus package victory may have cost a great deal of political capital, but it: (1) helps Democrats reach the magic tipping point when those who receive money from the government outnumber those taxpayers who supply that money; and (2) builds in trendline government spending that will be extremely difficult to slow in the future, much less reduce or reverse. With control of the bully pulpit and with adoring fans in the media, a normal economic recovery will be attributed to the stimulus package and continued stagnation will be explained as much better than it would have been without the stimulus.

There is one item on the president’s agenda that would affect almost everyone in a negative way, namely the proposal to subsidize the production and consumption of renewable energy, while penalizing or otherwise inhibiting the production and consumption of energy from other sources.

Most people drive cars, heat their homes, pay for electricity, etc., and when energy prices rise they notice. Witness the public angst about the big spike in motor fuel prices in 2008, which at this point is over but could surely come again.

Huge increases in energy taxes would be obvious to consumers; they will not be proposed. One tactic of choice will be taxes and restrictions on conventional energy suppliers, such as Exxon Mobil et al. (no one likes them) and power companies that burn coal (shudder). Another will be mandates and subsidies for wind, biofuel and solar energy.

Take a look at this White House proposal to “end our addiction to foreign oil, address the global climate crisis and create millions of new jobs.” Among the specific goals:

• Eliminate Our Current Imports from the Middle East and Venezuela within 10 Years;

• Put 1 million Plug-In Hybrid cars -- cars that can get up to 150 miles per gallon -- on the road by 2015;

• Ensure 10 percent of our electricity comes from renewable sources by 2012, and 25 percent by 2025;

• Implement an economy-wide cap-and-trade program to reduce greenhouse gas emissions 80 percent by 2050.

Note that nuclear power is not mentioned as an alternative to fossil fuels. Likewise, nothing is said about (1) a carbon tax (which most economists believe would work far better than a cap and trade regime) or (2) the high cost of renewable energy.

One need not be a global warming skeptic (like us) to see deficiencies in the administration’s approach. Carbon Limits, Yes; Energy Subsidies, No, William Tucker, Wall Street Journal, 12/29/08.

• Windmills generate power only 25% of the time and can change output minute-to-minute. A contemporary electric grid is a highly tuned instrument that cannot vary in voltage by more than a few percentage points without causing brownouts or damaging electric equipment. Under these circumstances, wind is more of a nuisance than a source of power.

* * * In a few years we could find ourselves in the position of Denmark -- which has built thousands of windmills without closing a single fossil-fuel plant.

• Biofuels have already proven to be an even bigger disaster. They've gobbled up 30% of our corn crop and have leveled tropical forests, while replacing less than 3% of our oil.

Will the general public block this power grab? Hard to know, but we were encouraged by a poll showing that global warming rated dead last among the 20 issues mentioned to respondents. Economy, Jobs Trump All Other Policy Priorities in 2009, Pew Research Center, 1/22/09.

Given the state of public opinion, one might think the administration would embrace a more balanced energy policy (or at least defer a cap and trade proposal, etc.). We doubt this will happen, however, for two reasons.

• The zeal of true believers in global warming borders on religious fervor, and it cannot readily be turned off.

• A cap and trade regime would produce a stream of government revenue without being viewed as a “tax increase” – and the administration’s other priorities cannot be achieved and maintained without tapping into oodles of money from somewhere.

The real wild card is whether inflation will kick up as soon as the economy recovers, as would be expected given the massive injection of liquidity into the financial system coupled with massive government deficits.

If the inflation rate rises into double digits, as it did during the Jimmy Carter era, everyone will be hurt – and you can bet they will notice.

So ironically, the president and his party are setting up a situation in which they might be better off politically if the economy lags along in the doldrums than if it recovers smartly as everyone professes to hope.

If you agree with us about the foregoing issues, reach out to your family, friends, and contacts with this message – “Stop this train, I want to get off!”

And whether you agree or disagree, we would like to hear from you. “Here is what I believe, because ________.”

The minority party was raising objections to the economic stimulus bill. Polls indicated public support was slipping. The president stepped up the pressure, including an evening press conference on February 9. A final bill passed both houses of Congress (with the support of only three minority party members) on February 13.

Too bad! The cost of the stimulus bill (said to be $789 billion) is excessive, the efficacy of its provisions are debatable, and the projected deficit for fiscal year 2009 already stood at $1.2 trillion (which seems like more than enough deficit spending to us).

The final bill was rushed through without giving members of Congress an opportunity to read it. House Minority Leader John Boehner (R-Ohio) made the point as shown in this 36-second video clip – don’t miss it.

Last but not least, the president demonstrated an inclination to steam roller the opposition instead of leading responsibly. This entry will present an analysis of the press conference to document the point.

• Scary talk: The president’s core argument for rushing through the stimulus bill was that the current “economic emergency” could become a “catastrophe.”

Now, my administration inherited a deficit [for fiscal year 2009] of over $1 trillion, but because we also inherited the most profound economic emergency since the Great Depression, doing little or nothing at all will result in even greater deficits, even greater job loss, even greater loss of income, and even greater loss of confidence.

Those are deficits that could turn a crisis into a catastrophe, and I refuse to let that happen. As long as I hold this office, I will do whatever it takes to put this economy back on track and put this country back to work.

Using words like “crisis” and “catastrophe” seems undesirable unless the facts support them, which they do not in this instance.

The present economic situation is serious, but by no means comparable to the Great Depression of the 1930s. More will be said about this under the heading of “faux economic history.”

The government is already addressing the country’s economic problems in a number of ways (radical monetary easing by the Federal Reserve, $700 billion bailout for financial firms, etc.), creating a risk of overkill.

Last but not least, that casual use of scary language may not help restore private sector confidence – which happens to be essential for a sustained economic recovery (as the president acknowledged when asked whether additional funds would be needed to shore up the banking system).

. . . we don't know yet whether we're going to need additional money or how much additional money we'll need until we've seen how successful we are at restoring a sense of confidence in the marketplace that the federal government and the Federal Reserve Bank and the FDIC, working in concert, know what they're doing.

That can make a big difference in terms of whether or not we attract private capital back into the marketplace. And ultimately the government cannot substitute for all the private capital that has been withdrawn from the system. We've got to restore confidence so that private capital goes back in.

This is not the new administration’s first use of scary talk, by the way. Consider Secretary of Energy Steven Chu’s prediction of dire consequences from global warming, as reported by the Los Angeles Times.

In a worst case, Chu said, up to 90% of the Sierra snowpack could disappear, all but eliminating a natural storage system for water vital to agriculture.

"I don't think the American public has gripped in its gut what could happen," he said. "We're looking at a scenario where there's no more agriculture in California." And, he added, "I don't actually see how they can keep their cities going" either.

Chu is a Nobel Prize winning physicist, but not a climatologist. Kudos to Senator James Inhofe (R-Okla.) for suggesting that a more detached (dare we say scientific) attitude would be in order.

I am hopeful Secretary Chu will take note of the real-world data, new studies and the growing chorus of international scientists that question his climate claims. Computer model predictions of the year 2100 are simply not evidence of a looming climate catastrophe.

• Blame game: The president attributed the current economic situation primarily to the banks, while saying nary a word about (a) excessive monetary ease by the Federal Reserve after 9/11, or (b) government pressure on banks to lend money to would-be homebuyers with poor credit.

What got us into this mess initially were banks taking exorbitant, wild risks with other people's monies based on shaky assets and because of the enormous leverage, where they had $1 worth of assets and they were betting $30 on that $1, what we had was a crisis in the financial system.

That led to a contraction of credit, which, in turn, meant businesses couldn't make payroll or make inventories, which meant that everybody became uncertain about the future of the economy, so people started making decisions accordingly, reducing investment, initiating layoffs, which, in turn, made things worse.

For an analysis of how government policies contributed to the current economic situation, see John Taylor’s column in the 2/9/09 Wall Street Journal. Economists will debate what happened for years, but we think there is plenty of blame to go around.

• Faux economic history. The current economic situation is a far cry from the Great Depression, which for better or worse led to the policies of the New Deal. It also seems less severe than the stagflation mess that President Reagan inherited in 1981. Reaganomics vs. Obamanomics, Peter Ferarra, Wall Street Journal, 2/11/09.

We were suffering from multiyear, double-digit inflation, double-digit unemployment, double-digit interest rates, declining incomes, and rising poverty. In fact, what we suffer with today is not the worst economy since the Great Depression, but the worst economy since Jimmy Carter -- the last time liberals were dominant politically and intellectually.

Declaring that government was the problem, Reagan offered tax cuts, energy deregulation, budget cuts, and tight money (under Federal Reserve Chairman Paul Volcker). In two years, the economy was on the mend. Which experience hardly supports the current president’s preference for a government-centric approach.

Equally misleading were the president’s remarks about lessons to be drawn from Japan’s protracted recession in the 1990s.

I think that what I've said is what other economists have said across the political spectrum, which is that, if you delay acting on an economy of this severity, then you potentially create a negative spiral that becomes much more difficult for us to get out of.

We saw this happen in Japan in the 1990s, where they did not act boldly and swiftly enough and, as a consequence, they suffered what was called the lost decade, where essentially, for the entire '90s, they did not see any significant economic growth.

The Japanese economic problems were all too real, but they did not result from a failure to act. To the contrary, the government moved aggressively to implement deficit spending programs and prop up financial institutions – rather like what has been going on in the United States lately – and the policies backfired. A Japanese Lesson, Hans Sennholz, Ludwig von Mises Institute, 2/8/02.

As the history of the Great Depression is one long regret of political follies and blunders that aggravated the suffering, so is the story of the Japanese recession from the 1990s to the present. The Japanese government tried to spend its way out of the recession, but instead merely prolonged it and created a mountain of debt. It probably improved the Japanese infrastructure but simultaneously propped up a badly misguided economy; sustained insolvent banks and insurance companies, always preventing the needed readjustment and thereby prolonging and aggravating the recession; and, last but not least, consumed the people's savings of a decade.

• False premise. While rhetorically acknowledging a role for private enterprise in rebooting the economy, the president said only increased government spending could save the day.

It is absolutely true that we can't depend on government alone to create jobs or economic growth. That is and must be the role of the private sector. But at this particular moment, with the private sector so weakened by this recession, the federal government is the only entity left with the resources to jolt our economy back into life.

It is only government that can break the vicious cycle, where lost jobs lead to people spending less money, which leads to even more layoffs. And breaking that cycle is exactly what the plan that's moving through Congress is designed to do.

As previously reported, hundreds of U.S. economists suggested a different conclusion, namely that the prime thrust should be to encourage the private sector instead of supplanting it. This was not what the president and his party wanted to hear, however, so they paid no attention.

To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.

• Partisanship. The president said minority party inputs had been solicited and reflected in the stimulus bill, e.g., by including “tax cuts” (e.g., refundable tax credits, which are akin to welfare payments, and the AMT fix). Accordingly, in his view, members of Congress who persisted in voting against the stimulus bill wanted to “do nothing.”

Now, you have some people, very sincere, who philosophically just think the government has no business interfering in the marketplace. And, in fact, there are several who've suggested that FDR [President Roosevelt] was wrong to interfere back in the New Deal. They're fighting battles that I thought were resolved a pretty long time ago.

Actually, many members of the minority party were eager to offer economic stimulus approaches – and their suggestions were ignored. Obama: Still Not Ready for Prime Time, Donald Lambro, Townhall.com, 2/11/09.

Now he may disagree with what the Republicans are proposing, but don't tell us that they are not proposing anything or suggest that they do not recognize the seriousness of the economy's troubles. It is disrespectful and suggests he is unwilling to engage them in the kind of dialogue he has said many times that he welcomes.

• Lack of substance. As a proponent of the stimulus bill, one might think the president would have laid out why and how its provisions would stimulate the economy more effectively than other approaches. But his explanations were vague, and they often ended with a “why wouldn’t we want to [fill in the blank]” punch line.

#We know that healthcare is crippling businesses and making us less competitive, as well as breaking the banks of families all across America. And part of the reason is, we've got the most inefficient healthcare system imaginable.

We're still using paper. We're still filing things in triplicate. Nurses can't read the prescriptions that doctors -- that doctors have written out. Why wouldn't we want to put that on -- put that on an electronic medical record that will reduce error rates, reduce our long-term costs of healthcare, and create jobs right now?

#We're creating jobs immediately by retrofitting [federal] buildings [to make them more energy-efficient] or weatherizing 2 million Americans' homes, as was called for in the package, so that right there creates economic stimulus.

And we are saving taxpayers when it comes to federal buildings potentially $2 billion. In the case of homeowners, they will see more money in their pockets. And we're reducing our dependence on foreign oil in the Middle East. Why wouldn't we want to make that kind of investment?

#I visited a school down in South Carolina that was built in the 1850s. Kids are still learning in that school, as best they can, when the -- when the railroad -- when the -- it's right next to a railroad. And when the train runs by, the whole building shakes and the teacher has to stop teaching for a while. The -- the auditorium is completely broken down; they can't use it.

So why wouldn't we want to build state-of-the-art schools with science labs that are teaching our kids the skills they need for the 21st century, that will enhance our economy, and, by the way, right now, will create jobs?

• Entitlements. There was a passing reference to the government’s grim long-term fiscal outlook, with no mention of the fiscal responsibility summit (FRS) that the president previously promised to convene in February (see our 2/9/09 entry). However, the Washington Post and others have since reported that this event will take place on February 23.

White House Chief of Staff Rahm Emanuel said late Thursday that the fiscal summit will be Feb. 23. The leaders of groups heavily involved with Medicare and Social Security say they have heard little or nothing about the event, so they don't know what to expect. But some are urging Obama to be bold and ambitious, even as Republicans pound him for pushing the $789 billion economic stimulus through Congress.

Subduing the press: In a break from tradition, the president decided who to entertain questions from in advance. The Wall Street Journal ventured that the intent was to “discipline reporters who aren’t White House favorites.”

In any case, Townhall.com columnist Tony Blankley noted that the press corps seemed exceptionally docile vs. the press conferences during past administrations.

In summary, the economic stimulus bill was rammed through without thoughtful consideration, and the press conference to explain it was a sham. Americans have a right to expect more from the president and his party. We would suggest that they demand it.

The past week was a discouraging one for advocates of smaller, more-focused, less costly government, and we will not pretend otherwise.

First, a bill signed into law on February 4 will authorize a major expansion of the State Children’s Healthcare Insurance Program (SCHIP) and increase the federal tax on cigarettes by 62¢ per pack to pay for it.

This legislation will expand the ambit of publicly funded healthcare without regard to the adequacy of private sector arrangements. The goal, according to columnist George Will, is “to get as many people on public coverage as possible, and to have children grow up thinking that it is normal to get their health[care] insurance from the government.”

On a somewhat similar note, the president characterized the bill at the signing ceremony as “a down payment on my commitment to cover every single American." In other words, universal healthcare is on the way.

Although some might view the accompanying tax increase as a sign of fiscal responsibility, we see things differently. Raising taxes during a recession is generally recognized as folly, and this particular tax increase is regressive (disproportionately paid by lower-income people) besides.

Not to mention that the federal tax increase (on top of already high state and local taxes) will promote more cigarette bootlegging. The reality of this scourge is often overlooked, but it has been well documented. See, e.g., Cigarette Taxes, Black Markets, and Crime: Lessons from New York’s 50-Year Losing Battle, Patrick Fleenor, Cato Institute, 2/6/03.

Second, a political deal has been struck that will apparently result in the bulk of the Economic Stimulus Package (ESP) that we have been railing against for the past month making it through Congress next week.

The total amount of stimulus was reportedly reduced to $780 billion (subject, however, to increases for several items), and certain categories of spending were stripped out. A vote on the bill is expected early next week, after which the House and Senate versions of the bill will go to a conference committee to iron out the differences. For further details of where matters stand, see this 2/7/09 account from the Wall Street Journal.

We will have more to say about the ESP when it is enacted in final form, but for now let’s switch to another topic – the fiscal responsibility summit (FRS) that was promised in mid-January.

The FRS commitment came up at a meeting of the president (then president elect) with reporters and editors of the Washington Post; he said an FRS would be convened in February before his proposed budget for fiscal year 2010 was submitted.

Invitees were to include Kent Conrad (D., N.D.) and Judd Gregg (R., N.H.) from the Senate Budget Committee, some of the “Blue Dog” Democrats in Congress, and outside groups with expertise on the topics.

The thrust was to look beyond the current economic situation to the unsustainable growth of entitlement programs (Social Security and Medicare were mentioned; Medicaid apparently was not) that threaten the government’s solvency over the longer term. All the right words were reportedly said about the necessity for facing up to the problem.

What we have done is kicked this can down the road. We are now at the end of the road and are not in a position to kick it any further. We have to signal seriousness in this by making sure some of the hard decisions are made under my watch, not someone else's.

There have been no further details about the FRS (who, where, when, etc.), perhaps because attention has been focused on the economic stimulus package that was put ahead of it in the queue. The event is presumably still planned, however, although the timing may slip a bit.

The big question is the president’s intent. Does he see the FRS as a symbolic gesture or the first step in a program for action? And if he does have a solution in mind, what is it? Commentators have offered a variety of opinions.

Robert Kuttner, a journalist, book writer, and economist, fears a plot by fiscal conservatives to gut entitlement programs.

The rhetoric and framing of the problem are distressingly similar to efforts of the newly formed Peter G. Peterson Foundation, Robert Rubin's Hamilton Project, and the Concord Coalition, and kindred groups . . .

Kuttner suggests, however, that the event may be organized a bit differently. Could he be hoping for an invite?

So, just how will President Obama define fiscal responsibility, who will he choose to showcase, and to what end? It will be interesting to see whether his fiscal summit features people like Pete Peterson, David Walker, and Robert Rubin, and lends credence to their story–or whether he also gives the floor to their critics.

Senators Conrad & Gregg, who in 2007 proposed a bipartisan task force (primarily composed of members of Congress and the Treasury secretary) to tackle long-term fiscal problems, quickly endorsed the FRS.

This is something that must be done to ensure our nation’s long-term economic security, and we are pleased that President-elect Obama is focusing on this problem. We look forward to working closely with the Obama administration to set our nation back on a sound long-term fiscal course.

Senator Gregg has since been nominated as secretary of Commerce, but it is understood that he will continue to have "a voice at the table" on Social Security and Medicare spending.

George Will suggests that striking a deal on entitlements might prove easier said than done.

The theory of a grand bargain is that if every American faction is being nicked simultaneously -- if tax increases and benefit cuts ("cuts" understood, perhaps, as disappointing increases) make everyone surly at the same time -- there will be unity born of universal grievance, which will morph into a public-spirited consensus. Perhaps. On the other hand, George Kennan, diplomat and historian, said that the unlikelihood of any negotiation reaching an agreement grows by the square of the number of parties involved.

The Washington Times says the most important question about fiscal responsibility is whether the president will press the members of Congress to accept a fundamental overhaul of the tax law and genuine spending discipline.

Democrats don't want to do any of those things. Their actions with respect to the stimulus package are proof positive that they are perfectly willing to conduct business as usual - spend wildly, demagogue issues until they go away unsolved, and let future generations pay the price. Mr. Obama must decide next month when he convenes his "fiscal responsibility summit" which of these issues, if not all of them, he is willing to fight for to achieve, no matter what effect this has on the naysayers in his own party. He may not want to do battle, but he has to. The alternative is fiscal ruin.

We do not know what the president intends, and would love to be pleasantly surprised. But there are signs that a symbolic event could be in the making, and it will certainly take persistent pressure to bring about a better outcome.

One does not quickly steer a huge ship this way and that, turning it takes too long, and the same thing goes for “the ship of state.” The SCHIP expansion and economic stimulus package plan are about ramping up the size, scope and cost of government. How can such an agenda be pursued at the same time that one is restructuring entitlement programs, slashing spending, and trying to avoid tax increases that could tank the economy?

That is why SAFE urged, last November, that priority be given to addressing long-term fiscal problems. First things first: time to clean up the fiscal mess, 11/24/08.

Some of our political leaders may find the challenge of winning approval for new programs more appealing, however, than the chore of reviewing, rationalizing, and pruning (or in some cases dismantling) the many programs already in existence. Given the “economic crisis,” they may argue, it is appropriate to throw fiscal caution to the winds and proceed with some new programs.

Unfortunately, no one heeded our advice. Organizing an FRS now may be a bit like “locking the barn after the horse has been stolen.”

We do appreciate that the economic situation has deteriorated rapidly. Nearly two million U.S. jobs have been lost in the past three months, and the unemployment rate is up to a sobering 7.6%. Millions of Americans wanted something done about the situation, and an incoming president naturally wanted to help.

But when doting parents try to shield their offspring from every problem, they often cause longer-term harm by keeping the children from growing up.

Similarly, if the government doles out money in a way that permits organizations and individuals to continue living beyond their means, this will prolong the current economic slump, lead to double digit inflation, or perhaps produce a combination of both, i.e., stagflation.

Don’t take our word for it, listen to George Melloan of the Wall Street Journal who is asking a fundamental question that our political leaders seem to have forgotten. Who says the country can afford all these goodies, and how long will it be until the bottom falls out?

As Congress blithely ushers its trillion dollar "stimulus" package toward law and the U.S. Treasury prepares to begin writing checks on this vast new appropriation, it might be wise to ask a simple question: Who's going to finance it? * * * [Credit may be cheap at present, but will it remain cheap] when the Treasury is scrounging around in the international credit markets six months or a year from now? That seems highly unlikely.

So let there be a Fiscal Responsibility Summit by all means, and better sooner than later – but fiscal visionaries should keep a sharp eye on what is going on.

We do not want to hear about programs that cannot be cut because people are accustomed to them, or the huge amounts of tax revenue that could be raised from a tax on carbon emissions (to “save the planet,” you know), or how the cost of healthcare can be brought under control by digitizing medical records.

It is time for the president and Congress to stop playing games and walk the fiscal responsibility talk.

The administration wants a four-month delay in the long planned (and heavily advertised) switch from analog to digital TV broadcasting due to “mounting concerns that too many Americans who rely on over-the-air broadcast signals won't be ready.” Heaven help us if some people had to stop watching television until they acquired a digital TV converter box (advertised for less than $100).

But when it comes to the $800+ billion “economic stimulus package” (ESP), aka the American Recovery and Reinvestment Act of 2009, no similar sense of caution is apparent. The president and his party are reportedly pushing for passage by mid-February – less than a month after the inauguration.

Perhaps this is an example of Parkinson’s “law of triviality,” which holds that people spend more time discussing minor issues (which they understand) than major issues (which they do not). Glossing over major issues is not necessarily wise, however, and a more thorough review of the ESP seems indicated for several reasons.

The Federal Reserve has flooded the financial system with liquidity, and the government is expected to run deficits of $1.2 trillion in FY 2009 and $700 billion in FY 2010. Loading the ESP on top of this seems excessive to us, and it would certainly increase the risk of double-digit inflation within a year or two. Never mind the “tax cut,” 1/19/09.

Besides, even the architects of the ESP concede that it would not provide a quick fix for the economy. As White House adviser Larry Summers put it:

These problems weren't made in a day or a week or a month or even a year, and they're not going to get solved that fast.

The president-elect (now president) suggested on January 9th that experts were united in their support for an economic stimulus package, presumably along the lines he envisions (almost all spending and refundable tax credits, no tax rate cuts).

There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy.

Many economists are indeed on board with this proposal, which can be traced back to the countercyclical spending theories of John Maynard Keynes in the 1930s. The premise: government spending is “free” during a severe economic downturn.

Others are skeptical, witness a full-page ad run by the Cato Institute in the New York Times and other newspapers to report that several hundred economists (including five from the University of Delaware, go First State!) have signed the following statement:

Harvard economist Robert Barro rejects the notion that government spending can be free (multiplier of 1.0). It would be closer to the truth, he says, to assume that government spending displaces an equal amount of spending in the private sector. As for a multiplier exceeding 1.0, forget it. Government Spending Is No Free Lunch, Wall Street Journal, 1/22/09.

If the multiplier is greater than 1.0, as is apparently assumed by Team Obama, the process is even more wonderful. In this case, real GDP rises by more than the increase in government purchases. Thus, in addition to the free airplane or bridge, we also have more goods and services left over to raise private consumption or investment. In this scenario, the added government spending is a good idea even if the bridge goes to nowhere, or if public employees are just filling useless holes.

Martin Feldstein (a Harvard economist and president emeritus of the National Bureau of Economic Research) expressed support for ramping up government spending earlier, but he labels the ESP an $800 billion mistake.

The split in professional opinion does not prove what stimulus approach would work best in the current situation, but it does raise questions about pushing through a huge increase in spending without even considering other ways to restore confidence and get the economy back on track.

The conventional criteria for stimulus spending are “targeted, timely, and temporary.” In other words, such spending should quickly shore up the hardest hit sectors of the economy and disappear as the economy rebounds.

The proposed ESP would do the most for sectors that are not currently experiencing unemployment, such as the healthcare industry and state governments. “If the intent of the plan is to alleviate unemployment,” asks economist Alan Reynolds of the Cato Institute, “why spend over half of the money on sectors where unemployment is lowest?” $646,214 Per Government Job, Wall Street Journal, 1/28/09.

Many elements of the ESP (as passed in the House) were designed to promote agendas other than getting the economy back on track, and the effects are clearly not expected to be temporary. Ergo, this is not a stimulus bill meriting fast track consideration – it is a spending bill that should be evaluated as such.

When the details were first revealed, the Wall Street Journal characterized the ESP as “a political wonder that manages to spend money on just about every pent-up Democratic proposal of the last 40 years.” Among the items pointed out:

# A small down payment on the scheme of converting America to “green” energy, including $400 million for global warming research, $2.4 billion for carbon capture demonstration projects, and $8 billion for renewal energy projects. Some of this activity may be warranted, we are global warming skeptics (not deniers), but let free markets decide instead of undertaking the work on the taxpayers’ dime.

# A total of $252 billion for transfer payments (refundable tax credits, Medicaid, COBRA insurance extension, food stamps, etc.). It is a safe bet that such payments would not be dropped when the economy improved, for as is well known they are addictive in nature.

# And $66 billion for education, which is “more than the federal Education Department spent a mere 10 years ago,” wonder what that is all about.

Other problems have been noted in further analysis of the ESP bill, including an apparent intent to begin implementing universal healthcare without a frank and open discussion of the subject.

If Democrats learned anything from the HillaryCare defeat [in the first two years of the Clinton administration],” says columnist Kimberly Strassel, “it was the [political] danger of admitting to their wish to federalize the health market.” Democratic Stealth Care, Wall Street Journal, 1/30/09.

The first step in the universal healthcare campaign was to get cracking on a big expansion of the State Children’s Health Insurance Program. Initially enacted for a 10-year trial, SCHIP was continued in 2007 – but with the president blocking a proposal to expand it by relaxing the eligibility requirements so more children from middle class families could be enrolled. See our 10/8/07 entry, The SCHIP veto, a “Pyrrhic victory” at best.

Further progress would be made by enacting the ESP, which would not only help the states pay for existing Medicaid obligations but extend Medicaid coverage to many new recipients.

Under "stimulus," Medicaid is now on offer not to just poor Americans, but Americans who have lost their jobs. And not just Americans who have lost their jobs, but their spouses and their children. And not Americans who recently lost their jobs, but those who lost jobs, say, early last year. And not just Americans who already lost their jobs, but those who will lose their jobs up to 2011. The federal government is graciously footing the whole bill. The legislation also forbids states to apply income tests in most cases.

The ESP would also extend the reach of Cobra, a program under which the unemployed can retain access (at their own expense) to former healthcare benefits. (a) People over 55 could keep Cobra until they qualified for Medicare. (b) The government would start picking up 65% of the Cobra tab.

And the government would be designated as national coordinator of healthcare records, which Strassel characterizes as “an attempt to squelch a growing private market” in helping consumers to compare healthcare providers and costs.

Another problem is $4+ billion of funding for community stabilization activities conducted by ACORN et al., which would perpetuate the pressure on banks to make home loans to nonqualified borrowers.

Despite repeated appeals for bipartisanship, spread the blame and all that, the minority party has been cool to the ESP thus far. Indeed, the bill passed in the House without a single Republican vote.

We applaud the minority party for taking this stand, which will hopefully pave the way for some constructive changes. Note, however, that bad changes to the bill are also possible. Consider the proposed broadening of a requirement that contractors on ESP-funded projects use domestic iron and steel to cover all manufactured products.

Such a “buy American” provision would mean more bureaucracy and higher cost for the projects undertaken. It might also lead to retaliation from other countries, much as the Smoot-Hawley Tariff Act did in the 1930s?

If there is any good news to report at this juncture, it is that the general public seems to be cooling on the ESP. Per the latest Rasmussen poll, 42% of Americans (previously 45%) support the bill, 39% (up from 34%) oppose it, and 19% are undecided.

Although most people (86% per the Rasmussen poll) believe the ESP will be enacted during the president’s first 100 days, things could change. Shelve the Stimulus, Larry Kudlow, Townhall.com, 1/30/09.

The public has yet to realize, says Kudlow, that more stimulus is about to be proposed, namely “as much as $2 trillion in TARP additions to rescue the banking system in one form or another.” At some point, people may conclude that they are being conned and push back.

Will commonsense Americans really support a massive overdose of government run amok? I seriously doubt it. This whole story has to be completely rethought.

Who knows how things will come out, but the ESP is a bad idea and we are going to do whatever we can to slow it down.

Incoming presidents traditionally express the principles or goals that they intend to support in an inaugural address. The visions outlined in such a speech reflect not only the speaker’s ideas, but also what he (or she) believes the public wants to hear.

Peruse the inaugural addresses delivered over the years and you may find some noteworthy statements, not all of which have stood the test of time. As an example, here are ten quotes – out of chronological order – see if you can guess who said what.

1. The obligation on the part of those responsible for the expenditures made to carry on the Government, to be as economical as possible, and to make the burden of taxation as light as possible, is plain, and should be affirmed in every declaration of government policy. This is especially true when we are face to face with a heavy deficit. But when the desire to win the popular approval leads to the cutting off of expenditures really needed to make the Government effective and to enable it to accomplish its proper objects, the result is as much to be condemned as the waste of government funds in unnecessary expenditure.

2. [Among my guiding principles are the following:] to support the Constitution, which is the cement of the Union, as well in its limitations as in its authorities; to respect the rights and authorities reserved to the States and to the people as equally incorporated with and essential to the success of the general system . . . to observe economy in public expenditures; to liberate the public resources by an honorable discharge of the public debts . . .

3. Our greatest primary task is to put people to work. This is no unsolvable problem if we face it wisely and courageously. It can be accomplished in part by direct recruiting by the Government itself, treating the task as we would treat the emergency of a war, but at the same time, through this employment, accomplishing greatly needed projects to stimulate and reorganize the use of our natural resources.

4. We cannot afford to do everything, nor can we afford to lack boldness as we meet the future. So, together, in a spirit of individual sacrifice for the common good, we must simply do our best.

5. But great as our tax burden is, it has not kept pace with public spending. For decades, we have piled deficit upon deficit, mortgaging our future and our children's future for the temporary convenience of the present. To continue this long trend is to guarantee tremendous social, cultural, political, and economic upheavals.

6. It is time to break the bad habit of expecting something for nothing, from our government or from each other. Let us all take more responsibility, not only for ourselves and our families but for our communities and our country.

7. Together, we will reclaim America's schools, before ignorance and apathy claim more young lives; we will reform Social Security and Medicare, sparing our children from struggles we have the power to prevent; we will reduce taxes, to recover the momentum of our economy and reward the effort and enterprise of working Americans . . .

8. We have made enormous strides in science and industry and agriculture. We have shared our wealth more broadly than ever. We have learned at last to manage a modern economy to assure its continued growth.

9. We have studied as perhaps no other nation has the most effective means of production, but we have not studied cost or economy as we should either as organizers of industry, as statesmen, or as individuals.

10. And so, my fellow Americans, ask not what your country can do for you, ask what you can do for your country.

The answers are: (1) William H. Taft (1909); (2) James Madison (1809); (3) Franklin D. Roosevelt (1933); (4) Jimmy Carter (1977); (5) Ronald Reagan (1981); (6) William J. Clinton (1993); (7) George W. Bush (2001); (8) Richard M. Nixon (1969); (9) Woodrow Wilson (1913); (10) John F. Kennedy (1961).

After the 44^th president was sworn in on January 20, 2009, he addressed the nation (or perhaps the world) in a manner that was generally judged short on eloquence but reassuring in substance.

From SAFE’s perspective, however, it is hard to know what to make of some of the president’s points.

Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some but also our collective failure to make hard choices and prepare the nation for a new age.

Homes have been lost, jobs shed, businesses shuttered. Our health care is too costly, our schools fail too many, and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet.

What are the “hard choices” that have been deferred? If the president was referring to brushing the entitlements mess under the rug, persisting in government programs that have driven up healthcare prices for everyone, or pursuing a fatally flawed energy policy over the past 30 years, then we agree. But he could have been talking about other things, e.g., not raising taxes, with which we would disagree.

Our schools fail too many! Does that mean everyone should pass, whether they studied or not?

As for this country’s use of energy threatening the planet, claims that CO2 emissions will cause catastrophic global warming have been wildly exaggerated – as responsible observers are beginning to realize.

Here are three reasons for a change of heart: (1) falling temperatures, not predicted by the computer models used by climate change alarmists; (2) collapse of any pretense of a “scientific consensus” about man-made global warming; and (3) growing awareness that proposed countermeasures would be extremely costly. “2008 was the year man-made global warming was disproved,” Christopher Booker, Telegraph.co (UK), 12/31/08.

The state of our economy calls for action: bold and swift. And we will act not only to create new jobs but to lay a new foundation for growth . . . build the roads and bridges . . . wield technology's wonders to raise health care's quality and lower its costs . . . harness the sun and the winds and the soil to fuel our cars and run our factories . . . transform our schools and colleges and universities to meet the demands of a new age.

Where does one begin? Maybe by asking how much money this agenda would cost, and just exactly how it would be paid for. Also, does the government (the apparent meaning of “we” in this context) necessarily have a better idea of what should be done about such matters than folks in the private sector?

Now, there are some who question the scale of our ambitions, who suggest that our system cannot tolerate too many big plans. Their memories are short, for they have forgotten what this country has already done, what free men and women can achieve when imagination is joined to common purpose and necessity to courage.

So there is no need for “hard choices” after all? Doesn’t sound like it to us, and others have read the speech in a similar way.

Consider John Sweeney’s column in the 1/23/09 [Wilmington] News Journal: “The toughest decision ahead for the next year or so is how we will spend the trillion bucks we want to borrow from China.”

The question we ask today is not whether our government is too big or too small, but whether it works, whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified.

Where the answer is yes, we intend to move forward. Where the answer is no, programs will end.

Of course the government works, after a fashion. Here is the real question: does it work better than private enterprise in creating meaningful jobs, providing affordable healthcare (without rationing, which is never mentioned), saving for retirement (Social Security provides no savings, only promises), etc.?

Also, this statement sounds like a slap at the idea of restructuring entitlements, which must be done if the government’s long-term fiscal problems are to be dealt with rather than left until there is a fiscal meltdown.

As for programs ending, we will believe it when we see it. Remember Ronald Reagan’s observation: "A government bureau is the closest thing to eternal life we'll ever see on this earth."

What is required of us now is a new era of responsibility -- a recognition, on the part of every American, that we have duties to ourselves, our nation and the world, duties that we do not grudgingly accept but rather seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character than giving our all to a difficult task.

Other commentators have teed off on this rhetoric, and rightly so. What duties and responsibilities, specifically, are being referenced? And how can the concept of responsibility be reconciled with the irresponsible fiscal proposals that the new administration apparently supports? See “The Emperor Has No Clothes,” Brett Joshpe, Townhall.com, 1/21/09.

. . . I would query how $50 billion in foreclosure relief fosters the notion of personal responsibility. How does a stimulus package that will likely exceed $800 billion—coupled with hundreds-of-billions of dollars of additional Troubled Asset Relief Program (TARP) spending and automobile bailout funds—foster responsibility or sacrifice? How does record spending and record deficits that will leave our children with massive debt not constitute another form of “putting off unpleasant decisions” and “hard choices”?

Oh, well, it was just a speech. Maybe, but remember this: words and ideas matter, and they often last longer than people do.

Thus, the economic stimulus package now taking shape stems from the writings of British economist John Maynard Keynes in the 1930s. Running a deficit did not help to promote economic recovery then, however, nor has the theory that it might do so been bolstered by subsequent experience. Forbes editorial, 1/14/09.

We accept the need for responsibility, indeed we have plugging this theme for years, but only if it means something besides going along with a program that has not been adequately explained, much less justified.

When concern was being expressed about a slowing economy in early 2008, it was said that any economic stimulus measures should be timely, targeted and temporary.

This formula continues to be cited, e.g., by David Walker in a panel discussion recently aired (along with I.O.U.S.A.) on CNN, now in the context of an acknowledged recession that has triggered demands for a massive response.

Here, as we understand it (based on a January 2008 explanation by the Center of Budget Policies and Priorities), is what the foregoing terms are considered to mean.

• Timely – designed to stimulate new spending quickly. Funding for government programs that would take years to implement, or tax cuts that are more likely to be saved than spent, do not meet this criteria.

• Targeted – aimed at individuals and entities that will spend quickly, e.g., people of modest means and state/local governments that would otherwise be forced to raise taxes/ cut spending in order to balance their budgets.

• Temporary – of limited duration so the stimulus measures will not continue after the economy improves.

As “timely” and “targeted” seem to be directed at the same point, namely providing stimulus money that will be spent rather than saved, it seems to us that one term or the other is superfluous.

Moreover, the indicated preference for spending vs. saving is questionable. Remember that the current economic recession follows, and was arguably triggered by, an orgy of excessive consumption/ inadequate saving (and investment) that threatens the long-term health of the U.S. economy.

Would it make sense to restart the orgy, as was done in 2003 with a combination of out-of-control spending, tax cuts, and excessively easy monetary policy of the Federal Reserve? See “The Bush Economy,” Wall Street Journal, 1/17/09.

While [the Bush] Administration was handling the fiscal levers, the Federal Reserve was pushing the monetary accelerator to the floor. In reaction to the dot-com implosion and the collapse in business investment, Alan Greenspan rapidly cut interest rates to spur housing and consumer spending. ***His stimulus worked -- far too well. The money boom created a commodity price spike as well as a subsidy for credit across the economy.

Another orgy could definitely be in the making. The Federal Reserve under Chairman Ben Bernanke has eased up on monetary policy even more aggressively than Greenspan did in 2003. And the two-year Economic Stimulus Package (“ESP”) now being touted in Washington would provide, according to the latest information, $550B in new spending and $275B in tax relief – on top of the staggering deficits already expected.

With the inclusion of this $825B fiscal “jolt, which would be felt principally in FY 2010 because Fiscal Year 2009 is already under way, deficits for both years would far exceed the postwar record deficit (as a percentage of Gross Domestic Product) set in 1983.

SAFE would oppose adding more fuel to an already blazing fiscal fire. See the discussion in last week’s entry, and also “An 8.3% Deficit Is Plenty of Stimulus,” Philip Levy, Wall Street Journal, 1/14/09.

No one is arguing for a return to the 1930s, with proposals for balanced budgets and tight money in the face of depression. The argument is over the magnitude of the stimulus. We have an unprecedented deficit already in the works. How far beyond unprecedented do we need to go?

In conformity with our views as to how economic stimulus proposals should be evaluated, we would suggest replacing the “timely, targeted and temporary” mantra with “responsible and temporary.” This would effectively dictate putting the ESP back on the shelf.

Many people may disagree, of course, but by no means everyone. Although 43% of the respondents in a recent NBC News/ Wall Street Journal poll said an ESP was a “good idea,” 27% said it was a “bad idea” and 30% were undecided.

Despite an indicated preference for government spending to create jobs versus tax cuts, moreover, 60% of the respondents expressed concern that the government would spend “too much” while only 33% thought the government might spend “too little.”

A Rasmussen poll found more support for tax cuts (47%) than for spending increases (32%). Only 21% of respondents said they would support an ESP package that included no tax cuts.

It is commonly assumed that “conservatives” love tax cuts, and the tax relief measures incorporated in the ESP may be intended as a sop to the right. “Big tax cuts in the works,” Mike Allen, politico.com, 1/5/09.

Obama strategists say he wants to get 80 or more votes in the 100-member Senate, and the emphasis on tax cuts is a way to defuse conservative criticism and enlist Republican support.

Given the dismal fiscal outlook, it is hard to see how the country could afford another true tax cut such as those enacted during the Reagan and Bush (43) administrations. The best foreseeable outcome would be to slash spending enough to avoid tax increases – which is the essence of SAFE’s “cap taxes now” game plan.

In any case, the tax relief provisions in the ESP are not real tax cuts, so there is no reason for fiscal visionaries to embrace them.

The proposed tax breaks for business relate primarily to the timing of tax deductions, notably (1) “bonus depreciation for investments in new plant and equipment, and (2) carry-back of unused tax losses for up to 5 (currently 2) years versus being required to carry them forward to future years. Such measures would do little to encourage new investment by U.S. businesses, which is basically a function of the longer-term profit outlook.

Individual taxpayers would be allowed a refundable "Making Work Pay" tax credit of $500 per worker and $1,000 for couples, with no indication that the MWP credit would be anything other than permanent. Accordingly, this idea should be considered on its own merits (which are slim) instead of being shoved into a supposedly temporary ESP.

If it is truly thought necessary to put money in taxpayers’ pockets on a temporary basis, and we are not making that case, another income tax rebate like the one in 2008 could readily achieve the result.

If a huge ESP does go through, someone will have to pay for it – either through higher taxes or inflation – per the iron law of economics (“no free lunch”). Ditto for the huge deficits that are already projected.

Numerous federal tax increase proposals are being eyed already. Here is a list compiled by the National Taxpayer’s Union: (1) repeal and/or expiration of the 2001 and 2003 tax cuts; (1A) elimination of the Child Tax Credit; (1B) perpetuation of the Inheritance Tax (aka Death Tax); (2) payroll tax increases for high earners; (3) undersized Alternative Minimum Tax patches; (4) higher taxes on energy companies; (5) modified healthcare tax treatment; (6) increased excise tax on cigarettes (to fund the expansion of SCHIP, which the president vetoed in 2007); (7) increased excise tax on motor fuel; (8) federal-backed scheme to collect sales taxes on Internet transactions for the states; (9) stealth changes to tax favored treatment of IRAs and 401-Ks; and (10) more onerous taxation of international business operations.

We do not mean to say none of these ideas would ever be acceptable, and indeed SAFE is hardly wedded to defending the tax law in its present form.

But anyone who buys into the ESP for a tax cut may find they have made a poor bargain.

After decades of ad hoc changes to please various constituencies, the U.S. tax law has grown mind numbingly complex and increasingly inequitable. A great deal of time, money and mental energy is wasted in tax planning and compliance. Individuals and businesses are encouraged to make decisions that contribute to suboptimal performance of the U.S. economy. Millions of Americans are effectively exempted from paying income taxes, and many of them receive net refunds due to refundable credits, which creates a corrosive political dynamic between the “haves” and the “have nots.”

Hardly a great system! We think it is time to come up with one that is far simpler and more transparent. Some of our tax reform ideas are outlined elsewhere on this Website.

The changes needed are not suitable for an ESP, since they would be permanent rather than temporary, but they could be accomplished in a manner that was revenue neutral and would have a real payoff for economic activity.

The review would take time, the debate about what to do might take even longer, but there is no reason for our political leaders not to get started.

What is the biggest Ponzi scheme of all time? Some say the recently failed Madoff investment funds. Others say Social Security. We would offer a third candidate, by far the biggest of the three.

PONZI SCHEMES: The essence of a Ponzi (aka pyramid) scheme is to solicit investments by offering above-market returns that are covered by paying early investors with funds received from later investors rather than with investment profits. Ultimately the flow of investment dries up or the scam is discovered, in either case leaving many investors holding the bag. The technique was named after Charles Ponzi, who became notorious for using it in the 1920s, although earlier examples abound.

MADOFF: As is well known, former Nasdaq chairman Bernard Madoff was investing the money in a number of investment funds that recently collapsed. Criminal charges were filed against him by the SEC in December 2008.

We emphasize, however, that Madoff is presumed innocent, and this should continue unless and until the charges are proven in a court of law.

Nor should the presumption of innocence be viewed as a quaint legal technicality, for Madoff did not necessarily act with criminal intent. It is not a crime to misjudge the financial markets, as quite a few people previously held in high regard have done in recent years.

Consider how ex-Fed Chairman Alan Greenspan was humbled before the House Oversight Committee in October 2008.

The 82-year-old Mr. Greenspan said he made "a mistake" in his hands-off regulatory philosophy, which many now blame in part for sparking the global economic troubles. He quoted something he had written in March: "Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity (myself especially) are in a state of shocked disbelief."

He conceded that he has "found a flaw" in his ideology and said he was "distressed by that." Yet Mr. Greenspan maintained that no regulator was smart enough to foresee the "once-in-a-century credit tsunami."

Even if Madoff acted with the best of intentions, however, it seems clear that (a) the investment strategy he employed – supposedly ensuring attractive returns in good times or bad – has failed dismally, (b) the investment funds have collapsed, and (c) thousands of investors will take a hit with aggregate losses of say $50 billion.

Among the apparent victims were affluent individuals (e.g., Philadelphia Eagles owner Norman Braman), big international banks like Tokyo-based Nomura Holdings, and funds of hedge funds (some of which may be characterized as accomplices rather than victims).

Perhaps the aforesaid investors should have checked out Madoff’s funds more thoroughly and/or done a better job of diversifying their holdings.

But the funds were cleverly marketed – the returns offered did not seem fantastic, just somewhat better than those available elsewhere; no pressure to invest, being permitted to join the network was considered a privilege; and there was a glittering roster of clients, which presumably had done their homework.

A few people had questions about this “can’t miss opportunity,” but Madoff et al. were not forthcoming when it came to providing information about the specific investment strategy or investment portfolio.

At bottom, people are always looking for an edge in their business affairs or investments – and the idea that others are making big profits while they are missing out is a powerful incentive to get on the “gravy train.”

Thus, Stephen Greenburg, a psychologist who specializes in gullibility, relates how he lost “a good chunk of his retirement savings” by investing in one of the Madoff “feeder” funds.

. . . I was visiting my sister and brother-in-law in Boca Raton, Fla., and met a close friend of theirs who is a financial adviser and was authorized to sign people up to participate in the Rye (Madoff-managed) fund. I genuinely liked and trusted this man, and was persuaded by the fact that he had put all of his own (very substantial) assets in the fund, and had even refinanced his house and placed all of the proceeds in the fund. I later met many friends of my sister who were participating in the fund. The very successful experience they had over a period of several years convinced me that I would be foolish not to take advantage of this opportunity. My belief in the wisdom of this course of action was so strong that when a skeptical (and financially savvy) friend back in Colorado warned me against the investment, I chalked the warning up to his sometime tendency towards knee-jerk cynicism.

[This investment decision] reflected both my profound ignorance of finance, and my somewhat lazy unwillingness to remedy that ignorance. To get around my lack of financial knowledge and my lazy cognitive style around finance, I had come up with the heuristic (or mental shorthand) of identifying more financially knowledgeable advisers and trusting in their judgment and recommendations. This heuristic had worked for me in the past and I had no reason to doubt that it would work for me in this case.

Some will say the Madoff scandal demonstrates the need for heightened regulation of the financial markets. However, the SEC had the legal authority to stop Madoff if he was running a Ponzi scheme, its staff received multiple reports that something was awry going back to at least 1999, and time and again – as SEC Chairman Christopher Cox acknowledged in a 12/16/08 statement – the agency let the matter drop without a thorough investigation.

SOCIAL SECURITY: This program resembles a Ponzi scheme in that benefits paid to retired workers and other beneficiaries come from tax payments of current workers. The ratio of workers to beneficiaries has declined sharply over the years due to demographic trends. After around 2017, outlays will exceed dedicated tax revenues by a rapidly growing margin and the government will necessarily raise taxes, cut benefits, or borrow money to make ends meet.

Meanwhile, our political leaders have been spending a temporary excess (primarily due to tax increases) of dedicated tax revenues over Social Security outlays for other programs rather than, say, using the excess to retire the National Debt or starting to fund future benefits. If this diversion of funds were viewed as fraud, the cumulative amount taken from future generations would be in the trillions.

For all the damage that may have been done, however, it is a safe bet that none of the people responsible will ever be charged with a crime as Bernard Madoff has been. Being in a position to write the laws, Congress has naturally seen to it that the actions taken were legal.

THE WHOLE ENCHILADA: If Social Security resembles a Ponzi scheme, so does the government’s overall fiscal operations. Counting unfunded promises for future Medicare and Social Security benefits, the government has dug a $56.4 trillion (as of 9/30/08) fiscal hole – a much higher figure than the National Debt of $10.6 trillion (as of 1/10/09) and one that is said to be growing by $2-3 trillion per year.

Again, as with Social Security, workers are paying taxes to provide benefits for seniors with no guarantee of receiving comparable benefits down the road. Or, to put it another way, the adults in this country are running up a huge bill that will be left for future generations to pay. That is not simply negligent, it is immoral.

And the only way to keep the situation from getting steadily worse is to slash spending, restructure entitlement programs (Social Security, Medicare and Medicaid), and/or raise taxes to unprecedented levels (which could cripple future economic growth).

Far from clearing the decks to deal with the government’s long-term fiscal problem, however, the incoming administration and Congress are focusing on proposals that would exacerbate the problem – supposedly as the necessary antidote to the current economic recession.

And the tactics being used to sell the package bear an eerie similarity to the marketing of the Madoff funds.

The pitch is a simple, seemingly reasonable call for action based on extrapolating major job losses in recent months, etc., as illustrated in the president elect’s speech at George Mason University on January 8.

Throughout his remarks, Obama painted a stark picture, including double-digit unemployment and $1 trillion in lost economic activity—that recalled the days of the Great Depression in the 1930s.

But he expressed confidence the country could meet the challenge, saying: "We are still the nation that has overcome great fears and improbable odds. If we act with the urgency and seriousness that this moment requires, I know that we can do it again."

Still, his remarks shed no new light on the details of his plan that could cost as much as $775 billion [even higher figures are being talked about] over two years in tax cuts and spending. And, he said little about the unprecedented red ink and rising debt confronting the government, even after spending days reassuring the public and Congress that he is committed to tackling long-term deficits after the economy rebounds.

Also, some of the specific elements of the economic program would obviously have long-term consequences rather than merely representing temporary measures to get through an emergency situation.

Obama laid out goals of doubling the production of alternative energy over three years, updating most federal buildings to improve energy efficiency, making medical records electronic, expanding broadband networks and updating schools and universities.

"It's a plan that represents not just new policy but a whole new approach to meeting our most urgent challenges," Obama said.

In short, here is a push for an expanded government – exactly the opposite of the smaller, more-focused, less costly government that SAFE advocates – using the economic recession as an excuse to justify it.

For those who care about the economic future of this country, this is no time to assume that everyone seems to be buying into this, someone must have checked out the details, and I had better get on board.

To the contrary, this is the time to ask questions and demand answers, not three or four years from now when the damage will have already been done. The following list is meant to be illustrative rather than exhaustive:

• Given that the Congressional Budget Office is already projecting a $1.2 trillion (8.3% of Gross Domestic Product) deficit for fiscal year 2009 and a $700 billion (4.9% of GDP) deficit for fiscal year 2010, why is a two-year economic stimulus package of $775 billion or higher needed in addition?

• Is it not possible that all this deficit spending, plus the easy money policies being followed by the Federal Reserve, will push this country into double digit inflation such as was experienced during the Carter Administration? Wouldn’t the measures to curtail such inflation plunge the country into another recession?

• The borrowings to undertake these government programs will reduce the amount available for private investment by a like amount, won’t they?

• What do you make of the fact that the federal share of the economy would be pushed to the highest percentage level since World War II, i.e., to 25+% versus 23.5% in 1983?

• Why have all of these ideas been packaged into one enormous, omnibus bill, rather than permitting an opportunity for careful analysis and debate?

• It has been said that issues concerning getting the budget in balance and putting entitlements on a long-term sustainable path will be dealt with later.

When is later, and what type of action is contemplated? How is it known that these problems, which have been pushed under the rug for years, can be safely left unaddressed any longer?

Do not be like the investors in the Madoff fund – intimidated by the opinions of others, willing to buy into the proposal without reviewing the relevant information, and motivated by perceived benefits that could prove quite ephemeral – or you may wind up being suckered just like they were.

1/5/09 – Some call it stimulus; we call it pork.

The first big fight in the 2009 Congress will be over the massive spending bill that the president elect has asked be ready for signature on the day he takes office.

The new Congress starts today, and the “economic stimulus package” will quickly come to the fore. Watch for the Wednesday testimony of Mark Zandi [Moody’sEconomy.com], Robert Reich [Public Policy professor, Univ. of Calif., Secy. of Labor in Clinton Admin.], Martin Feldstein [Economics professor, Harvard], Norm Augustine [National Academy of Engineers], and Maria T. Zuber [Geophysics professor/dept. head, MIT] before the House Steering & Policy Committee.

http://www.politico.com/blogs/thecrypt/1208/Nancy_Pelosi_New_Years_Eve_party_pooper.html?showall

Many people believe an economic stimulus package is needed, almost surely including the aforesaid witnesses, and there is no shortage of ideas as to what to put in it. Thus, the United States Conference of Mayors has released a list of “ready to go jobs and infrastructure projects” comprised of 11,391 projects, in 427 cities, to cost $73,163,299,303.

Lest it be thought that $73B (B=billion) represents all the help that the mayors are likely to request, by the way, it is stated that “the next report, scheduled for release in January, will account for a larger number of cities and list a larger number of projects.”

http://www.usmayors.org/mainstreeteconomicrecovery/documents/mser-report-200812.pdf

Critics reviewed the December list for projects of an obviously questionable nature, and they found some. Examples include (M = million): $94M for Orange Bowl parking garage (Miami, FL), $20M towards a 60 acre sports field complex (Henderson, NV), $9.5M for a sports complex (Natchez, MS), $7.6M for a Life Style Center (LaPorte, TX), $2.5M for a Waterfront Duck Pond Park (Hercules, CA), etc.

http://online.wsj.com/article/SB122887075956093233.html?mod=googlenews_wsj

More recently, Tom Schatz, President of Citizens Against Government Waste stated in an interview on Fox News that the $73B list includes $780M for museums, $110M for golf courses, $87M for bike paths, and $30M for tennis courts. There is also a $6M project for heating a swimming pool in Maui and a $1.5M project to reduce prostitution in Dayton, Ohio. All good ideas, no doubt, but is federal funding truly warranted?

http://www.foxnews.com/story/0,2933,470899,00.html

Defenders of assistance for city governments can be expected to point out that most of the requests are of a more pedestrian nature, e.g., Wilmington, Delaware is asking for: sidewalk repairs $0.5M, street paving $2M, energy conservation measures in city buildings $1M, traffic and street light retrofits $1.5M, energy conservation measures in water/wastewater facilities $5M, solar photovoltaic installations $12M, and water distribution main replacement (30 miles) $30M.

Wilmington’s requests total $52M, or .071% of the U.S. total; no other cities in Delaware are on the list yet. Based on Delaware’s 0.28% share of the national population, its cities would be entitled to about four times what they have asked for (wake up Dover!).

Still, the amount requested is substantial in relation to Wilmington’s overall budget, i.e., more than one-quarter of annual revenues/expenditures.

FY 2009	General Fund	Water/sewer	Total
Revenues	$141.4M	$54.6M	$196.0M
Expenditures	141.8	54.6	196.4

Can there be any doubt that the provision of such largesse on a supposedly one-time basis would stoke demand for future federal aid to U.S. cities?

http://www.ci.wilmington.de.us/newsroom/2008/budget/FY2009-Proposed-Budget-Summary.pdf

Note that the $73B list is just the tip of the iceberg. The president elect has reportedly said the 2-year economic stimulus package would cost between $675B and $775B, and that it would include, in addition to aid for the cities:

The public is being assured that the stimulus package will include measures to track spending on the Internet, which would supposedly ensure that funds are spent effectively, and that there will be no – shudder – earmarks.

"There will be no earmarks in this economic recovery plan," Mr. Biden said, referring to pet projects that are often slipped into spending measures by members of Congress. "I know it's the Christmas season, but President-elect Obama and I are absolutely determined that this economic recovery package will not become a Christmas tree."

Some estimates of the size of the economic stimulus package run even higher, e.g., a 2-year total of $850B was cited on the aforesaid interview of Tom Schatz. This will turn into the “biggest pile of pork we have ever seen,” said Schatz, “unless taxpayers protest this ridiculous fund.”

Not only would the aid for U.S. cities encourage a burst of wasteful spending (aka “pork), even if the “no earmarks” pledge might be technically met by having the projects submitted directly by the cities concerned, but doling out money to city governments that have mismanaged their finances would set a terrible precedent for the future.

We will refrain from commenting on elements of the package that have not been spelled out thus far, such as “energy programs.” However, we are not optimistic that they will be any better.

Undertaking major commitments that the government cannot afford, without adequate review and consideration of the long-term implications, is not a smart thing to do.

Furthermore, the one argument for moving quickly on an economic stimulus package that might seem compelling – namely that such a package is essential to end the economic recession – does not bear close scrutiny.

If the government underwrites an economic stimulus package, it will necessarily cover the cost by (a) raising taxes and/or (b) borrowing, neither of which approaches increases the total amount of money available for investment by one penny.

Most economists recognize that raising taxes in a recession is folly. Raising taxes would also be inconsistent with offering a middle-tax cut (reportedly visualized as a “temporary” reduction in payroll taxes) unless the real objective of the changes was redistribution of wealth versus ending the recession.

The government is already in a deep fiscal hole (now reported as $56T (T=trillion) by the Peterson Foundation based on FY 2008 data). Continuing to run deficits is highly undesirable; increasing them would be worse. As for the argument that the increase in the deficit would be temporary, and could easily be made up for later, remember the difficulty in cutting back government spending programs once they get established. See 5/12/08 – Ethanol 101: the staying power of government programs.

Last but not least, reliance on economic stimulus to pull the country out of recession would impede market-based initiatives that could get the job done more quickly and effectively. Here is why per Townhall columnist John Stossel.

Any money the government spends must be taxed, borrowed or conjured out of thin air by the Federal Reserve, and that will reduce sound private investment. Obama has no real wealth to inject into the economy. He can only move around existing money while inflation robs us of purchasing power. Meanwhile, private investors who might have produced a better engine, battery, computer, cancer treatment or other wealth-creating and life-enhancing innovations hold back for fear that big government will undermine productive efforts.

Donald Lambro, chief political correspondent for the Washington Times, recently asked some top economic and fiscal analysts about the economic stimulus package. All of them expressed basically the same opinion (one suspects the choice of experts was not entirely random): public-infrastructure spending is of dubious value, temporary tax cuts do not accomplish much either, and the best option is permanent tax rate cuts.

• Stanford economist John Cogan: The federal government tried public-infrastructure spending during the recessions of the 1970s and 1981, and it failed to bring about an economic rebound. The superior alternative, among a limited set of options, is permanent across-the-board tax rate reductions on capital and labor.

• Fiscal policy analyst Brian Riedl of the Heritage Foundation: Government stimulus bills are based on the idea that Congress can 'inject' new money into the economy, increasing demand and thus production. But where does government get this money? Congress does not have a vault of money waiting to be distributed. Every dollar Congress “injects” into the economy must first be taxed or borrowed out of the economy, leaving one dollar less that the economy has to spend to build businesses, produce goods and services and hire more workers. That means fewer jobs, a lower savings rate, less investment and ultimately a weaker economy.

• Economist Stuart Butler of the Heritage Foundation: Short-term tax holidays, or temporary spending jolts, will not rekindle economic growth; only long-term reductions in marginal tax rates on capital and work will accomplish that goal. The reason: important economic decisions that will trigger a real recovery depend on more investment in new factories and new equipment, which in turn depends on investor confidence in the after-tax return on their investment.

The views of Messrs. Cogan, Riedl and Butler have some appeal, but we cannot agree with their advice. While permanent (or at least long-term) tax rate cuts might help to fuel an economic rebound in the short term, they would also serve to widen the fiscal gap that already threatens the government’s continuing ability to borrow money at low interest rates.

Ultimately, we believe there is no “quick fix” for the current economic recession. Some pain will be required to turn Americans back into savers/investors versus profligate consumers, and the politicians and experts who say otherwise would lead the country in the wrong direction. Hello, double-digit inflation and a fiscal meltdown that would make the current situation look pretty tame.

We are not alone in these views. Peter Schiff, president of Euro Pacific Capital sounded the alarm in a recent column. “There’s No Pain-Free Cure for Recession,” Wall Street Journal, 12/27/08.

By borrowing more than it can ever pay back, the government will guarantee higher inflation for years to come, thereby diminishing the value of all that Americans have saved and acquired. For now the inflationary tide is being held back by the countervailing pressures of bursting asset bubbles in real estate and stocks, forced liquidations in commodities, and troubled retailers slashing prices to unload excess inventory. But when the dust settles, trillions of new dollars will remain, chasing a diminished supply of goods. We will be left with 1970s-style stagflation, only with a much sharper contraction and significantly higher inflation.

Help us get the message out that this is not the economic future Americans want and expect.

In this holiday season, why not give it a rest about the coming fiscal meltdown and so forth?

Other bloggers are slacking off. Thus, Joe Hilliard of Leadership for Liberty wished everyone a Merry Christmas or the equivalent. “It is time to decompress, enjoy friends, family, food, and the simpler things in life,” he writes, before resuming the fight against “the liberal agenda” with “a flurry of posts at the beginning of the year which will present some very interesting information for the public and voters.”

Besides, a realistic summation of the current situation might sound quite bleak. There probably is not much demand for another entry along the lines of “fiscal visionaries at bay” (12/24/07).

At the end of another year, we ponder the performance of the country’s political leaders vis-à-vis the SAFE agenda. There is little progress to report. Some bad ideas were blocked or watered down, others made it through, and the bad ideas that were stopped this time will be raised again.

Another approach might be to reflect on who we are fighting for, and what the fight is about. For many fiscal visionaries, the answer comes down to ensuring a stable and prosperous future for coming generations. We need to teach our children and grandchildren to think for themselves, work hard and follow their dreams – not fall for the line that “government knows best” and will provide for everyone’s needs.

The kids may surprise us too, as illustrated by a story told by David Walker in his foreword to the I.O.U.S.A. book (reviewed last week). Walker was reading to a four-year-old granddaughter, and more or less as a joke he threw in a single paragraph from the book “Empire of Debt” and asked what she thought about it. To his shock and amazement, her response was “Devastating, Granddaddy!”

If a four-year-old can get it, then why is it so hard for a vast majority of current federal elected officials? Are they in denial or just happy to kick the can down the road while they leave key sustainability challenges for someone else?

Does anyone else have stories like that to tell? Please let us know; we would love to pass them on.

It is also encouraging that some people in the younger generation are energized about the government’s dismal fiscal outlook and working on ways to address the problem. Consider this report from a young staff member of the Concord Coalition.

I do think that the financial meltdown is getting the average citizens' attention, we just need to figure out how to harness that and turn it toward concern for the future. I struggle every day with trying to get young people involved, to bring the message to the baby boomers. A couple of student groups are growing, including Concerned Youth of America (featured in I.O.U.S.A.). I'd be happy to work on getting a chapter at the University of Delaware. Because I had limited responses from anybody there, I'm going to see if Yoni Gruskin, Executive Director of CYA, would contact students there for a screening of I.O.U.S.A. and an intergenerational panel. I know we've gotten nowhere slowly at UD, but maybe a student-sponsored event would get more traction.

Hey, folks, does anyone have contacts at the University of Delaware – ideally students – who could help get something started there?

As for the senior crowd, time to lighten up and stop taking ourselves so seriously. As Thomas Sowell wryly puts it in a column entitled Random Thoughts, “They say we live and learn. Often what we learn is what damn fools we have been.”

The problems will still be there in 2009, but for now “Merry Christmas to all, and to all a good night.”

Last week, we reported on “the big pork, big government express that is barreling down the tracks.” Subsequent developments have confirmed our fears.

• The Federal Reserve cut the federal funds rate to practically zero and announced planned purchases of debt securities to drive down long-term interest rates.

• The president announced a $17 billion rescue package (or “nonbinding bailout” as the Wall Street Journal called it) for the U.S. auto companies, payable from the $700 billion financial bailout fund. This will avoid the downfall of these companies on his watch, while leaving the hard choices for his successor.

• The president elect’s team is reportedly crafting a two-year economic stimulus package “that could be far larger than previous estimates and might hit $1 trillion over two years.” Information as to what would be in the package seems to be sparse, but quick enactment is contemplated.

• The big push to curb greenhouse gases, no matter what the cost or who would have to pay it, still looks to be on. Al Gore reportedly likened manmade global warming to “a five-alarm fire that has to be addressed immediately.” The president-elect was quoted that “the time for delay is over; the time for denial is over.”

Changing Gore’s mind would be impossible, but there may be some hope in the president elect’s case. The latter also said “my administration will value science” and “make decisions based on the facts” – which, as we see it, would rule out precipitous government action in this area.

Also noted: a second meteorologist at CNN denounced the manmade global warming theory, calling it “arrogant.”

Mother Nature is so big, the world is so big, the oceans are so big – I think we’re going to die from a lack of fresh water or we’re going to die from ocean acidification before we die from global warming, for sure.

This week, we will offer three ideas for fiscal visionaries who would like to stop “the super pork, big government express,” or at least slow it down a bit.

Many facets of the government’s dismal fiscal situation and economic mismanagement are of long standing, and they seem to getting worse. Some proposed programs are not new, but rather have been tried and failed before.

• Check out the State of the Union addresses of presidents over the past half century, and you will see: (a) Existing government programs perpetuated with scant consideration of whether the cost was warranted; (b) New government programs undertaken based on unproven assumptions about benefits and understated cost estimates. (c) Lots of talk about balanced budgets in the future, with limited commitment to achieving them right now. 1/28/08 - State of the budget: a 40 year slump.

• What government programs can be pointed to that actually cure social problems? There are not many valid answers. The New Deal prolonged and deepened the Great Depression, the “war on poverty” undermined incentives to work and stay married, etc. See “Officials need 12-step program to slow spending,” Terry Paulson, venturacountystar.com, 7/21/08.

In the past, we've tried spending our way to being a very compassionate country. Our government invested $5.4 trillion on means-tested welfare payments in the "War on Poverty." The investment would have been worth it, if it had worked. In fact, the results of this type of compassion have been devastating. We've ruined families, making it more profitable to be a single-parent family than to have husbands in the home.

• Government policies often have unintended consequences. See “Anatomy of a Breakdown,” Mike Flynn, Reason Magazine, January 2009, re the subprime mortgage/ housing bubble.

Government encouragement of loans to would-be homebuyers with limited wherewithal goes back to the Community Reinvestment Act of 1977 and the network of “affordable housing” advocates that it spawned. Pressure for increased lending to low-income households intensified in the Clinton and Bush2 administrations.

Easy money policies of the Federal Reserve a few years back flooded the financial system with liquidity. Hmm, sounds a bit like the policies currently being implemented by the Federal Reserve (see above). Are Chairman Ben Bernanke et al. now sowing the seeds for the next “economic crisis?”

Private sector chicanery and/or stupidity on the part of banks, Wall Street firms, rating agencies, and homebuyers were also involved. That is what most government leaders like to talk about, because proposing “more regulation,” whether or not it is likely to do any good, is less embarrassing than admitting their own culpability.

While understanding the past is important, let’s not get carried away with nostalgia for the good old days. Efforts to turn the clock back are almost invariably futile.

• One of the problems with the FairTax proposal is that it assumes repeal of the 16^th Amendment (adopted in 1913 to authorize federal income taxes). This might be a good idea, but it would be virtually impossible to find the votes (e.g., 2/3 majority in both houses of Congress, ratification by 3/4 of the States).

• Resistance to the growing intrusiveness of government is healthy, have at it, but the pioneer days when people made most of their own decisions are gone for good. The best that can be hoped for, as columnist John Hawkins suggests, is to change the “Mama Government” trend.

It doesn't matter whether we put Democrats, like Bill "The era of big government is over" Clinton, in office or Republicans, like George "When somebody hurts, government has got to move" Bush, into office -- the players, the party, and the rhetoric may change, but the overweening mothering masquerading as government continues to worsen. We have got to find a way to change that trend or eventually even the descendants of pioneers, revolutionaries, and explorers will become a nation of unambitious, overtaxed loafers living in Mama Government's basement.

• Wait a second, some readers may be thinking, how can SAFE reconcile its support for small government with being forward looking? Our answer would be along the following lines.

What we advocate is “smaller, better focused, less costly government,” which is not necessarily synonymous with “small government.”

Moreover, the government restructuring process that we visualize is not eliminating all government programs created since 1900 (or pick a date). That would be reactionary.

What we do envision is a review of all government programs. Programs shown to be wasteful (costs exceed benefits) would be eliminated, thereby refocusing the government on the functions it is best equipped to perform in the 21^st century and beyond. How is that for being forward looking?

Our idea here is going beyond the role of “deficit hawks” or “small government advocates” to propose specific solutions to economic problems.

• Simply pressing for balanced budgets creates an apparent justification for raising taxes – even though the growth of wasteful spending may be the real problem.

It makes more sense to concentrate on eliminating wasteful spending first, resorting to tax increases only if (and to the extent) they are shown to be necessary. But to do that with any credibility, fiscal visionaries need to take a stand as to what kind of programs should be eliminated.

SAFE’s proposals for cutting spending are outline on this Website. Take a look and decide whether you think we are on the right track.

• We are starting to question whether the long-term fiscal gap (primarily due to the projected growth in Social Security, Medicare, and Medicaid outlays) can be effectively addressed by publicizing the problem and expecting Americans to demand a solution.

This has been the rationale and approach of the Fiscal Wake-Up Tour (FWUT), the I.O.U.S.A. film, etc. Participants hammered home the message of looming fiscal catastrophe and limited time to avert it, while generally refraining from advocating specific solutions.

Cut benefits, raise taxes, or do both – just so long as the problem is fixed somehow. Let’s appoint an independent, bipartisan commission to get the job done.

The FWUT continued through the 2008 political campaign, I.O.U.S.A. was shown at both political conventions, and it was probably hoped that the long-term fiscal situation would become a key issue in the campaign.

Here is a comment along these lines, which appears in the companion book to the film. I.O.U.S.A., Wiggin & Incontrera, John Wiley & Sons (2008).

With any luck, we'll make fiscal responsibility hip in Washington again and inject the themes of the book and the film into the national conversation well before and long after the 2008 election.

What is actually happening? Economic stimulus – bailouts – a FY 2009 deficit of up to $1 trillion. Instead of getting the government’s existing obligations under control, this country’s political leaders seem intent on creating a bunch of new ones.

• Proposing specific solutions to complex problems may be challenging, and it is almost sure to become “political.” But the problems are real, someone is going to propose solutions, and fiscal visionaries may not like the ideas that others propose.

Despite its limited resources, SAFE has developed positions on various economic issues over time – in some cases endorsing the approaches of other groups (e.g., Cato’s plan for Social Security reform) and in others attempting to strike out independently.

Take our thoughts on “tax reform,” in order to focus on raising revenue vs. fostering social goals. We see three alternatives – radical simplification, a flat tax, or the FairTax – any of which would represent a big improvement over the obscenely complex system that the country is saddled with currently.

Bringing the same kind of thinking to healthcare, energy policy, education, etc. could pay big dividends for fiscal visionaries. Let’s not get stuck in the rut of just saying “no” to the ideas of our ideological opponents.

The “big pork, big government express” is not going to be stopped without a lot of effort, and all of us fiscal visionaries need to work together.

Posting ideas on a blog is a start, but it is a safe bet that people who are inclined to disagree will not read them. The ideas need to be reinforced through personal contacts, social networking, or what have you. Some tips follow for this kind of follow-up.

• Pick logical targets. For example, SAFE writes the members of Congress from Delaware on a fairly regular basis, figuring they are more likely to pay attention to Delaware voters than their counterparts in other states. Or maybe you have a friend who works at the newspaper, a professional contact with a lot of influence, etc.

• Identify yourself, e.g., I am writing on behalf of SAFE, a volunteer group dedicated to promoting economy in government.

• Weave some information pertaining to the target into the letter or call, e.g., his/her vote on an important bill, speech, public statement, etc. That tends to make people pay attention.

• Present your ideas succinctly; a one-page letter works best in our experience.

• Provide citations for important points that are not a matter of common knowledge, such as a newspaper article or an entry in the SAFE blog. The target may or may not check your references, but the citations will show that you have done some homework vs. submitting an “off the top” reaction.

This is important stuff. We need your help. Let us hear from you as to what you are doing and how it is working.

It is hard to fathom all the things going on inside the Beltway these days, but one thing is clear. If the government keeps borrowing to ramp up spending while stifling private enterprise, everyone will pay for it down the line.

The big picture. The National Debt (currently $10.6 trillion including trust fund IOUs) understates the government’s overall fiscal hole by a wide margin.

Based on a long-term government projection that factors in the present value of unfunded future obligations for Social Security, Medicare, etc., the Peterson Foundation cites a hole of $53 trillion (as of 9/30/07) that is growing $2-3 trillion per year. This works out to about 375% of the annual Gross Domestic Product (overall U.S. economy).

The National Center for Policy Analysis recently offered an even higher estimate; its figure of $102 trillion is based on an infinite versus 75-year time horizon.

The nation’s political leaders are well aware of the fiscal hole; indeed, the Peterson Foundation sent a copy of its Citizens Guide to every member of Congress, the president, the vice-president and cabinet members in June. Yet most of said leaders seem to have panicked in the face of an economic recession and bought into the idea that deficits (perhaps $1 trillion for fiscal year 2009) will not matter until the “crisis” is past. Columnist Thomas Krauthammer describes the current mindset as follows.

Moreover, no one in Congress even pretends that spending should be pay as you go (i.e., new expenditures balanced by higher taxes or lower spending), as the Democrats disingenuously promised when they took over Congress last year. Even some conservative economists are urging stimulus (although structured far differently from Democratic proposals). And public opinion, demanding action, will buy any stimulus package of any size.

No one in a position of authority has committed to get serious about restructuring Social Security, Medicare and Medicaid either. Maybe in a year or two, the thinking seems to run, but the top priority is legislation to provide healthcare insurance for most (if not all) of the 47 million or so Americans who are currently uninsured.

Healthcare – The point man for healthcare “reform,” Secretary of Health and Human Services designate Tom Daschle, has called for “broad public input early in the process.” Grassroots focus groups around the country are planned over the 2008 holidays, no need to wait until the president elect is inaugurated.

Feedback will predictably support the healthcare proposals offered by the president elect during the campaign – which in our judgment left much to be desired. 10/20/08: Both candidates offer “pie in the sky” healthcare plans.

While it may sound appealing to offer healthcare insurance coverage for almost everyone, look for a commensurate increase in government spending. Per the National Center of Policy Analysis, estimates run as high as $1.6 trillion over the next ten years.

Given how the costs for Medicare were underestimated initially, we would be inclined to double that figure. Here are some particulars per the Institute for Health Freedom. See also chapter four of “Medicare’s Midlife Crisis,” Sue Blevins, Cato Institute, 2001.

When Medicare was debated in 1965 (the year it was signed into law), taxpayer groups were concerned that program expenditures might grow out of control. They argued that taxpayers shouldn't have to foot the bill for wealthy seniors who could afford to pay for their own health insurance. However, politicians assured taxpayers that all seniors could easily be covered under Medicare with only a small increase in workers' payroll taxes.

Government officials also made unsound assurances. In fact, the federal government's lead actuary in 1965 projected that the hospital program (Medicare Part A) would grow to only $9 billion by 1990. The program ended up costing more than $66 billion that year. Even after adjusting for inflation and other factors, the cost of Medicare Part A (in constant dollars) was 165 percent higher than the official government estimate, according to the actuary who produced them. (In unadjusted dollars actual costs were 639 percent above estimates.)

Be skeptical of claims that the cost of extending healthcare insurance to millions of additional people will be offset by cost savings from computerizing medical records, encouraging preventive medicine, etc.

So long as consumers perceive that healthcare expenditures are not coming out of their own pockets, they will demand medical tests, medical procedures, and prescription drugs without regard to price. Never mind the cost/benefit relationship or whether there are cheaper alternatives. Costs would inevitably rise with the proposed expansion of healthcare unless it was accompanied by de facto rationing (no one has said this is intended, and it would not be a good selling point).

Energy. Having promised a green energy policy during the campaign, the president elect seems ready to push ahead with the idea. As noted by the Wall Street Journal, his statements on the topic have been uncompromising.

When Mr. Obama said during the campaign that he favored "nothing less than the complete transformation of our economy" in the name of global warming, we figured he couldn't mean something so utopian. Maybe he does.

The picks for high energy posts are said to be the “greenest of greens,” especially Carol Browner, who headed the Environmental Protection Agency (EPA) and will now be designated the “energy czar.”

The president elect’s team is intent on imposing a carbon tax (or fines having the same effect) on U.S. manufacturers in the teeth of the recession, a boneheaded economic move. And if Congress balks at a “cap and trade” bill, the EPA may move ahead administratively by classifying carbon dioxide (a natural component of the atmosphere) as a dangerous pollutant. Please, give U.S. consumers a break!

Just as the big green team is gearing up for action, the global warming theory has gotten out of synch with the facts. Despite a steady increase of CO2 in the atmosphere, the warming trend has reversed in recent years. This suggests that some other factor or combination of factors is driving global temperatures.

A preliminary estimate by the British Met Office says 2008 will be the coldest year of the last 10. The extent of global sea ice is at the same level it was in 1980. The mean planetary temperature, as monitored by satellite, also is the same as in 1980.

Last March, NASA reported the oceans have been cooling for the last five years. Sea level has stopped rising, and Northern Hemisphere cyclone and hurricane activity is at a 24-year low.

Environmental extremists and global warming alarmists are in denial and running for cover. Their rationale for continuing a lost cause is that weather events in the short term are not necessarily related to long-term climatic trends. But these are the same people who screamed at us each year that ordinary weather events such as high temperatures or hurricanes were undeniable evidence of imminent doom.

An illusory victory. We were momentarily encouraged by reports of a Detroit bailout dying in the Senate, thanks to the efforts of Senators McConnell (R-KY), Corker (R-TN), Shelby (R-AL), et al. Perhaps fiscal responsibility was making a comeback.

The sticking point was not whether the U.S. auto companies should be helped with taxpayer funds, however, it was the United Auto Workers’ rejection of wage concessions in 2009.

Republicans, breaking sharply with President George W. Bush as his term draws to a close, refused to back federal aid for Detroit's beleaguered Big Three without a guarantee that the United Auto Workers would agree by the end of next year to wage cuts to bring their pay into line with Japanese carmakers. The UAW refused to do so before its current contract with the automakers expires in 2011.

Few if any of the nation’s political leaders want to force the U.S. automakers into bankruptcy, especially if there is a risk of being held responsible. The administration soon announced that it was considering an option previously rejected – advancing money to one or more of the auto companies from the $700 billion financial bailout fund.

For its part, General Motors was reportedly looking at ways to stave off bankruptcy long enough to try its luck with the new Congress and administration in January.

Spending other people’s money and exercising power are enticing. It will take determination and creativity to stop the big pork, big government express that is barreling down the tracks.

Appeals to balance the budget or appoint a commission to study the entitlements mess have already been anticipated and neutralized.

Next week’s entry will suggest some tactics that might help fiscal visionaries to make a difference.

Did you know the United States has been in an economic recession since December 2007? At least that is what the National Bureau of Economic Research has now declared, which supposedly makes the call “official.”

Some people have gone further, labeling the current situation an “economic crisis,” and there is no shortage of ideas as to (a) what went wrong, and (b) what should be done.

Thus, Columnist DeWayne Wickham attributes the recession, in large part, to “people who accepted the onslaught of credit card offers and too-good-to-be true mortgage deals” out of ignorance.

They don’t understand the need to live within their means. They don’t know the long-term value of a personal savings account. They buy cars they can’t afford, clothes they don’t need and homes that cost more than they can actually pay.

And the long-term answer (to avert similar problems in the future), per Wickham, is “a massive financial literacy education program” in U.S. schools. He visualizes that financial literacy training (“FLT”) would be “pushed” by the federal government.

Wickham does note that “a lot of people” went astray as a result of greed. It is not entirely clear whether he thinks they too would benefit from FLT, perhaps structured like an Alcoholics Anonymous program, or are effectively beyond redemption.

Sure, for a lot of people, greed is a big part of the problem. Too many folks knowingly charged more than they could afford on a seemingly endless supply of credit cards. And a lot of people bought homes with exotic mortgages they knew were a financial sleight of hand.

Wickham’s FLT proposal is well intentioned, but as is often true with government programs the results might not live up to expectations. Moreover, there may be better ways to achieve the desired results. A discussion follows.

There are techniques involved in balancing a checkbook, setting up a budget, etc., which could be taught through a combination of theoretical instruction and hands on exercises.

As indicated by Wickham’s column, however, financial literacy means a great deal more. Thus, students would be taught the need to restrain their expenditures (e.g., by not buying “cars they can’t afford” or “clothes they don’t need”). They would also be encouraged to save part of their pay, inasmuch as “Social Security was never intended to be a person’s primary source of retirement income.”

Others advocate similar ideas. See the Peterson Foundation Website, where four of the “ten things you can do to make a difference today” relate to instilling or practicing personal financial responsibility.

# Establish a personal budget. Identify essential and luxury items and be diligent in cutting back excessive spending on luxury items.

#Become more responsible in decisions to spend and use credit, save for the future and invest savings wisely.

We agree that such ideas are important, and FLT could presumably help to instill them. It does not necessarily follow, however, that FLT should take place in the U.S. school system.

U.S. schools are doing a mediocre job of teaching academic subjects, such as mathematics, history, and science. This is demonstrated, for example, by (a) comparative test results vs. other countries, and (b) surveys as to basic information that many students do not know (e.g., over half cannot place the American Civil War in the right century). See “Failing Reports on U.S. Schools,” John Cochran, ABC News, 4/26/08.

Despite billions of dollars spent in the past quarter-century, the newest report finds high school graduation rates have actually dropped over the last 25 years. The United States once ranked first in graduation rates; now it ranks 21st.

Math scores are also troubling. "If you rate us against the rest of the world, 30 nations, we're 25th from the top," said former Colorado Gov. Roy Romer, chairman of Strong American Schools. "We can do more intensive work. We can do more homework. We've got too much television and too much distraction in kids' lives."

There is just so much time in the school year. The more time is devoted to ancillary programs, such as driving training, sex education, or financial literacy, the less time will be left to teach the core curriculum. Expanding such programs may not be smart at a time when the U.S. school system is falling behind. See “Tough choices for tough times,” National Center on Education and the Economy,” 2006.

If we continue on our current course, and the number of nations outpacing us in the education race continues to grow at its current rate, the American standard of living will steadily fall relative to those nations, rich and poor, that are doing a better job. If the gap gets to a certain — but unknowable — point, the world’s investors will conclude that they can get a greater return on their funds elsewhere, and it will be almost impossible to reverse course. Although it is possible to construct a scenario for improving our standard of living, the clear and present danger is that it will fall for most Americans.

One of the big problems with the U.S. school system is divided responsibility, which spawns nonproductive bureaucracy and a lack of accountability for the use of resources.

Public schools have traditionally been considered the domain of state and local government, but the pattern has been altered over the years by the imposition of federal mandates that affect school operations in many ways.

Conceptually, the federal government (a) establishes “voluntary” programs or standards for the schools, and (b) uses federal grants to bribe the states into going along. A notable example is the No Child Left Behind program, established in 2002, which has dramatically increased federal expenditures for education (despite state complaints that the program is underfunded).

If the federal government is doling out money for programs to be executed at state and local levels, there must necessarily be regulations to define expectations, reports from below to document compliance, and bureaucrats at all three levels to communicate with each other. See SAFE director John Boughton’s comments in a 12/5/06 letter to the editor.

Grants are an insidious poison in several ways, one of which is the costly federal, state and local bureaucracies required for the applications to receive and the administration of the grants for the entire time it is in effect.

For example, one anti‑drug program for schools has a 74-page application kit that references 1,300 pages of regulations that grant recipients must follow. This takes a small army of people to follow and to monitor the activity, and not much useful comes of this bureaucratic cost in time and dollars.

Establishing a federal program offers one big advantage: it is far quicker and easier than convincing 50 states (and thousands of school districts) to establish the program on their own. Hey, if FLT is important, let’s get it done!

Also, if overlapping responsibility is such a problem, the feds could take over the U.S. schools. Louis Gerstner (executive who led the turnaround at IBM) has suggested just that as a means of pushing through national standards for education and a longer school year. “Lessons from 40 Years of Education Reform,” Wall Street Journal, 12/1/08.

I believe the problem lies with the structure and corporate governance of our public schools. We have over 15,000 school districts in America; each of them, in its own way, is involved in standards, curriculum, teacher selection, classroom rules and so on. This unbelievably unwieldy structure is incapable of executing a program of fundamental change. While we have islands of excellence as a result of great reform programs, we continually fail to scale up systemic change.

Implementation of Gerstner’s idea would shift a lot of power to the federal government, and power can be abused as well as used constructively. Consequently, the Department of Education could become an engine for indoctrinating impressionable young minds.

With apologies to George Orwell (author of 1984), we can visualize FLT sessions in federally controlled schools proceeding somewhat as follows:

I will pay my credit card balance in full every month to avoid double-digit finance charges.

I will only borrow money to finance my education, buy a car, buy a house, or meet emergency needs.

When borrowing money, I will read the loan documents or hire a lawyer to tell me what they say, and I will not borrow more than I can afford to repay.

I will pay whatever taxes the federal, state or local governments having jurisdiction choose to impose.

I will save a portion of my income for future needs, except when federal government officials announce that increased consumer spending is needed to stimulate the economy.

I recognize that Social Security was never intended to be a person’s primary source of retirement income.

Stop! SAFE is not persuaded that the federal government has played a constructive role in education or is likely to do so. We do not see lack of central control over the schools as a problem; it is a blessing. Our specific proposals for educational reform will be put forward in due course, and in the meantime, if there is going to be FLT, it should be organized in some other way.

The foregoing discussion is not meant as an indictment of FLT, which we regard as a good idea. The question is how to go about it.

In our view, the ideal program would be implemented at a grassroots level, on an extracurricular basis, with modest cost.

Adults and business people would participate in the program, as well as students, signing up for training in digestible chunks on a “when needed” basis (high school students may not be interested in preparing for retirement, but it becomes important later).

The objective would be to help participants to manage their finances effectively, not indoctrinate them to do so.

Such a program already exists in “the First State,” and there may be comparable programs elsewhere.

The Delaware Money School offers courses (free to participants) on many financial issues ranging from “financial planning for college” to “cashing in on your house and the stuff in it.” See their Website for further details.

Here is a report on one of the program, the Money Rules summit, which apparently gets high school students engaged in a constructive way. Dewayne Wickham would approve, we think.

Justin Antal’s GMC pickup truck and love for music have been burning a hole in his pocket, but the Polytech High junior is looking to change that behavior and start saving now for his future.

The 16-year-old Marydel resident was one of more than 200 high school students from across the state who participated in Thursday’s third annual Money Rules summit to learn the rules of money management.

Note the importance of sponsorship, as evidenced by the participation in the event of Delaware Treasurer (now Government Elect) Jack Markell.

“There is significant research showing that kids don’t know much about money,” said state Treasurer Jack A. Markell, whose office co-hosted the event with the Delaware Money School at Delaware Technical & Community College Terry Campus in Dover.

“Really, it’s the basics — spending wisely, saving early and don’t get into debt. If students can graduate high school with those three principles, they have a very good start.”

Mr. Markell said students who learn more about how to save money now will be better off later in life.

Over time there will probably be a tendency to replicate some of the Money Rules material in a school setting, as suggested by the last paragraph of the report.

Mr. Markell wants to continue the program, now in its third year, but also hopes that schools will incorporate lessons about money management into their curriculums.

OK, but we would offer these suggestions: keep it practical, keep it voluntary, and keep the feds out of it.

Someone commented recently that the SAFE blog is not “written for us.” Your ideas may make sense, but they are not coming through.

OK, this entry will be different. Expect shorter sentences, less jargon, and punchier conclusions.

Our 11/24/08 entry (“First things first”) said the government is in a fiscal mess. Waiting several years to slash spending and restructure entitlements will not do; action is needed now. So far, no one seems to be listening.

Some observers say the U.S. is headed into the biggest “economic crisis” since the 1930s. Time magazine ran a story on The New New Deal. Check out the president elect as FDR on the front cover.

A massive government response is under way, with further action contemplated. Consider these recent developments:

# The Treasury Department will tap the $700 billion financial sector rescue fund for an additional $20 billion investment in Citigroup. Also, $306 billion of Citigroup’s assets will be guaranteed.

# The plan to carry at least half of the $700 billion fund into 2009 was qualified. Treasury Secretary Hank Paulson is now said to be considering “rolling out new programs in response to worsening market conditions.”

#The Federal Reserve will (a) purchase up to $600 billion worth of mortgage-backed instruments, and (b) loan up to $200 billion to support consumer loan transactions. The apparent objective: help U.S. consumers to borrow and spend more.

What ever happened to concerns about the low U.S. saving rate, which have been expressed for years by the Commerce Department and Federal Reserve among others. “Spendthrift nation,” Alexandra Marks & Ron Scherer, Christian Science Monitor, 8/3/05.

[Americans] are living paycheck to paycheck, depending on credit cards to get them through emergencies, and hoping that the rising value of their homes [currently not applicable] will give them a retirement nest egg. ***

The United States is on track to record a savings rate for the year below 1 percent, which would be the lowest since the depths of the Great Depression, when the rate turned negative.

#Referencing “an economic crisis of historic proportions,” the president elect proposed a stimulus package to “jolt” the economy and create or save 2.5 million jobs. “We do not have a minute to waste,” he said, urging Congress to have the legislation ready for signature when he takes office.

Democratic leaders in Congress reacted supportively, as in this statement by Senator Charles Schumer of New York.

“I think Congress will work with the president elect starting now and will have a major stimulus package on his desk by Inauguration Day. *** [In] my view it has to be between [$500] and $700 billion.”

House Majority Leader Steny Hoyer (D-MD) also predicted the Inauguration Day goal would be met, but declined to put a price tag on the bill.

For his part, Senator Richard Shelby (R-AL) said it would be good to “see the details of any stimulus package: what it would do, how it would work, and who would benefit from it.”

The public’s attitude might be summed up as follows: We were worried about the economy, we voted for change, and now there will be action.

Even the Wall Street Journal praised the president elect for reiterating his promise of a “line-by-line” review of the federal budget and identifying agricultural subsidy payments to rich farmers as a target.

SAFE remains concerned about the economic stimulus package and massive injection of liquidity into the financial system, however, for three reasons.

First, the fiscal mess should be dealt with now. Otherwise, the natural tendency will be to keep brushing it under the rug, as political leaders of both parties have been doing for so long.

Investment manager Martin Hennecke says the U.S. government could lose its AAA debt rating and bankruptcy is not beyond the realm of possibility. With no end in sight for growth of the National Debt, others could soon reach the same conclusions.

Second, the U.S. is headed into a recession, not an “economic crisis,” and a disproportionate response should be avoided.

Here are the stats: Gross Domestic Product increased 2.8% in the second quarter; it shrank in the third quarter, but only by 0.5% (latest estimate).

Columnist Thomas Sowell sees the “crisis” label as an excuse for new government programs. “Jolting” the Economy, Townhall.com, 11/25/08.

We are not talking about the Great Depression, when output dropped by one-third and unemployment soared to 25 percent.

What we are talking about is a golden political opportunity for politicians to use the current financial crisis to fundamentally change an economy that has been successful for more than two centuries, so that politicians can henceforth micro-manage all sorts of businesses and play Robin Hood, taking from those who are not likely to vote for them and transferring part of their earnings to those who will vote for them.

Third, it would be a mistake to rely on government action for job growth and economic prosperity. Experience shows that this approach does not work very well.

The Soviet Union fell, in large part, due to the ineffectiveness of centralized economic planning. The Chinese economy is flourishing now, but only because government leaders began allowing market mechanisms to work.

In this country, the New Deal policies of the 1930s prolonged the Great Depression. See “About that New New Deal,” Mona Charen, Townhall.com, 11/28/08.

Some of Roosevelt's reforms were salutary (the Securities and Exchange Commission, reform of the Federal Reserve) but the New Deal's chief object was never achieved -- it did not solve the nation's unemployment problem. The CATO Institute's Jim Powell points out in "FDR's Folly," "From 1934 to 1940, the median annual unemployment rate was 17.2. At no point during the 1930s did unemployment go below 14 percent. ... Living standards remained depressed until after the war." Stanford University history professor David Kennedy has acknowledged, "Whatever it was, the New Deal was not a recovery program, or at any rate not an effective one."

The inefficiency of government efforts to put the unemployed to work are illustrated by this first hand account. The author (a young officer in the Army Corps of Engineers) had studied economics at Oxford, and he agreed in principle with the theories of John Maynard Keynes.

Things improved when half the regiment was sent to Camp Dix (later Fort Dix), New Jersey, to undertake some construction in the greatly deteriorated remains of a huge Army camp built during World War I. Living conditions were rather primitive, and all pretense of training was eliminated. We did have some real work to do, however, notably building a concrete road, additions to the hospital and other buildings, and a water supply intake.

This work exceeded the capabilities of the soldiers we had brought, not to mention the funds in the regular Army budget, but other resources were available. Civilian Conservation Corps recruits for the region came to Camp Dix for processing, which took perhaps 5‑6 days due to all the inoculations that were given. In between shots, we could put these men to work, up to 700 a day if needed. Also, the Works Progress Administration had approved various projects for the post. Most of the WPA money had to go for labor costs due to the overriding objective of reducing unemployment, but the remainder could be used to purchase materials that we needed.

When an energetic captain arrived for duty at Camp Dix, he was astounded to see about 200 men with wheelbarrows moving sandy soil to fill a small valley so the area could be converted into a parade ground. The schedule called for project completion in about a year.

“That’s ridiculous,” said the new arrival. “There are fire hydrants all along here. We can attach hoses and wash enough soil down from the hill to fill the valley in two or three days. I’ve seen it done in Canada.” He charged over to post headquarters, where his bright idea was brusquely rejected. As the parade ground project required no supplies, it was a big help in maintaining the required labor ratio for the overall budget. Completing this project in an efficient manner would have undermined the entire construction program.

In recent years, a government policy to preserve jobs in the U.S. auto industry (small vehicles to meet the Corporate Average Fuel Economy standards must be manufactured domestically) has helped bring The Big Three to their knees. Members of Congress have been slow, however, to acknowledge the connection. See “A Car Wreck Made in Washington,” Holman Jenkins, Wall Street Journal, 11/28/08.

The wrong folks were in the witness chairs in last week's congressional hearings on auto doom. A fantastic moment was Massachusetts Rep. Stephen Lynch assailing Rick Wagoner about whether GM was asking China for a bailout too. The implication seemed to be that GM can't afford its inflated UAW pay packages because it's squandering money to build cars in China.

Mr. Wagoner mildly answered that GM's China operations are profitable. They actually help to underwrite the massive losses in the U.S.

In conclusion, we believe there has been more than enough economic stimulus already. The country should weather the current recession without great damage if market forces are allowed to operate.

If a need for additional stimulus did become evident, it could quickly be provided, without risk of longer-term harm, by distributing an income tax rebate like the one in 2008.

Great minds think alike. I had been thinking of how similar the activities of some U.S. corporations are to a feeding frenzy of sharks, and the U.S. Congress is unthinkingly feeding that frenzy. They fail to remember any history of hyperinflation and the collapse of cultures. What are they thinking? How long before they start printing dollars to cover all they have promised? How did we get to 1.5 trillion dollars in this "bail-out"? I don't remember the votes being taken. - - SAFE director

We recently argued that now is not “the best possible time” for undertaking new government initiatives. In a nutshell, the FY 09 deficit could approach $1 trillion, and there are no painless ways to reduce it. 11/10/08 – Election over: now what?

The longer-term fiscal outlook is even worse. Counting unfunded future liabilities for entitlements, the government was in a $53 trillion fiscal hole (some 380% of Gross Domestic Product) as of 9/30/07, which is growing by $2-3 trillion per year. “The State of the Union’s Finances,” Peterson Foundation, June 2008.

So like it or not, the time has come for some fiscal responsibility. First things first!

Given the “economic crisis,” they may argue, it is appropriate to throw fiscal caution to the winds and proceed with some new programs. Rahm Emanuel, White house chief of staff designate, put the point as follows.

"This ... crisis provides the opportunity, as the president-elect has said repeatedly, to do things [expand healthcare coverage, “reform” education, and overhaul U.S. energy policy] that Americans have pushed off for years."

Whether or not the current economic situation qualifies as a “crisis,” it appears that the United States (and indeed the world) is headed into a recession. This does not necessarily mean, however, that (a) recovery will be speeded by government action, or (b) fiscal concerns can be safely ignored for the duration.

SAFE continues to feel, as we stated in January 2008, that the right economic questions are not being asked. 1/14/08 – New spin on an old theme could make a big difference.

The prime reasons for bad questions are short-term focus, i.e., the tendency to raise issues that are currently in the news, and [make] assumptions that are contrary to fact.

In January, some people were asking what the government should do about the price of oil going over $100 a barrel. Our answer was that the government “could get out the way,” dropping measures to block the development of U.S. petroleum reserves and permitting energy prices to be set by supply and demand.

The price of oil peaked at $147 per barrel in July, with gasoline prices rising above $4 per gallon. Gasoline consumption was declining, however, and federal restrictions on offshore drilling for oil and gas were subsequently allowed to expire (although proposals to reinstate them may surface in 2009). The current price of oil is about $50 per barrel!

Lower prices for oil and motor fuel should be welcome news for consumers and most businesses, providing increased spending power and a psychological shot in the arm. See there, markets work and government action is not necessarily the answer to everything.

It must be conceded, however, that the overall economic situation has worsened. A housing slump and panic in the financial markets has spread to “Main Street,” resulting in weak consumer spending, business failures, and rising unemployment. Stock prices (a leading indicator) hit 5-year lows last week.

The Consumer Price Index (CPI) fell a full percentage point in October 2008, principally due to lower oil/motor fuel prices. Although this index is 3.7% higher than a year ago, get ready for lots of hand wringing about the dangers of deflation (a classic argument for easy money and budget deficits).

First, skepticism is in order about proposals for far-reaching government action to create jobs, etc. This is not the sort of thing that government handles well, and it never has been.

Clearly, however, the president elect has a different view. Note his comments on November 22.

We'll put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels, fuel-efficient cars and the alternative energy technology that can free us from our dependence on foreign oil and keep our economy competitive in the years [ahead].

In a somewhat similar vein, the president elect evoked the spirit of the New Deal in an 11/16 interview on Sixty Minutes by suggesting that he, like FDR, would be willing to try new things.

What you see in FDR that I hope my team can emulate is not always getting it right, but projecting a sense of confidence and a willingness to try things and experiment in order to get people working again.

If economic uncertainty is the problem, observes Townhall columnist Jonah Goldberg, experimentation may not be the best approach for encouraging banks to lend and businesses to invest. Also, substance may be more important than style rather than the other way around.

We agree with Goldberg and hope the president elect will reach the same conclusions in time.

If it is any consolation, there is likely to be about $400 billion left in the financial sector rescue fund when he takes office in January.

Second, looking to the government for bailouts is a bad habit that can divert business managers from running their businesses efficiently and encourage irresponsible behavior.

#Last week, the CEOs of the U.S. auto companies flew to Washington on their private jets in search of funding. Provision of government assistance would postpone concessions by the United Auto Workers and thousands of superfluous auto dealers, discontinuation of unprofitable product lines, etc.

It would also avoid the need to suspend tightening of the CAFE standards that Congress mandated a year ago. 11/17/08 – Don’t bail out the Big Three, but an apology would be nice.

Some say the real issue is not whether the Big Three should be bailed out (few political leaders want to take responsibility for their demise), but whether these companies should be forced to pursue an even greener agenda than at present. “The Environmental Motor Company: Making Detroit a subsidiary of the Sierra Club,” Wall Street Journal, 11/19/08.

In any case, the auto executives returned to Detroit empty handed. The word is that they should not come to D.C. again without “concrete plans on how they would use federal funds to turn their companies around.”

# In an 11/17 letter to Congress, the National Taxpayers Union and like-minded groups (including SAFE) said state and local governments should take responsibility for their budget woes.

Now that the economic picture doesn't look as rosy as it once did, some want to continue this upward spiral [spending up 124% in 10 years] on the federal taxpayer's dime. We believe that if troubled state and local entities seek lasting relief and stability, they should restructure their activities the way millions of families have had to restructure their budgets.

Note that the availability of partial federal funding can promote the expansion of programs during good times that will cause state governments to founder when the economy slows down. Per Steve Malanga of the Manhattan Institute, some states are glad now that the president vetoed an expansion of the State Children’s Healthcare Insurance Program last year.

Third, start facing up to the long-term issues that our political leaders have been ducking. These issues are not going away, and continued failure to address them could have dire consequences.

#Low oil and natural gas prices won’t last, not with extraction costs rising around the globe and demand recovering as economic activity picks up. The public’s attention span is limited, however, so fiscal visionaries will need to keep reminding people of the need for action.

-So far as the environment is concerned, it does not really matter whether motor fuel is produced from domestic or imported oil. Producing the oil here would create jobs for U.S. workers and help reduce this country’s trade deficit.

-A green light for drilling will take time to have an impact, but some sensible restrictions on environmentalist lawsuits might speed things up. Furthermore, the alternative energy programs being proposed would take even longer to have an impact, i.e., there is no “quick fix” for demand-driven pressures on oil prices.

-New power sources for motor vehicles can be expected in time, if nothing else due to the rising price of oil, but the transition will work better if it is market driven than if the government mandates it. 9/3/07 - Alternative energy: let the market decide.

#Smaller, better-focused, less costly government may not be in vogue these days, but it would be difficult to continue current government programs over the next few years let alone launching costly new initiatives.

One way to improve the situation would be to slash wasteful government spending; opportunities for savings abound in the $3+ trillion federal budget. We would urge outright elimination of ineffective programs, including agricultural subsidies, corporate welfare, and hundreds of government grant programs. 5/19/08 - Strategies to cut government spending.

Such a purge would be difficult, but not impossible. Doubters are invited to download the audiotapes of Maurice McTigue (a former cabinet minister in New Zealand, now with the Mercatus Center) and learn how New Zealand halved its government spending a few years ago. McTigue’s story is interesting, inspiring, and highly relevant to the situation in this country.

#Finally, there is “the big kahuna” – skyrocketing commitments for entitlements. As SAFE and others have pointed out repeatedly, this is an issue that cannot safely be put off any longer.

If the next two or three years were spent doling out economic stimulus and organizing new programs, there would be that much less time remaining to head off a fiscal meltdown.

So, in our opinion, the answer is clear. The time to start restructuring Social Security, Medicare and Medicaid is not in two or three years, if no one can think of an excuse for further inaction at that point, it is now.

Furthermore, the thrust must be changing these programs so they will be affordable over the long term. If the starting question is providing coverage for more people or the like, the end result will be to make the plans even more unaffordable.

Our idea of Social Security reform would be to offer a personal account option for younger workers. See the Cato Institute’s 6.2 Percent Solution, featuring ownership, inheritability, and choice.

To reform the U.S. healthcare system, patients and their families should be empowered to make their own decisions vs. relying on government bureaucrats and/or insurance company employees to make the decisions for them.

Some time ago, we suggested phasing out Medicare (the government’s second largest program). The rationale was that a healthcare entitlement program for all seniors is unnecessary, and effectively makes the government responsible for setting medical reimbursement rates industry-wide. Refunds of previously paid payroll taxes for younger workers would be a mess, but it would clear the way for a far more cost efficient and effective healthcare system than the U.S. presently has.

As for Medicaid (a healthcare program for the impoverished), we would envision federal participation being converted to block grants. The states could then decide how much additional money they wanted to provide and what healthcare services would be covered, eliminating the problem of divided accountability for this program.

For discussion, see 11/26/07 – The key to a better healthcare system: empower patients. Reactions would be welcomed; our conclusions on this complex subject are far from immutable.

While we do not expect the president elect and his party to buy into our ideas for reforming entitlements, they might be receptive to dealing with the fiscal mess first. Anyway, that is the theme we intend to emphasize in the coming year.

By way of example, here is a letter to the editor from a SAFE director re inept management of the Delaware state budget and how the incoming governor could accept responsibility instead of perpetuating the pattern of irresponsibility.

11/17/08 – Don’t bail out the Big Three, but an apology would be nice.

As anyone who reads the financial pages should know, the U.S. auto companies (aka “the Big Three”) are on the ropes. Thus, General Motors (GM) stock is trading at around $3 per share, and the company warns that it could run out of cash by early next year.

Ford and Chrysler (now privately held) are reportedly on the brink as well, although GM has been the most vocal about it.

One reaction to this situation might be, oh well, that is how free markets work. The U.S. auto companies made grievous business errors over the years, such as ceding the market for smaller, more fuel-efficient vehicles to foreign competitors and entering into gold-plated labor contracts with the United Auto Workers (UAW). Now one or more of these companies will be forced to shut down.

The auto companies that remain, say the Big Two plus their foreign-based competitors (many of which have extensive manufacturing operations in the United States) will continue to meet the market demand for motor vehicles and do so in a more efficient manner than the fallen company (or companies).

If one or two of the Big Three went into bankruptcy and liquidated, people would lose their jobs. But the sky would not fall. In fact, that outcome would ultimately improve prospects for the firms and workers that remain in the industry. That is precisely what happened with the U.S. steel industry, which responded to waning fortunes and dozens of bankruptcies earlier in the decade by finally allowing unproductive, inefficient mills to shut down.

The U.S. auto companies view their prospective demise with somewhat less equanimity, as illustrated by CEO Rick Wagoner’s comments in the 2007 GM annual report.

A century is a long time to be in business. For General Motors, it’s been a century of leadership and achievements, of challenges and opportunities. A centennial is a great time to reflect on and celebrate the past. But for us, it’s more than that . . . it’s an opportunity to look forward to our next 100 years. *** The result of these and other actions in this area: we expect our cash spending on U.S. pensions and retiree healthcare to decline from the annual average over the last 15 years to about $1 billion per year starting in 2010. That savings of approximately $6 billion a year offers us a tremendous opportunity to improve GM’s earnings and balance sheet, and to invest in new products and advanced propulsion technology. *** We have the right strategy, the right products and technology and, most importantly, the right people to do it [make GM the industry leader] again, and we’re committed to making it happen.

What has changed in the last nine months? A run-up in motor fuel costs to over $4 per gallon undermined the preference of many Americans for trucks and SUV’s, resulting in a sharp decline in demand for the vehicles that General Motors et al. were pinning their hopes on. Although this run-up has since reversed itself, with gasoline prices now in the vicinity of $2 per gallon, people understandably fear that the correction may prove temporary.

So, demand for trucks and SUVs will not recover quickly – never if the government has anything to say about it – and the U.S. auto companies remain in jeopardy.

The key to survival at this point is seen as obtaining financial support from the government. Wagoner, other U.S. auto executives, and UAW president Ron Gettelsfinger, have been lobbying furiously to get it.

They want $50 billion in financing for the Big Three, of which $25 billion has been already been authorized as a sweetener for the tightening of Corporate Average Fleet Fuel Economy (CAFE) standards). The other $25 billion is seen as coming from the $700 billion “bailout” fund that was established to shore up the financial system. Paul Ingrassia, “Detroit’s blackmail attempt is beyond shameless,” Wall Street Journal, 9/8/08.

Well aware that a failure of GM and/or other U.S. auto companies (pulling down parts suppliers, auto dealers, etc. in their wake) would cause major job losses, reduced tax revenues, and increased demands on government (to cover defaults on private pension obligations, offset loss of private healthcare benefits, etc.), some of our political leaders (including the president elect and his party) seem receptive to the Detroit bailout pitch.

And while we have not noticed much sympathy for shareholders (full disclosure: the author of this entry will lose money if GM goes under), millions of people own GM or Ford stock directly or through their retirement funds. Let’s not forget “Engine” Charlie Wilson’s observation in 1955 that “what is good for General Motors is good for America.”

Another argument for a Big Three bailout, albeit not one usually made, is that ill-conceived government policies over the past several decades have contributed to the present problems of the U.S. auto companies.

#The recent spike in oil and motor fuel prices was due in large part to government policies that have impeded development of domestic petroleum reserves while fostering ever growing U.S. reliance on imported oil. “To drill or not, that is the question,” 7/7/08.

#Congress enacted the tightened CAFE standards in December 2007, with much self-congratulation and little heed for the lessons of history.

When the CAFE standards were initially imposed during the Carter administration, they accelerated a decline of the U.S. auto industry that was already underway without accomplishing the stated purpose of eliminating reliance on imported oil. “CAFE Quicksand,” National Center for Policy Analysis, 6/15/07.

The U.S. auto industry nearly buckled under higher CAFE standards and new tailpipe emissions requirements in the 1970s. Those regulations clearly favored Asian manufacturers who produced only small cars and very few light-duty trucks.

. . . after nearly 30 years of living under CAFE requirements, more than 70 percent [versus 35 percent in 1975] of our oil comes from foreign sources.

#There was ample evidence in 2007, moreover, that the U.S. auto companies might face serious problems in meeting tightened CAFE standards. Consider the comments of Amy Ridenour, National Center for Public Policy Research.

GM says that to bring all vehicles up to 35 mpg - a totally absurd 58-percent increase for light trucks, now at 22.2 mpg - represents a combined 40-percent boost that would cost more than $100 billion, "the greatest regulatory cost ever imposed on a single industry."

The only way it could come even close to happening would be to dieselize and hybridize virtually everything - at an incremental cost (not retail price) of $5000-$8000 per vehicle -and downsize trucks to where they could barely haul the content of a homeless auto worker's shopping cart. New emission standards are making diesels way more expensive, and there's not enough battery raw material [lithium in usable form] on the planet for an all-hybrid fleet...

Ridenour subsequently noted a possible safety valve for the auto companies, namely the flex fuel exception.

To have any chance of meeting the 35-mpg average, carmakers will need to start selling flex-fuel cars that have inflated mpg ratings for CAFE purposes. This will spur consumption of ethanol.

Given the many problems with mandates and subsidies for ethanol (see our 5/12/08 entry), however, this hardly seems like a boon for the public.

#The adverse effects of the CAFE standards are compounded by not permitting the U.S. auto companies to import small cars for the U.S. market to complement the trucks and SUVs they can manufacture profitably in the United States. Primarily for the benefit of the UAW, the companies must produce their small cars domestically despite virtually assured losses on this business.

The solution, says one observer, is a tweak of the CAFE rules to permit imports as required. “Yes, Detroit Can Be Fixed,” Holman Jenkins, Wall Street Journal, 11/5/08.

Under the nonsensical "two fleet" rule that now applies, manufacturers meet the standards separately with their "domestically" and "non-domestically" produced fleets. What does this have to do with making sure U.S. consumers get good mileage? Nothing. It's a naked handout to the UAW at the expense of the companies and their customers.

How dumb is the two-fleet rule? Nissan, in a petition for its removal, points out foreign brands may actually minimize the domestic content in their U.S. cars so they can continue to count as "nondomestic."

How dumb is the rule? Chrysler might not be unraveling today if not for the two-fleet rule, the real genesis of the Hail Marys it's been throwing in all directions to find an electric car or a small-car partner or to merge with GM. Chrysler has a perfectly salvageable business making trucks, minivans, muscle cars and Jeeps -- doomed only by the lack of enough small, fuel-efficient cars to roll out of a UAW factory with a Chrysler emblem slapped on.

So if the government has played a major role in pushing the U.S. auto companies to the wall, perhaps it owes them some support now – in the name of fairness and/or accountability. Not that we approve of this “fight fire with fire” sort of thing, but . . .

On the other hand, there are some obvious issues with a Big Three bailout, and as a matter of principle SAFE cannot support the idea.

#If auto companies were allowed to tap the $700 billion bailout fund, where would one draw the line? “Lobbyists swarm the U.S. Treasury for a helping of bailout pie,” International Herald Tribune, 11/12/08.

Of the initial $350 billion that Congress freed up, out of the $700 billion in bailout money contained in the law that passed last month, the Treasury Department has committed all but $60 billion. The shrinking pie — and the growing uncertainty over who qualifies — has thrown Washington's legal and lobbying establishment into a mad scramble.

The Treasury Department is under siege by an army of hired guns for banks, savings and loan associations and insurers — as well as for improbable candidates like a Hispanic business group representing plumbing and home-heating specialists. That last group wants the Treasury to hire its members as contractors to take care of houses that the government may end up owning through buying distressed mortgages.

#State and local officials, e.g., the mayors of Philadelphia, Atlanta, and Phoenix, are also seeking bailouts (probably out of a new relief package). After all, their cities have needs too.

But remember: bailouts do not increase the economic resources available, they simply shift them around. Trying to stimulate the economy in this fashion is akin to “lifting oneself by the bootstraps,” for which reason SAFE has endorsed a pending letter to Congress from the National Taxpayers Union et al. that will oppose a state and local bailout package.

#If government loans or loan guarantees were granted to the auto industry, there should be safeguards to ensure the money is not frittered away. Paul Ingrassia offered some ideas in “Detroit Auto Makers Need More Than a Bailout,” Wall Street Journal, 11/10/08.

In return for any direct government aid, the board and the management should go. Shareholders should lose their paltry remaining equity [ouch]. And a government-appointed receiver -- someone hard-nosed and nonpolitical -- should have broad power to revamp GM with a viable business plan and return it to a private operation as soon as possible.

That will mean tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others, and downsizing the company. After all that, the company can float new shares, with taxpayers getting some of the benefits. The same basic rules should apply to Ford and Chrysler.

#Propping up failing business operations without such safeguards might postpone needed adjustments and compound current economic difficulties. See “I Vote No Confidence in Congress: If we raise tariff barriers, subsidize Detroit, and enable union bullying, we’re in for a long recession,” Harvey Golub (a former CEO of American Express), Wall Street Journal, 11/5/08.

Members of Congress, regardless of party affiliation or yesterday's results, will continue to meddle in matters beyond their knowledge. In doing so they will exacerbate our current economic downturn and delay the recovery of our financial markets.

#Last but not least, government financial support could provide a pretext for meddling in decisions better left to the private sector. One example might be delaying union layoffs, which as already noted have been impeded by the design of the CAFE standards. “Nationalizing Detroit,” Wall Street Journal, 11/10/08.

Rest assured that the politicians don't want to do a thing about those labor contracts or mileage standards. In their letter, Ms. Pelosi and Mr. Reid recommend such "taxpayer protections" as "limits on executive compensation and equity stakes" that would dilute shareholders. But they never mention the UAW contracts that have done so much to put Detroit on the road to ruin. In fact, the main point of any taxpayer rescue seems to be to postpone a day of reckoning on those contracts. That includes even the notorious UAW Jobs Bank that continues to pay workers not to work.

#Another requirement might be that bailout funds be used to produce “green” cars, as indeed is contemplated for the $25 billion in loans that has already been authorized.

The president has suggested relaxing this requirement so as to speed the flow of the authorized funds, but he opposes use of the $700 billion bailout fund for Detroit. Despite demands for action from the other side of the aisle, it is unclear that the standoff will be resolved this year.

As an example of why not to mandate the production of “green” cars, consider that the electric car (Volt) on which General Motors is supposedly betting its future cannot be reasonably expected – even with hefty government subsidies – to make money. To the extent this program can be justified, therefore, it is only on the basis of currying favor with the government in hopes of winning support in other areas.

#Further mistakes may be in the offing, as illustrated by some suggestions of Douglas Olin, a Commerce Department official in the Clinton Administration.

[I]sn't it time for Detroit to turn out a car that gets at least 100 miles per gallon -- and to do it in three years? *** auto fleets that systematically reduce carbon dioxide emissions, perhaps the 30% by 2016 proposed by California *** require those in the boardroom and the production line to work with the new administration to redefine the role of unions and labor relations *** This isn't socialism; it would be our tax dollars at work.

We appreciate the desirability of working cooperatively on economic and other issues. It is not our intent to resist new ideas, nor to be unreceptive to the ideas of others.

But when a proposal is as poorly conceived as this one is, it deserves to be rejected.

True, the government deserves considerable blame for the plight of the U.S. auto companies. The answer is to recognize and rectify the mistakes that have been made, however, not to undertake new government initiatives to offset them.

If you agree, please let your views be known. We need your support to make a difference.

The 2008 election results hardly represent a victory for smaller, better-focused, less costly government, but stay tuned. The battles over what will actually happen to the government’s operations may prove interesting.

1. With government spending at record levels and tax revenues tailing off as the economy slides into a recession, there will be little leeway for spending increases.

The FY 2008 (year ended 9/30/08) budget deficit came in at $455 billion (3.2% of GDP), $66 billion higher than had been forecast only two months earlier. The principal variances were:

As of 7/28/08, the FY 2009 deficit was projected at $482 billion (3.3% of GDP). The Office of Management and Budget (OMB) said deficits in subsequent years would decline sharply, leading to a balanced budget by 2012. It is debatable whether anyone was paying much attention to the “out years” in the projection, however, especially given that OMB had projected a $198 billion deficit for FY 2009 in February 2008.

In early November, Peter Orzag of the Congressional Budget Office (CBO) pegged the budget deficit for FY 2009 at $750 billion. He further indicated that it could be swollen to a staggering $1 trillion by “other anticipated costs, such as an economic stimulus plan of $300 billion or more, other steps to shore up the banking system, and lost tax revenue as the recession deepens.”

Like it or not, the idea of providing more economic stimulus has picked up steam in a souring economy; the only question now is what form the legislation will take.

Speaker of the House Nancy Pelosi is calling for the lame duck Congress to enact a $100 billion stimulus bill (contents not specified at this point), to be followed by a $200 million “tax cut” in 2009.

The president elect met with a team of economic advisers on 11/7/08, and announced at a press conference afterwards that there was indeed going to be an economic stimulus package.

I want to see a stimulus package sooner rather than later. If it does not get done in the lame duck session, it will be the first thing I get done as president of the United States.

Hmm, this might not be the best possible time to undertake some of the longer-term initiatives that have been proposed, notably a costly extension of the government’s healthcare programs.

2. Raising taxes during a recession is generally not considered smart; it surely backfired for Herbert Hoover.

Remember the Revenue Act of 1932? Complementing the infamous Smoot-Hawley tariff hike in 1930, it represented one of the policy blunders that deepened and prolonged the “Great Depression.”

Income tax rates were raised across the board, with the top rate going from 25% to 63%. The estate tax was doubled and corporate tax rates were boosted as well.

Outgoing Secretary of Treasury Andrew Mellon went along with Hoover’s plan, but privately said the result would be to “impose additional taxes upon industry and commerce that are in no condition to bear additional burdens.” Amity Shlaes, “The Forgotten Man,” Harper Collins (2007), p. 131.

Fast forward to 2008, when the president elect proposed tax cuts for 95% of working Americans, to be partly offset by higher taxes for the top 5%. Obama’s tax plan also called for higher taxes on capital gains and dividends.

Some observers have equated the apparent intention of raising taxes on high earners and investors during tough economic time with Hoover’s blunder in 1932. See the comments of writer Jim McTague, investment strategist Michael Aronstein, and Obama fundraiser Don Peebles.

"[The next president] will have little choice but to raise taxes and cut spending," McTague wrote. "Obama's tax plans, however, point to a philosophy that historically has worried market pros. Raising taxes on the investor class simply doesn't help investment."

We believe there is still time to rethink the tax increases on high earners/investors, or at least defer them until economic conditions improve. While the president elect has not revealed his intentions, he appears to be keeping his options open. As the Wall Street Journal put it in an 11/8/08 editorial –

The President-elect dodged a question about whether he might abandon his plans to raise taxes on upper-incomes. The bad news is that he replied that he thinks his campaign agenda (which includes a huge tax increase on "the rich") is still the best policy blueprint. The good news is he didn't expressly say he'd insist on tax increases, leaving himself some running room.

Representative Barney Frank (D-Mass.) advocates a 25% cut in defense spending, which he visualizes would support increased spending in other areas. No one seems to calling for arguably more desirable spending cuts in the domestic sphere.

For all SAFE’s zeal for spending discipline, e.g., eliminating agricultural subsidies, corporate welfare, and numerous government grant programs, many of us would view major cuts in defense spending as irresponsible.

A recent analysis by the Heritage Foundation goes further, suggesting that the country needs to spend more money on defense in order to maintain long-term military readiness.

Obama did not advocate big cuts in defense spending, at least during the last several months of the campaign; his opponent, Senator John McCain, was considerably more vocal about possible savings in this area.

Thus, Obama adviser Richard Danzig, reportedly a leading candidate for secretary of defense, was quoted that he did not "see defense spending declining in the first years of an Obama administration. There are a set of demands there that are very severe, very important to our national well-being."

A post-election article in the Star-Telegraph reaches a similar conclusion, citing the views of several defense analysts (including Danzig).

Even if the defense budget were cut 25%, the “savings” – say $125 billion per year – would tend to get lost in a $3+ trillion budget.

4. Although the issue of skyrocketing entitlements was not squarely addressed during the campaign, Americans are waking up to the fact that this problem is real and should be dealt with.

The Fiscal Wake-Up Tour has been conducting policy forums around the country, most often on college campuses, over the past several years. The tour began with a 9/26/05 forum in Richmond, VA and most recently visited Philadelphia, PA on 10/14/08. David Walker et al. have been impressive, the audiences receptive, and there has been lots of favorable media coverage.

I.O.U.S.A. (a film to dramatize the deficit problem) is now being shown, and over time many people will see it. Check the link below for information about showings in your state; if you would like to attend another showing in Delaware, please let us hear from you.

As tax revenues will be inadequate to cover the cost of entitlement programs, some might consider the solution blindingly obvious: Congress should raise taxes. It appears, however, that the tax increases involved might be more than the public is prepared to pay – much more.

Dr. Stuart Butler of the Heritage Foundation summarizes the results of a recent CBO review of the tax increase approach.

Marginal tax rates for every bracket, along with corporate tax rates, would need to more than double.

These tax rates "would significantly reduce economic activity and create serious problems with tax avoidance and tax evasion," and such rates "would probably not be economically feasible.”

Absent decisive action on the entitlements problem, outlays for Social Security, Medicare, Medicaid, plus interest on the debt, would swallow the entire federal budget over time, leaving zero dollars for the traditional functions of government. See the following charts from Heritage for the gory details.

Solutions to the entitlements problem would not necessarily be straightforward. The principal reduction of benefits in the 1983 Social Security bailout, for instance, was achieved by subjecting a portion of the benefits of upper bracket beneficiaries to income tax rather than reducing anyone’s benefits per se. Similarly, Medicare benefits are now being “means tested” for upper bracket beneficiaries, thereby rationalizing reduced benefits (with no reduction in taxes) for the individuals concerned.

Expect more such trickery as time goes on, coupled with a failure to adjust threshold amounts for inflation that will result in a growing number of upper bracket beneficiaries. The individuals concerned will notice what is going on, however, creating mounting resistance to solving the entitlements problem in such a fashion.

Perhaps our political leaders will resort to the time-honored expedient of pushing the entitlements problem under the rug, forcing the government to borrow more and more money to make ends meet. This might seem like a politically expedient way to go, but at some point lenders will downgrade the government’s debt to junk bond status and demand much higher interest rates – forcing the government to print more and more money. Hello, fiscal meltdown!

Does such an outcome sound a bit fanciful? It should not, because other countries have had their credit cut off and the U.S. is a good way down the same path. See “Washington Is Quietly Repudiating Its Debts,” Gerald O’Driscoll, Wall Street Journal, 8/22/08.

Some readers may wonder why we are making such a big deal about fiscal and economic policies under the Obama administration. After all, the president elect and his party won the election, which would seemingly entitle them to set the policies for a while. Isn’t that the American way, in a system where control of the government (or at least the White House) shifts from one party to the other every 8 years or so?

Experience shows, however, that it is very difficult to dial back or dismantle government programs once they have been established. Therefore, the growth of government tends to be a one-way ratchet that will inevitably go too far even if there are periodic pauses in the process.

To keep the government small, agile, and affordable, it is essential to nip ill-advised programs in the bud rather than struggling vainly to undo them later. Never underestimate the power of asking probing questions, such as:

What evidence exists that the government can handle the matter better than the private sector?

Why couldn’t the government accomplish the same results by doing ______, at about 10% of the cost?

Also needed is a revival of the tradition of viewing government action as a last resort rather than the first card to play when problems arise. Remember these words of James Madison, who has often been referred to as “the father of the Constitution” and would go on to serve as the 4^th U.S. president.

I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents.

Madison was right in his quote. I also agree that once a program gets launched, there is no looking back no matter which party is in power. - - Retired financial executive

I don't know how the government will dig itself out of this. They are trying to bail everyone out who comes with their hands out. Bankruptcy may come much quicker than we had anticipated. - - SAFE director

Previous entries spelled out the economic issues as clearly as we knew how, culminating in “What would you like, central planning or an eclectic mix,” 10/27/08. Presumably, most readers have already reviewed this material, so we will use today’s entry to point out useful input from other sources.

#Alan Reynolds of the Cato Institute observes that the tax cut (for 95% of working Americans) and spending promises of one of the candidates are flatly unbelievable.

The most troublesome tax increases in Barack Obama's plan are not those we can already see but those sure to be announced later, after the election is over and budget realities rear their ugly head.

#In a letter to both presidential candidates, Citizens Against Government Waste and the National Taxpayers Union volunteer lists of wasteful government spending that could save the winner some time in honoring his pledge to go through the budget page by page, line by line, to identify and root out unjustifiable programs.

#John Goodman of the National Center of Policy Analysis offers an insightful summary of what is really wrong with the U.S. healthcare system and what might be done to start setting things right. You will note that his recommendations do not look a whole lot like either the Obama or the McCain healthcare plan.

The national showings of I.O.U.S.A. have not taken place as fast as one might have hoped, but the Peterson Foundation will keep things going after the election. By the time they are done, we would hope that every American concerned about the fiscal time bomb – and that should be everyone – has seen the film.

#Finally, for younger Americans – perhaps voting this year for the first time – here is a column you should read before going to the polls. “Young voters, get mad,” Robert Samuelson, Real Clear Politics, 10/23/08.

You’re being played for chumps. Barrack Obama and John McCain want your votes, but they’re ignoring your interests.

10/27/08 (E minus 8) – What would you like, central planning or an eclectic mix?

Senators McCain and Obama have endorsed essentially the same economic goals, but offered quite different approaches for achieving them. For details, see the following entries:

A wrap-up discussion follows, in which our concept of good policy (in italics) is contrasted with the proposals on the table.

Financial turmoil – Soaring energy prices, falling house prices, the subprime mortgage crisis, failures of leading financial firms, seizing up of credit, and plunging stock prices have engendered an extraordinary government response, both here and abroad, that has yet to stop the bleeding.

SAFE endorsed the $700 billion bailout, which was originally conceived as a program to purchase “toxic” assets (complex, mortgage-backed securities with no ready market under current conditions), but has been broadened to include the purchase of equity from banks and combating mortgage foreclosures.

We do not support further measures now under discussion, such as a second economic stimulus package, nor the “try everything at once” approach that the bailout seems to be degenerating into. See “Bernanke is fighting the last war,” Brian Carney, Wall Street Journal, 10/18/08.

Both candidates supported the bailout bill, and neither has offered any compelling suggestions on how to calm the financial markets, etc.

Taxes & spending – Taxes may eventually need to be raised in the process of balancing the budget. Without discipline on the sending side, however, there can be no guarantee that tax increases would be used for this purpose. Therefore, SAFE opposes any increase in current tax levels until all reasonable options for cutting wasteful government spending have been exhausted (no one has scratched the surface yet!).

The income tax system needs to be radically simplified: repeal the Alternative Minimum Tax, eliminate most of the current personal deductions and tax credits, and cut tax rates so the overall effect will be revenue neutral.

Instead of exempting more and more citizens from paying income taxes, we advocate an “everyone pays” (if only a little) principle so that all concerned will have a common interest in holding down income taxes and the government spending programs they are used to support.

Neither candidate has proposed to hike taxes overall. Given their respective spending plans, however, it is unclear that tax increases could be avoided for long. We discount vague promises to cut spending as an offset to the specific new programs being proposed

Initially, the Obama-Biden tax plan would increase the tax burden on upper bracket taxpayers, while delivering “tax cuts” for almost everyone else. Millions of Americans would be removed from the income tax rolls through the expanded use of refundable tax credits, thereby violating our “everybody pays” principle.

The McCain-Palin plan would leave individual tax rates at current levels, albeit increasing the child exemption and cutting the corporate tax rate. Employer-provided healthcare benefits would be made taxable for the first time, but the resulting tax revenue gain would be offset and then some by a new tax credit for healthcare insurance. The number of taxpayers paying zero or negative income tax would increase, again violating “everybody pays.”

Payments by industrial carbon emitters under the Obama cap-and-trade plan would constitute a de facto tax on their operations. (As we understand it, the government would not charge for permits issued under McCain cap-and-trade.) The resulting revenue has not been quantified, but would apparently be considerable, e.g., $1 trillion over the next ten years. $150 billion of the total would go to clean energy programs; the remainder would be rebated to the public in some manner.

Entitlements – Of the factors that have put the federal government on the road to financial ruin, the most important is the explosive growth of entitlement programs, principally Social Security, Medicare and Medicaid. Mandated outlays will soar over the next decade as the baby boomers retire in large numbers.

It is difficult to imagine how the government’s fiscal problems could be successfully resolved without restructuring one or more of the big entitlement programs. The projected fiscal gap is too large to be closed by tax increases and cuts in “discretionary” spending alone.

The longer that action is delayed, the more painful the solutions will be. And if the government fails to act, look for a fiscal meltdown within a few years that will make the current financial turbulence seem inconsequential because no one will be available to “ride to the rescue.”

Neither candidate has candidly acknowledged the entitlements mess and made a clear commitment to address it, although McCain did say, in Debate Two, that he would appoint a bipartisan commission to propose an answer for Medicare.

Their failure in this regard is by no means a novelty, as columnist David Strom points out.

“Over the past couple of decades politicians have delivered a one-two punch to the health of our economy: they have consistently increased the benefits promised by entitlement programs—most recently with Bush’s Medicare prescription drug benefit—while simultaneously reducing the number of taxpayers who will be on the hook for paying the bills when they come due.

Their respective positions seem to follow the tradition of U.S. political leaders of ignoring the problem and proposing policies that can only make it worse.”

Healthcare – The basic problem with the U.S. healthcare system, which also underlies the unsustainable growth of Medicare and Medicaid outlays, is soaring healthcare costs.

Our system is the most expensive in the world, yet other countries have comparable or higher life expectancies. It would be hard to say this country is getting its money’s worth.

One way to get costs under control would be to reduce the role of third party payers (government agencies or private insurance companies) and expect consumers to pay most of their healthcare bills directly. Insurance would be available against catastrophic healthcare costs, and the government would continue to be involved in providing healthcare for the indigent.

The other approach would be to for the government to take over the healthcare system and hold down costs by imposing overall budget caps. Such an approach is common in countries with “universal coverage,” such as Canada and the UK, and it works – aside from long hospital waiting times, shortages of expensive medical equipment, etc.

Count us as favoring the first option, but we recognize that universal coverage might beat the present system in which no one has control over costs.

The basic thrust of both candidates’ healthcare plans would be to reduce the number of Americans without healthcare insurance [HCI] rather than targeting costs.

The Obama-Biden plan would institute a “play-or-pay” requirement for large employers to provide HCI for employees, with a default government plan. Given stringent new requirements for employer-provided plans, many employers could be expected to choose the pay option.

The centerpiece of the McCain-Palin plan would be a tax credit for employees to purchase HCI from the company of their choice. The revenue cost would be partially offset by taxing employer-provided healthcare benefits. The decline of employer-provided healthcare would likely continue.

Both plans tout efficiency gains from computerizing medical records, preventive healthcare programs, and the like. Unless excessive consumption of healthcare would be curbed, the potential benefits seem exaggerated.

Would the McCain plan dampen healthcare demand by moving the dial toward individual choice and responsibility? Maybe, if enough people chose catastrophic coverage and banked the remainder of the tax credit in health savings accounts, but the results are far from certain.

The government’s regulatory powers over the healthcare sector would be sweepingly expanded under the Obama-Biden plan, putting system administrators in a position to contain costs by determining who got treated for what. Could work, but if this is the game plan, it has not been shared with the voters.

Energy policy – Surging energy prices in recent months can be attributed to a long-term bias in favor of alternative energy and conservation versus the supply side of the equation.

This bias has been justified on environmental grounds, notably a theory that catastrophic changes in the earth’s climate are threatened by manmade greenhouse gas emissions. SAFE (and others) believe the global warming theory has been considerably exaggerated.

While the development of alternative energy sources seems sensible and in the long run inevitable, it also makes sense to increase U.S. energy output in the here and now. This includes building new power plants as needed (often shutting down obsolete facilities in the process, with net environmental gains), and drilling for oil in offshore areas and the Arctic National Wildlife Refuge instead of importing more and more of this country’s oil needs.

As to which alternative energy projects should be undertaken, we believe that nuclear power (not solar, wind power, etc.) represents the best bet to take the place of coal in generating electricity. Instead of trying to dictate the outcome, however, the government should allow the market to decide.

Rightly or wrongly, both candidates have endorsed the idea that manmade climate change is a grave threat. They propose massive expenditures to phase out the use of fossil fuels and convert to “clean” alternative energy sources. Both propose a cap-and-trade regime, which in Obama’s case would include a massive tax on carbon emissions by U.S. industry (see above).

It is recognized that consumers have been hurt by surging motor fuel prices, and that the huge sums being spent on imported oil are undesirable. Accordingly, McCain advocates aggressive offshore drilling (Palin would also drill in the ANWR). Obama endorses offshore drilling too, but with a notable lack of enthusiasm.

The alternative energy modes of choice under the Obama-Biden plan would be solar and wind power. In addition to such projects, McCain proposes a full-bore program to build nuclear power plants.

Our job is done, dear readers, and hopefully the foregoing information and opinions will prove helpful. The choice is up to you!

A depressed housing market, plunging stock market, and fears of a recession to come have ended any chance for a serious debate about longer-term economic issues in the 2008 election. Voters are preoccupied with what the candidates are proposing to do for them in the immediate future, not which candidate would do the best job of preserving the U.S. economy over the long term. See “October surprise: financial turmoil,” 10/15/08.

Long-term thinking is not dead in one area, however, for many people continue to believe that manmade global warming (aka climate change) threatens the future of the planet over the next 50-100 years. And it is a safe bet that programs to reduce the use of fossil fuel would drive up energy costs substantially, i.e., going “green” involves economic sacrifice.

SAFE believes the global warming threat has been greatly exaggerated, and that more scientific research is needed before organizing a hugely expensive response to this problem. No need to repeat our views, they are on the record already, but we would like to point out that others are coming to a similar conclusion.

#Over 31,000 scientists have signed a petition expressing skepticism about the manmade global warming theory, thereby belying assertions that the theory is “settled science” or the like. Here is an extract from the petition.

There is no convincing scientific evidence that human release of carbon dioxide, methane, or other greenhouse gases is causing or will, in the foreseeable future, cause catastrophic heating of the earth's atmosphere and disruption of the earth's climate. Moreover, there is substantial scientific evidence that increases in atmospheric carbon dioxide produce many beneficial effects upon the natural plant and animal environments of the earth.

#In 2007, a University of Pennsylvania professor named J. Scott Armstrong proposed a $10,000 bet with Al Gore that he [Armstrong] could more accurately predict global temperatures over the next 10 years using the “naïve method” than Gore could using any existing forecasting model (adjustment of results not permitted). So far, we understand, the Nobel Prize winner has not agreed to participate.

#Last but not least, it appears that the global warming trend has reversed, at least temporarily, despite a continuing buildup of CO2 in the earth’s atmosphere. See, e.g., “Thirty years of warmer temperatures go poof,” Lorne Gunter, National Post [Toronto], 10/20/08.

No matter, the presidential candidates agree about curbing greenhouse gas emissions to combat global warming, and one of them will be elected on November 4th. Just consider their responses in Debate Two, when asked what they “would do within the first two years to make sure that Congress moves [as fast on] environmental issues, like climate change and green jobs,” as it did on the $700 billion financial bailout.

McCain expressed concern that “we may hand our children and our grandchildren a damaged planet.” He spoke of traveling “all over the world” with Senator Joe Lieberman, “looking at the effects of greenhouse gas emissions.” Moreover, he had tried to do something about it.

And I introduced the first legislation, and we forced votes on it. That's the good news, my friends. The bad news is we lost. But we kept the debate going, and we kept this issue to -- to posing to Americans the danger that climate change [poses].

“This is one of the biggest challenges of our times,” said Obama, and also “an opportunity, because if we create a new energy economy, we can create five million new jobs, easily, here in the United States.”

“It can be an engine that drives us into the future the same way the computer was the engine for economic growth over the last couple of decades,” but “we’ve got to make some investments.”

To be sure, the recent surge in oil prices, which drove gas at the pump to over $4.00 per gallon, is fresh in the minds of voters. So both candidates have promised to provide relief, and address a national security concern in the process, by reducing U.S. dependence on foreign oil. Let’s not forget that U.S. political leaders have been promising “energy independence” since the Nixon era, however, while oil imports continued to grow.

“I think we can, for all intents and purposes, eliminate our dependence on Middle Eastern oil and Venezuelan oil,” said Senator McCain in Debate Three, “within seven, eight, ten years, if we put our minds to it.”

Senator Obama endorsed the same goal and said ten years was “about a realistic timeframe” to achieve it.

Look closer at the candidates’ energy proposals, however, and it becomes apparent that they do not see eye to eye after all.

The Obama-Biden energy plan calls for a quick and bold transformation of “our entire economy -- from our cars and our fuels to our factories and our buildings.” Here are some specifics.

Provide short-term relief to American families facing pain at the pump via (a) release of oil from the strategic petroleum reserve, (b) regulatory changes designed to curb “excessive energy speculation,” and (c) required payments of $500 for an individual/ $1,000 for a married couple from oil companies to American consumers.

Help create five million new jobs by strategically investing $150 billion over the next ten years to catalyze private efforts to build a clean energy future. The indicated source of these funds would be a “small portion” of the fees collected from polluting companies under the cap-and-trade proposal (see below).

Within 10 years save more oil than we currently import from the Middle East and Venezuela combined.

Put 1 million Plug-In Hybrid cars - cars that can get 150 miles per gallon –on the road by 2015, cars that we will work to make sure are built here in America.

Ensure 10 percent of our electricity comes from renewable sources by 2012, and 25 percent by 2025.

Implement an economy-wide cap-and-trade program to reduce greenhouse gas emissions 80 percent by 2050. All industries would pay for every ton of emissions released. A “small portion of the receipts generated” ($15 billion per year) would be used to support the development of clean energy, etc. “All remaining receipts will be used for rebates and other transition relief to ensure that families and communities are not adversely impacted by the transition to a new energy, low carbon economy.”

What about reducing the need for energy imports by producing more oil and gas in this country? Fine, the Obama/Biden plan would exploit “several key opportunities to support increased U.S. production of oil and gas that do not require opening up currently protected areas [including 85% of the outer continental shelf, a rather huge area].”

(1) “use or lose it” rules for existing leases, which the oil companies are supposedly sitting on;

(2) a process for early identification of any infrastructure obstacles/shortages or possible federal permitting process delays to drilling in various specified areas including the “National Petroleum Reserve-Alaska (NPR-A), which comprises 23.5 million acres of federal land set aside by President Harding [!] to secure the nation’s petroleum reserves for national security purposes;

(4) enhanced oil recovery from existing fields by injecting CO2, a practice that would be incentivized under the cap-and-trade bill.

The plan does not mention offshore drilling, let alone opening up the Arctic National Wildlife Reserve [ANWR], although Obama has expressed grudging acceptance of offshore drilling. Here is a statement he made in Debate Three:

And I think that we should look at offshore drilling and implement it in a way that allows us to get some additional oil. But understand, we only have three to four percent of the world's oil reserves and we use 25 percent of the world's oil, which means that we can't drill our way out of the problem.

As for the types of alternative energy to be developed, the Obama-Biden plan would require that “10 percent of electricity consumed in the U.S. [be] derived from clean, sustainable energy sources, like solar, wind and
geothermal by 2012.”

Qualified support is expressed for clean coal technology (zero-carbon, to be achieved with carbon capture and sequestration) and “safe and secure” nuclear energy. Re the latter, it is proposed to abandon Yucca Mountain, Nevada as a national nuclear waste storage site [after two decades of fighting about this project and billions of dollars spent on the preliminary work] and organize “federal efforts to look for safe, long-term disposal solutions based on objective, scientific analysis.” [Translation: do not expect any energy from clean coal or new nuclear plants in the foreseeable future.]

Aside from its obvious bias in favor of government-directed action, the Obama-Biden plan provides little information about the actual costs involved and who would pay them. It should not be taken for granted, in our opinion, that the costs would be reasonable.

The idea of charging companies for the pollutants they emit and then rebating the proceeds to consumers does not avoid a cost problem, it merely hides it. One way or another, the companies in question would necessarily pass the cost on to consumers or else be forced out of business.

Here is an analysis by the National Center of Policy Analysis of the additional cost imposed by three cap-and-trade bills that were introduced in Congress earlier this year. Note: the added costs were projected to keep rising until at least 2050, i.e., did not represent a short-term phenomenon.

In reviewing Al Gore’s ambitious (100% of electricity to be produced from renewable, carbon-free sources by 2018) proposal to “repower America,” Ronald Bailey of Reason Magazine concluded that the cost would be staggering.

Gore's proposal is a "new climate initiative" that aims to spend twelve times more than the utility industry would otherwise annually invest in new and replacement generating capacity. Gore explicitly likens his scheme to NASA's Apollo program, but reaching the moon cost only $150 billion (in current dollars) spent over eight years. In other words, getting to the moon cost half of what Gore wants to spend annually to realize his no-carbon energy vision.

Is it not possible that the plan would be usefully changed in the process of being presented to Congress, or perhaps sidetracked entirely as universal healthcare was in the first years of the Clinton administration?

Do not count on it, says the Wall Street Journal, because “the would-be President intends to blackmail – or rather, greenmail – Congress into falling in line with his climate agenda.” If Congress balked, the Environmental Protection Agency would be unleashed to classify CO2 [a natural ingredient of the atmosphere, which is exhaled by every person on earth] as a dangerous pollutant and impose emission fines by regulatory fiat.

The McCain-Palin energy plan would promote wind power, hydro power, solar power, and energy conservation too, but it seems more flexible than the Obama-Biden plan. Also, there would be greater reliance on private sector efforts.

Thus, McCain has proposed a $300 million prize for the development of a battery package with the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars at 30 percent of current costs. He describes this amount, roundly $1 for every person in the country, as “a small price to pay for breaking our dependence on oil.”

Obama mocked the McCain energy proposals as “gimmicks.” Here is what he had to say about the $300 million prize.

When John F. Kennedy decided that we were going to put a man on the moon, he didn't put a bounty out for some rocket scientist to win -- he put the full resources of the United States government behind the project and called on the ingenuity and innovation of the American people -- not just in the private sector but also in the public sector.

As for nuclear power, McCain proposes a program to build additional power plants (45 by 2030, 100 eventually) without insisting on a “foolproof” system of waste storage or disposal first. Thus, he said the following in Debate Two.

Now, how -- what's -- what's the best way of fixing it? Nuclear power. Senator Obama says that it has to be safe or disposable or something like that.

Look, I -- I was on Navy ships that had nuclear power plants. Nuclear power is safe, and it's clean, and it creates hundreds of thousands of jobs.

And -- and I know that we can reprocess the spent nuclear fuel. The Japanese, the British, the French do it. And we can do it, too. Senator Obama has opposed that. We can move forward, and clean up our climate, and develop green technologies, and alternate -- alternative energies for -- for hybrid, for hydrogen, for battery-powered cars, so that we can clean up our environment and at the same time get our economy going by creating millions of jobs.

Like his opponent, McCain has proposed a cap-and-trade plan to achieve a progressive reduction in carbon emissions. Participants would be allotted permits that would add up to the overall cap on emissions. They could buy and sell these rights among themselves, to the end that changes to meet the cap would be determined based on the profit motive. Unlike the Obama-Biden plan, the government would apparently not charge participants for emission permits so there would not be a huge slush fund to be doled out.

In addition to supporting alternative energy, McCain favors offshore drilling (not just looking at it, as he noted in Debate Three, but actually drilling).

Well, you know, I admire so much Senator Obama's eloquence. And you really have to pay attention to words. He said, we will look at offshore drilling. Did you get that? Look at. We can offshore drill now. We've got to do it now. We will reduce the cost of a barrel of oil because we show the world that we have a supply of our own. It's doable. The technology is there and we have to drill now.

The manmade global warming theory is plausible enough to warrant continuing scientific research, and if it is ever proven then costly remedial steps may be needed.

In the meantime, we believe this country faces a far more immediate threat from what might be called “galloping government” – namely a government that keeps expanding, taking on functions that it is not necessarily qualified to perform, and spending or promising to spend more and more money.

Sooner or later, if nothing is done to reverse this trend, the government will collapse of its own weight. The fall might come when lenders turned from asking questions about the solvency of private financial firms, such as they recently did in the case of Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, AIG, et al., to asking whether the U.S. government (and by extension our country) could pay its debts.

We fail to understand how the global warming issue merits so much attention, even in a year when “people are hurting,” while the real long-term problem continues to be ignored.

10/20/08 (E minus 15) – Both candidates offer “pie in the sky” healthcare plans.

Senators Obama and McCain both propose major healthcare “reform,” but along very different lines. Their respective plans have serious drawbacks, and neither candidate has said much about the skyrocketing and clearly unsustainable cost of Medicare and Medicaid.

Hopefully, the winner on November 4th will go back to the drawing board before sending a healthcare bill to Congress, but in the meantime here is our analysis of the plans on offer.

Obama/Biden plan promises affordable, accessible healthcare for all – no pain, big gain.

Barrack Obama and Joe Biden’s plan strengthens employer-based coverage, makes insurance companies accountable and ensures patient choice of doctor and care without government interference. Under the plan, if you like your current health insurance, nothing changes, except your costs will go down by as much as $2,500 per year. If you don’t have health insurance, you will have a choice of new, affordable health insurance options.

As the plan write-up makes clear, however, these benefits would be accompanied by a de facto government takeover of the healthcare industry. Thus, it is contemplated that the government would:

#Invest $50 billion of taxpayer funds ($10 billion per year for the next five years) in the creation of standards-based electronic healthcare information systems; require all healthcare plans to utilize proven disease management programs; require hospitals and providers to collect and publicly report data on preventable medical errors, nurse staffing ratios, hospital-acquired infections, and disparities in care and costs; etc.

#Institute de facto price controls for prescription drugs by permitting reimportation from other countries and empowering Medicare to negotiate for cheaper drug prices.

#Force healthcare insurance [HCI] companies “to pay out a reasonable share of their premiums for patient care instead of keeping exorbitant amounts for profits and administration.”

#Combat soaring medical malpractice premiums by squeezing the insurance companies that provide this coverage rather than, say, tightening safeguards against frivolous lawsuits and capping punitive damage awards.

In theory, existing private sector insurance coverage would not only be preserved but made better (HCI required to cover pre-existing conditions), with the new public plan option or income-based sliding scale tax credits serving to provide HCI coverage for people who currently cannot afford it.

In practice, the new options would accelerate the erosion of private sector plans. Why should an employer assume the burden of demonstrating that they are providing what the government considers a “quality health[care] plan to all of their employees?” Large employers could pay a percentage of their pay roll to the government and drop healthcare benefits for their employees. Small employers could minimize expenses by foregoing the 50% tax credit that would be available if they provided healthcare benefits.

Finally, there are proposals related to promoting exercise, healthier eating habits, and the like. In this area, it is acknowledged that individuals and families need to “take personal responsibility for their health and make the right decisions in their own lives.” [Imagine that!]

Readers are encouraged to think the Obama/Biden plan would pay for itself. Thus, a Rand Corporation study is cited for the proposition that electronic health records could result in savings of $77 billion per year “through improvements such as reduced hospital stays, avoidance of duplicative and unnecessary testing, more appropriate drug utilization, and other efficiencies.” Even bigger savings are hinted at, e.g., the treatment of chronic diseases costs “a staggering $1.7 trillion yearly,” which could purportedly be reduced by care management programs and medical home type models.

The cost of providing subsidized HCI for millions of Americans is not specified, nor is there any discussion of the cost to the private sector of complying with the extensive new regulations on employers, healthcare providers and insurance companies. [Historical note: the growth of Medicare and Medicaid costs was dramatically underestimated when these programs were introduced.]

The McCain/Palin plan reflects the belief that this country can and must provide access to healthcare for every American – again no pain, big gain.

John McCain believes we can and must provide access to healthcare for every American. He has proposed a comprehensive vision for achieving that. For too long, our nation's leaders have talked about reforming healthcare. Now is the time to act.

The general thrust would be to be to provide a government subsidy for HCI, so more people would acquire it, but empower individuals and families to choose the coverage they want instead of expanding government’s role.

#Competition between insurance companies would be promoted by permitting individuals to buy HCI coverage from out-of-state companies (vitiating state mandates that have contributed so much to soaring HCI premiums).

#Refundable tax credits would be provided (individual $2,500; family $5,000) for HCI. The money would go directly to the designated HCI company (preventing the taxpayer from using the credits for purposes other than healthcare). Any excess over the cost of the HCI coverage selected could be deposited in a Health Saving Account (HSA), effectively banking the money for future medical needs.

The value of the tax credits would be partially offset by taxing the imputed value of employer-provided healthcare benefits. Most taxpayers would realize a net financial benefit; by the same token there would be a net cost to the government (the aggregate impact on the federal budget is not specified in the plan summary, but more on this later).

#The re-importation of prescription drugs would be legalized [it is already happening in practice], but not Medicare “negotiation” of lower drug prices.

# The soaring cost of medical malpractice insurance would be addressed by tort reform versus regulation of the insurance companies. “Every patient should have access to legal remedies in cases of bad medical practice, but that should not be an invitation to endless, frivolous lawsuits.”

#The McCain-Palin plan contemplates major cost savings from “emphasizing prevention, early intervention, healthy habits, new treatment models, new public health infrastructure and the use of information technology.”

It is claimed that the McCain-Palin plan would provide health insurance coverage to 27.5 million uninsured Americans, “two million more uninsured Americans than the Obama plan.” [The number of U.S. residents without healthcare insurance is commonly said to be about 47 million, including 10 million non-citizens. “With liberty, justice and healthcare insurance for all,” 3/10/08. ]

Critics of the candidates’ plan abound; here are a few of them from both ends of the ideological spectrum.

Dr. Michael Ragain (Texas Tech University Medical School) says the United States is not getting its money’s worth for the massive amounts spent on healthcare, for which reason something big needs to be done. He questions the payoff, however, from the massive government intervention that Obama proposes.

To implement this plan, an army of new bureaucrats must be hired by the government to keep a watchful eye on the doctors and hospitals to ensure quality. Healthcare providers will have to hire larger staffs to collect and report this data adding more cost to the system. As these new structures evolve, the law of averages will prevail and the actual care will migrate to a median level of quality. The net result will be little improvement in care, and significant increase in the cost.

Dr. Paul Krugman of Princeton University (who just won a Nobel prize for economics) slams the McCain plan for relying on competition to cure what ails the U.S. healthcare system. First, insurance companies will resist covering people who are seriously ill; it is not profitable to do so. Second, other countries have spent far less with universal healthcare.

And the international evidence on health care costs is overwhelming: the United States has the most privatized system, with the most market competition -- and it also has by far the highest health care costs in the world.

[Krugman is quite right that the U.S. has the highest healthcare costs of any major country. For supporting data, see “Healthcare by the numbers,” 8/14/07.

His point about market competition in the U.S. healthcare system is poppycock, however, because market competition has been subverted by widespread and pervasive government intervention by the federal and
state governments.

The bulk of U.S. healthcare bills are paid by government agencies and/or insurance companies. Most patients never bother to ask about cost in choosing a doctor, hospital, lab, or clinic, nor do they consider cost in deciding what services or treatment they want unless the money is expected to come out of their own pocket.

HCI companies are subject to detailed mandates as to what coverage must be offered in the various states where they operate. Residents of a given state are not allowed to buy coverage from companies operating elsewhere, so there can be no interstate competition.

Medicare reimbursement schedules effectively set prices for the healthcare industry, thereby determining the winners and losers among medical professionals. We understand that general practitioners – the doctors who spend time talking with patients and hopefully help to identify and deal with potential health problems before they progress into conditions requiring major and costly treatment – are losing out to the “specialists with toys” such as radiologists and gastroenterologists. See the irreverent but enlightening comments of Andy Kessler in “The End of Medicine: How Silicon Valley (and Naked Mice) Will Reboot Your Doctor,” Harper Collins (2006).

Diagnostic Related Group 526 , our government’s coding system for medical care that’s been around since 1983 *** Percutaneous Cardiovascular Procedure w/Drug-Eluting Stent with AMI *** is, according to some bureaucrat, worth $14,784.

And if there is any hope for bringing healthcare costs under control without de facto rationing, which is pervasive in countries with universal healthcare, it lies in restoring competition to the industry – not giving the government new powers. See “The key to a better healthcare system: empower patients,” 11/26/07.

In talking about U.S. healthcare, one should distinguish between (a) the quality of healthcare services, which is generally very good and getting better, and (b) the cost and payment arrangements for said services, which is a source of worry and frustration for most of us.

Thus, “while the quality of American medicine has never been better,” writes one expert (a doctor licensed to practice in both Canada and the U.S.), “angst over American health care has never been greater. The state of Medicare, the cost of prescription drugs, and the numbers of uninsured are all considered crises. In a Market Strategies poll, 86 percent of respondents expressed deep concern about rising costs. Six out of ten regarded the likelihood of bankruptcy due to major illness as a serious problem.” Dr. David Gratzer, The Cure: How Capitalism Can Save American Health Care, Encounter Books (2006).]

Dr. Gratzer of the Manhattan Institute argues that McCain, not Obama, is “the real healthcare reformer.” Because McCain’s plan is “light on details,” however, it has been “an easy target” for critics.

Michael Tanner of the Cato Institute similarly concludes that while McCain’s plan is “far from perfect,” it is the best choice from a free market perspective.

Obama's plan, with its heavy reliance on government, leads to the same problems that bedevil universal health care systems all over the world: limited patient choices and rationed care. McCain's proposal is much more consumer centered and taps into the best aspects of the free market.

The candidates have advocated their respective policy proposals during the three presidential debates, as documented by transcripts of the proceedings. Here are some of the more notable things that have been said, or in some cases not said, about healthcare.

#Senator Obama summarized his healthcare plan as follows in Debate 2, while criticizing the McCain/Palin plan (“he doesn't tell you [that] he is going to tax your employer-based health care benefits for the first time ever”).

If you've got health care already, and probably the majority of you do, then you can keep your plan if you are satisfied with it. You can keep your choice of doctor. We're going to work with your employer to lower the cost of your premiums by up to $2,500 a year.

And we're going to do it by investing in prevention. We're going to do it by making sure that we use information technology so that medical records are actually on computers instead of you filling forms out in triplicate when you go to the hospital. That will reduce medical errors and reduce costs.

If you don't have health insurance, you're going to be able to buy the same kind of insurance that Senator McCain and I enjoy as federal employees. Because there's a huge pool, we can drop the costs. And nobody will be excluded for pre-existing conditions, which is a huge problem.

Senator McCain responded by accusing Obama of “saying government will do this and government will do that” and proposing to “fine you” if “you’re struggling to get health[care] insurance for your children.” As for his own plan, McCain said it would (a) reduce costs, and (b) provide tax credits, so that people now without HCI could afford it.

. . . we need to do all of the things that are necessary to make [the healthcare system] more efficient. Let's put health records online, that will reduce medical errors, as they call them. Let's have community health centers. Let's have walk-in clinics. Let's do a lot of things to impose efficiencies.

I want to give every American a $5,000 refundable tax credit. They can take it anywhere, across state lines. Why not? Don't we go across state lines when we purchase other things in America? Of course it's OK to go across state lines because in Arizona they may offer a better plan that suits you best than it does here in Tennessee.

And if you do the math, those people who have employer-based health benefits, if you put the tax on it and you have what's left over and you add $5,000 that you're going to get as a refundable tax credit, do the math, 95 percent of the American people will have increased funds to go out and buy the insurance of their choice and to shop around and to get -- all of those people will be covered except for those who have these gold-plated Cadillac kinds of policies.

[Refundable tax credits have already helped to swell the ranks of Americans who receive money from the U.S. Treasury instead of paying income taxes, and therefore have no perceived stake in keeping government spending and income taxes low. A new class of refundable tax credits for healthcare would make the situation worse, converting even more taxpayers into welfare recipients. As an alternative, why not tax the imputed value of employer-provided HCI, which in principle is an unjustifiable tax loophole, and offset the increased tax revenue by trimming tax rates for all taxpayers? See “Refundable tax credits: not the answer for healthcare,” 10/15/07.]

#In Debate Three, the candidates pitched their healthcare plans again, much as they had done in Debate Two. They also referenced people or groups who purportedly supported their plans and/or did not like their opponent’s plan.

McCain talked about how “Joe the plumber,” a taxpayer in Ohio who Obama had encountered on the campaign trail, would be affected by Obama’s healthcare and tax plans.

Now Senator Obama talks about the very, very rich. Joe, I want to tell you, I'll not only help you buy that business that you worked your whole life for and be able -- and I'll keep your taxes low and I'll provide available and affordable health care for you and your employees.

And I will not have -- I will not stand for a tax increase on small business income. Fifty percent of small business income taxes are paid by small businesses. That's 16 million jobs in America. And what you want to do to Joe the plumber and millions more like him is have their taxes increased and not be able to realize the American dream of owning their own business.

Whether or not the real life Joe had a big enough business to pay higher income taxes and be required to provide healthcare insurance for employees under the Obama plans, this example made the point that there would be losers as well as winners under said plans and not all of the losers would be among those commonly considered “rich.”

For his part, Obama cited the U.S. Chamber of Commerce as agreeing that the McCain-Palin healthcare plan would undermine employer-provided healthcare plans.

You all just heard my plan. If you've got an employer-based health care plan, you keep it. Now, under Senator McCain's plan there is a strong risk that people would lose their employer-based health care.

That's the choice you'll have is having your employer no longer provide you health care. And don't take my word for it. The U.S. Chamber of Commerce, which generally doesn't support a lot of Democrats, said that this plan could lead to the unraveling of the employer-based health care system.

Although Obama’s claim was supported by a New York Times article, the Chamber of Commerce has denied endorsing the healthcare plan of either candidate. Per the Chamber, this country is “having the wrong conversation on healthcare” by seeking a “silver bullet solution – such as universal coverage, a single payer system, or an employee mandate.” Their solution would feature “a strong employer-provided system and a robust individual market with affordable premiums and portable policies.”

#None of the debates resulted in a meaningful discussion of the crushing fiscal burden of Medicare and Medicaid. Talk about ignoring “the elephant in the living room.”

In Debate One, Jim Lehrer asked about initiatives that might have to be postponed or given up in light of the $700 billion financial bailout plan.

Obama essentially ducked the issue, while McCain’s principal suggestion was a spending freeze for nondefense spending.

In Debate Two, Tom Brokaw asked about the candidates’ priorities as between “health policies, energy policies, and entitlement reform.” This ignored the close connection between healthcare policies and entitlements (basically Social Security plus healthcare benefit programs), but never mind.

There are new economic realities out there that everyone in this hall and across this country understands that there are going to have to be some choices made. Health policies, energy policies, and entitlement reform, what are going to be your priorities in what order? Which of those will be your highest priority your first year in office and which will follow in sequence?

McCain said it would be possible to work on all of these goal at the same time, so there would be no need to set priorities between them.

Obama acknowledged a need to set spending priorities, but he said alternative energy, his healthcare plan, and action to make college more affordable were all at the top of the list. The location of reforming entitlements on the list was not specified.

Subsequently, Brokaw reformulated a question that had been submitted via the Internet.

Would you give Congress a date certain to reform Social Security and Medicare within two years after you take office? Because in a bipartisan way, everyone agrees, that's a big ticking time bomb that will eat us up maybe even more than the mortgage crisis.

Obama’s response was along the lines that the problem would resolve itself if “we understand the rest of our tax policies” and implement “a health care plan that actually works for you, reduces spending and costs over the long term, and Social Security that is stable and solvent for all Americans and not just some.”

McCain said he would answer the question. He envisioned fixing Social Security by adjusting taxes and benefits, much as Ronald Reagan and Tip O’Neill had done back in 1983. As for the more difficult problem of fixing Medicare, the matter should be referred to a bipartisan commission.

My friends, what we have to do with Medicare is have a commission, have the smartest people in America come together, come up with recommendations, and then, like the base-closing commission idea we had, then we should have Congress vote up or down.

Neither Brokaw nor either of the candidates said anything more about this subject, nor was McCain’s suggestion of a bipartisan commission given much (if any) play in the post-debate coverage. We are reminded of a well- known conundrum: If a tree falls in the woods and there is no one to hear it, does it make a sound?

In Debate 3, moderator Bob Schieffer provided another opportunity to talk about the dismal long-term fiscal outlook.

We found out yesterday that this year's deficit will reach an astounding record high $455 billion. Some experts say it could go to $1 trillion next year.

Both of you have said you want to reduce the deficit, but the nonpartisan Committee for a Responsible Federal Budget ran the numbers on both of your proposals and they say the cost of your proposals, even with the savings you claim can be made, each will add more than $200 billion to the deficit.

Aren't you both ignoring reality? Won't some of the programs you are proposing have to be trimmed, postponed, even eliminated?

Obama spoke about going through the federal budget line by line, page by page, and finding “a whole host of programs that don't work.” He offered few examples of such programs, however, seemingly preferring to talk about new programs – his healthcare plan, a serious energy policy, and the ability of our young people to go to college.

McCain suggested an across-the-board spending freeze, said he knew how to save billions of dollars in defense spending, and advocated eliminating subsidies for ethanol. He also committed to fight for a line-item veto and promised to veto “every earmark pork-barrel bill.”

Neither candidate mentioned the big problem: entitlements are growing faster than the other elements of the federal budget, and they are therefore progressively crowding out expenditures for national defense, homeland security, and other areas of “discretional” spending.

Realistically, it would be a big risk for either candidate to unilaterally start talking about major restructuring programs for Medicare or Medicaid. Shortly after Debate Three, a story broke about an Obama claim that the McCain-Palin healthcare plan would cut $882 billion in benefits for seniors.”

As previously discussed, taxes on employer-provided healthcare benefits under the McCain-Palin plan would not fully cover the healthcare tax credits to be provided. The McCain camp asserts that the plan would nevertheless be revenue neutral due to savings from electronic medical records, preventive health programs, etc. Ignoring said savings (even though similar savings are claimed for their plan), the Obama camp equates the shortfall with a cut in benefits for seniors.

Obama’s claim “has to rank among the biggest whoppers of the whole campaign,” said CBS News. Such support should help to minimize the damage, but just imagine the reaction if McCain has gone out on a limb by saying cuts in Social Security, Medicare or Medicaid are inevitable.

Whew, that was a long entry, hope that readers will nevertheless find it interesting and useful. Let us know what you think, please.

While SAFE has been rattling on about smaller, better-focused, less costly government – and other advocates of fiscal responsibility in government have been pushing the idea of a bipartisan commission with government spending, taxes, and entitlements all on the table – events have been moving in a different direction.

Forget “it’s the long-term economy, folks,” that is not what this election will be out. Do not expect a reasoned discussion of the candidates’ proposals for healthcare, energy, taxes, etc., because most Americans are no longer paying attention.

As for a bipartisan commission, Senator McCain did mention the idea in the second presidential debate.

The point was not followed up by anyone, however, nor was it mentioned – to our knowledge – in the post-debate commentary.

Who can blame the public for a short-term focus, when developments in the financial sphere are moving so erratically, at breathtaking speed, with no guarantee as to how the story will end?

It is not easy to understand developments in the global credit markets. Ask the average person to explain CDOs (collateralized debt obligations) or the LIBOR (London Interbank Offered Rate), and you may get a blank stare.

But most people are aware of the gut wrenching moves in stock prices, which are affecting the value of their 401-Ks, IRAs, etc.

Thus, the Dow Jones Industrial average fell 1,874 points (18%) last week (10/6 to 10/10). Then, apparently based on reports that the U.S. and other countries were moving to shore up the financial system, it soared 936 points (11%) on October 13. Market averages have been trending down since then; who knows where the DJIA will stand at the end of the week – let alone a month from now.

There has also been awareness in the business community of unprecedented difficulties in obtaining credit to meet payrolls, pay vendors, and generally keep the economy going. That’s the basic reason, we believe, that the rank and file rebellion against the $700 billion bailout plan collapsed so quickly.

Rather amazingly, the basic thrust of the bailout plan – which as originally conceived was to buy up “toxic” mortgage-based assets from financial institutions – has already changed.

The newest tack, which parallels steps being taken by the UK and other countries, is to have the government shore up ailing banks by purchasing preferred stock from them and guaranteeing their loans. It seems that authority for such measures was provided in the 400+ page bailout bill, so no need to obtain enabling legislation.

Executives of the nation’s largest banks were invited to an afternoon meeting in Washington on October 14, at which they were told – in essence – that they must accept the proffered support. There would be various strings attached, including (a) 5% dividends on the preferred stock + warrants, and (b) going-forward restrictions on executive compensation.

With varying degrees of enthusiasm, the big banks signed up for a total of $125 billion: BOA/Merrill Lynch $25B, J.P. Morgan Chase $25B, Citigroup $25B, Wells Fargo/Wachovia $25B, Goldman Sachs $10 B, Morgan Stanley $10 B, Bank of New York Mellon $3B, State Street $2B.

Another $125B will be made available to thousands of secondary banks, in their case on a voluntary basis.

Does this sound like a government takeover of the financial sector? Hopefully, things will not work out that way.

On the morning of October 14, the president assured that the steps being taken would be “limited and temporary.”

In a few moments, Secretary Paulson and other members of my Working Group on Financial Markets will explain these steps in greater detail. They will make clear that each of these new programs contains safeguards to protect the taxpayers. They will make clear that the government's role will be limited and temporary. And they will make clear that these measures are not intended to take over the free market, but to preserve it.

Experience shows, however, that government programs – once set in motion – often acquire a life of their own. While supporting the latest plan under current conditions, a Wall Street Journal editorial acknowledged the longer-term dangers.

We are under no illusions that government will cede its new powers easily, but if it doesn't the economic damage will be far greater than anything we've seen so far.

Holman Jenkins was more pointed in his “Uncle Sam, Inc.” column, which describes the new plan as a partial nationalization and suggests that the loan guarantees are even more troublesome than the preferred stock.

These steps have put out the immediate fire (hooray), but will greatly increase our politicization of credit and sow moral hazard, which helped deliver us into this mess in the first place. The challenges are far from over.

How does all this tumult affect this year’s election? People are shell shocked about the current economic situation. Concerns about longer-term issues have gone out the window, no one is given credit for having the right answers, and the basic thrust in the closing days of the campaign will be on negative attacks. Accordingly, says Michael Medved (10/15 column):

Each of the candidates will concentrate on warning the public about his opponent. They will make mirror image arguments: yes, current conditions are terrible and alarming—and, as a matter of fact, my opponent and his pals played a big role in creating this mess. What’s more, if he gets his hands on the White House, a bad situation will get far, far worse, bringing unimaginable pain to the American people.

SAFE will keep talking about the candidates’ policy positions and the longer term, basically to set the stage for the debates that can be expected in Washington next year.

Our next entry (on 10/20) will compare and discuss the McCain and Obama healthcare plans.

A dozen questions from the public (selected by moderator Tom Brokaw from thousands of questions submitted) were posed to Senators McCain and Obama in the October 7 presidential debate (town hall format, at Belmont University in Nashville, TN). With follow-up from Brokaw, about 20 questions were asked in total.

None of the questions was about taxes as such, yet the candidates kept bringing the subject up – primarily to tout the alleged merits of their own tax plans while attacking the proposals of their opponent. Evidently, they consider taxes an important subject; so do we, but not necessarily for the same reasons.

Obama – I want to provide a tax cut for 95 percent of Americans, 95 percent. If you make less than a quarter of a million dollars a year, you will not see a single dime of your taxes go up. If you make $200,000 a year or less, your taxes will go down.

McCain – So let's not raise anybody's taxes, my friends, and [to] make it be very clear to you I am not in favor of tax cuts for the wealthy. I am in favor of leaving the tax rates alone and reducing the tax burden on middle-income Americans by doubling your tax exemption for every child from $3,500 to $7,000.

Obama – Now, in contrast, Senator McCain wants to give a $300 billion tax cut, $200 billion of it to the largest corporations and a hundred thousand of it -- a hundred billion of it going to people like CEOs on Wall Street. He wants to give average Fortune 500 CEO an additional $700,000 in tax cuts.

McCain – Well, you know, nailing down Senator Obama's various tax proposals is like nailing Jell-O to the wall. There has been five or six of them and if you wait long enough, there will probably be another one. But he wants to raise taxes. My friends, the last president to raise taxes during tough economic times was Herbert Hoover . . .

It is a bit difficult to sort all this out, but here is the gist. Both candidates are proposing tax cuts versus the current (with Bush tax cuts in place) income tax regime.

True, the Obama plan would raise taxes for high earners, but the increase would supposedly be outweighed by reduced taxes (or in many cases increased tax refunds) for those in lower brackets.

The Obama tax plan is a net tax cut – his tax relief for middle class families is larger than the revenue raised by his tax changes for families over $250,000. Coupled with his commitment to cut unnecessary spending, Obama will pay for this tax relief while bringing down the budget deficit.

McCain proposes to leave income tax rates alone while doubling the tax exemption for children, which would result in lower income taxes overall.

Let’s leave the proposed tax credit for healthcare insurance ($2,500 for an individual/ $5,000 for a family) out of the equation, as it would be largely offset by taxation of the value of employer-paid healthcare insurance coverage. Per the McCain campaign, however, the net effect of these provisions would be lower taxes for most taxpayers.

If you or your family is in the 28% bracket, with an income of $180,000, you could receive employer provided health insurance even better than a Member of Congress, with a cost of almost $18,000, with no increase in taxes. Even the liberal leaning Tax Policy Center, agrees that the McCain proposals will result in a "net tax benefit" of more than $1,200 for an average tax payer.

Two additional points should be noted in comparing the effect of the candidates’ tax plans.

The Obama plan does not appear to say whether Alternative Minimum Tax (AMT) would be allowed to affect the returns of more and more taxpayers every year, a result that Congress has forestalled in recent years by enacting an annual “fix.” (This practice could be discontinued at any time, resulting in a stealth tax increase for millions of Americans as well as increasing the burden of tax return preparation substantially). The McCain plan calls for the AMT to be terminated.

#In addition to increasing income taxes for high earners, Obama has proposed a payroll tax surtax on earnings in excess of $250,000. Since a tax is a tax, irrespective of its label, the payroll tax surcharge should be considered in comparing the effects of the candidates’ tax plans.

While it can be argued that affluent taxpayers should pay higher taxes than they do now, the proposed increases are open to question – particularly if, as has been stated, they would help to fund tax benefits for those in lower brackets. The net result would be what columnist Cesar Conda calls “a redistributionist tax plan.”

To be sure, income tax rates have traditionally been graduated (rate increases incrementally at higher income levels) and there is nothing to say just how steep the graduation should be.

We find it troublesome, however, that the upper half of taxpayers, in terms of income, already pay 97% of the income taxes collected (despite the Bush tax cuts, which have been attacked as an unconscionable boon to high earners).

The Obama tax plan would make the income tax even more of a high-earner-only levy than it is today, e.g., “by eliminating all income taxation for seniors making less than $50,000 per year.” The natural result: (a) fewer people who are concerned about income tax rates and how much the government is spending, and (b) more people who think of government programs as “free” because they are not paying anything for them.

In a previous entry (“Let’s stop tinkering with taxes and reboot the system,” 11/19/07), we suggested an everybody-pays-something principle to remind lower income taxpayers of the need to keep taxes/spending under control. In line with this idea, we question McCain’s proposal to double the tax exemption for children. If there was to be a tax cut, it could best be made by cutting tax rates across the board.

Either of the plans would add to tax law complexity – thereby increasing the tax return preparation burden for taxpayers and the tax collection burden for the IRS – although McCain does deserve credit for proposing to jettison the AMT. In our opinion, it is essential to simplify the Internal Revenue Code before the public loses faith in the tax law entirely – several alternative approaches (flat tax, the FairTax, or radical simplification) are outlined in the 11/9/07 entry.

Over and above the foregoing comments, neither candidate has credibly explained how his proposed tax cuts would be paid for. Here is a sample of what was said (see transcript) in the October 7 debate.

McCain – So we're going to have to tell the American people that spending is going to have to be cut in America. And I recommend a spending freeze that -- except for defense, Veterans Affairs, and some other vital programs, we'll just have to have across-the-board freeze.

Obama – I'm going to spend some money on the key issues [goes on to talk about healthcare, a different energy plan, and college affordability] that we've got to work on. *** but actually I'm cutting more than I'm spending so that it will be a net spending cut.

Suppose that the tax cuts cannot be paid for, whether through an improved economy (tax cuts do stimulate the economy, but they still tend to reduce government revenue) or spending cuts.

One possibility is that the government will keep running up the National Debt until the fiscal meltdown that SAFE has been warning about comes to pass. “Oops, why didn’t someone tell us this would happen?”

Another possibility is an announcement by the next president, once he has been elected, that taxes must be increased after all. Noting a historical precedent for such a scenario, the Wall Street Journal suggests that 2009 could be déjà vu all over again.

In any case, the presidential debate process has failed to yield a meaningful discussion of the government’s fiscal outlook thus far, and there is only one debate left (on Wednesday, October 15).

Thus, per David Broder in a 10/9/08 column, “the longer it [the campaign] goes on, the less we know about what either of these men would do if he were in the Oval Office next year.” Thus, while giving lip service to the nation’s problems, the candidates keep “stubbornly repeating promises for broad tax cuts, new health benefits, and big government-financed projects.”

The natural tendency is to blame the candidates, as Broder seems inclined to do, but everyone is to blame. If the public wants real answers about fiscal issues (or anything else), it should demand that clear and pointed questions be asked.

SAFE suggested some questions in the 9/28/08 entry. Here they are, juxtaposed with the rambling, often vague questions about economic matters [in blue] that were asked during the October 7 debate.

# [No questions about turmoil in the financial markets; SAFE was focusing on the long-term problem vs. the immediate situation.]

#With the economy on the downturn and retired and older citizens and workers losing their incomes, what's the fastest, most positive solution to bail these people out of the economic ruin?

#Well, Senators, through this economic crisis, most of the people that I know have had a difficult time. And through this bailout package, I was wondering what it is that's going to actually help those people out.

#How can we trust either of you with our money when both parties got -- got us into this global economic crisis?

#What do you think should be done about the projected fiscal gap as the baby boomers retire and healthcare costs continue to soar?

#[Brokaw] There are new economic realities out there that everyone in this hall and across this country understands that there are going to have to be some choices made. Health policies, energy policies, and entitlement reform, what are going to be your priorities in what order? Which of those will be your highest priority your first year in office and which will follow in sequence?

#What are your ideas for restructuring the entitlement programs of the government, i.e., Medicare, Social Security, and Medicaid, so they will not bankrupt the country?

#[Brokaw] Would you give Congress a date certain to reform Social Security and Medicare within two years after you take office? Because in a bipartisan way, everyone agrees, that's a big ticking time bomb that will eat us up maybe even more than the mortgage crisis.

#How would you go about eliminating wasteful government spending programs, and what specific programs would be on your “hit list”?

#Since World War II, we have never been asked to sacrifice anything to help our country, except the blood of our heroic men and women. As president, what sacrifices -- sacrifices will you ask every American to make to help restore the American dream and to get out of the economic morass that we're now in?

#Do you agree that the U.S. tax system needs to be made a great deal simpler than it is now, and if so how would you propose to bring this about?

We hold no special brief for SAFE’s questions. Others have offered good questions on the fiscal situation as well, notably the Concord Coalition.

But there might be a better discussion about this situation if some straightforward questions got asked for a change. And while the newscasters moderating the debates may not have gotten the point, the public is disenchanted with most all of its political leaders.

Daniel Heninger zeroes in on the public mood in “Uncle Sam: Too fat to fail,” 10/9/08.

The rarest coin in the realm now is confidence. Let us posit that John McCain and Barack Obama in their debate or at any given hour are doing next to nothing to raise confidence. They have company in their failure -- 533 other Members of Congress and one president.

Maybe it is time to stop settling for misleading half answers to questions that were not asked very clearly in the first place.

Maybe the country should demand a real debate about the coming fiscal meltdown before it is too late.

Our last entry concluded with a financial bailout proposal seemingly on its way to passage in Congress, basically because there did not seem to be much choice.

Negotiations continued on Friday [9/26] and into the weekend, with expectations that a deal could be announced before Sunday evening when the Asian markets opened.

A deal was indeed announced over the weekend by the Congressional leadership, but the House of Representatives voted it down by a narrow margin on Monday (9/29) in what columnist Peggy Noonan described as “an epic repudiation of the Washington leadership class.”

Two weeks ago the president of the United States, the speaker of the House, the secretary of the Treasury and the leadership of both parties in Congress came forward and announced that the economy was in crisis and a federal bill to solve it urgently needed. The powers were in agreement, the stars aligned, it was going to happen.

And then the phones began to ring, from one end of Capitol Hill to the other. And the message in those calls was, essentially: We don't trust you to fix the problem, we suspect you may have caused it. Go away.

Already down in Monday morning trading, the stock market fell further on the news (down at the close: Dow Jones Industrials 7%, NASDAQ 9%) before making up much of the lost ground the next day.

Supporters of the bailout proposal (now being called a rescue plan) went to work with the objective of adding enough sweeteners and twisting enough arms to win approval of the “Emergency Economic Stabilization Act of 2008.”

However, many economic conservatives still thought a government-led bailout would do more harm than good.

The National Taxpayers Union, Citizens Against Government Waste, and 25 other taxpayer groups (SAFE respectfully declined) sent a 10/1/08 letter to the U. S. Senate urging that there be no bailout.

This unconscionable scheme forces the vast majority of taxpayers who were honest and prudent to bail out firms that made bad business decisions. Furthermore, it does nothing to address the root causes of today's market difficulties. The long-term effects of this fiasco, including inflation, a weaker dollar, and an even more precarious federal balance sheet, are almost certain to outweigh the shallow short-term stabilization of moneyed interests who have been twisting arms on both ends of Pennsylvania Avenue.

Newt Gingrich suggested that the real answer was to fire Henry Paulson as secretary of treasury.

And plenty of opposition was bubbling up from less well-known sources, fueled by mistrust of the government and anger at those who, having allowed the subprime crisis to develop and spread, now expected to be saved. Close to home, for instance, Hudson Management of Milton, Delaware, repeatedly ran an open letter advertisement in the newspaper entitled “Socialism is at the gates!”

Our way of life is being sold up [down?] the river for $700 billion, which, by the way, is nothing more than a guess by the government bureaucrats in Washington. They think that money will be sufficient to fix this mess, but they don’t have any idea how deep the proverbial rabbit-hole really goes. Have you ever heard of a government project coming in under budget?

At the end of the day, however, the situation was too urgent to be resolved simply on ideological grounds, as House Majority Leader Steny Hoyer (D-MD) said in a Wall Street Journal column.

Crises have the power to unite us in strange ways, and on Monday [when the House voted down the bailout bill], the true dividing line was between those who understand the high cost of doing nothing, and those who haven't yet been convinced. I only hope that economic events won't do the convincing for us.

Some economic conservatives (or should we say visionaries) agreed with Hoyer, including Congressman Paul Ryan. (R-WI), and they took the risk of voting their convictions whether this was the popular thing to do or not. As columnist Kim Strassel put it:

Mr. Ryan, perhaps the free market's truest friend in Congress, earlier this week voted to help rescue that free market. He hated the Paulson plan, but hated more the economic crash he is convinced will follow inaction. And in casting his "yes" vote on Monday, he knew what was coming: "The easiest thing would be to vote no and go hide in my office and watch the markets collapse. I will suffer politically for this, but I will sleep at night."

By the close of business on Friday (10/3), a revised bailout bill – now swollen to 450 pages, vs. the 3-page version offered by the administration initially – had been passed by both houses of Congress and signed into law by the president.

The global financial markets are huge, complex, and interlinked. Once turbulence gets started, it is tough to bring things back under control. Despite having gotten the legislation (basically) that they asked for, Henry Paulson, Fed Chairman Ben Bernanke, et al. will have their hands full over the next several months.

Even more worrisome, in our opinion, misconceptions about how the current crisis came about may lead to bad decisions down the line.

Both presidential candidates, and many others, seem disposed to blame the subprime crisis on “greed on Wall Street” and a failure of the government to provide sufficient regulation. Far too little has been said about the affirmative damage from misguided regulation.

We have in mind longstanding government policies to encourage the suspension of sound lending standards for home purchasers, coupled with Congressional refusal to rein in Fannie Mae and Freddie Mac until these huge hybrid entities (privately owned, but operating with the implicit guarantee of the U.S. government) foundered and had to be taken over. As Thomas Sowell put it in a 9/30 column:

The idea that politicians can assess risks better than people who have spent their whole careers assessing risks should have been so obviously absurd that no one would take it seriously.

But the magic words "affordable housing" and the ugly word "redlining" led to politicians directing where loans and investments should go, with such things as the Community Reinvestment Act and various other coercions and threats.

The policy of excessive monetary ease that the Fed followed under Alan Greenspan was another big mistake, because if the banks have too much money they are naturally inclined to lend it.

And of course, there were millions of people willing to buy houses they could not afford and/or did not even plan to occupy, on the assumption that housing prices could only go up.

A bubble should have been readily foreseeable, although many observers denied that one was in process until late in the game. See, e.g., “Media Myths: The Housing Bubble Is Bursting,” Noel Sheppard, 11/30/05.

So let’s apportion the blame fairly, rather than demonizing financial firms while giving misguided government leaders, irresponsible borrowers, and feckless commentators a pass.

As might have been expected, the bailout proposal came up in the vice-presidential debate on the evening of October 2^nd. However, the dialog was hardly illuminating.

Senator Joe Biden (D-DE) sounded the failure to regulate theme, placing the blame for the subprime crisis on the current administration (alone) while ignoring failures of members of his own party.

Governor Sarah Palin complained about Wall Street greed, which she and Senator McCain vow to crack down on if elected. She did note that Congress had rebuffed proposals over the years for tighter regulation of Fannie Mae and Freddie Mac, but the broader point that government intervention in the markets led to problems in the first place was left unsaid.

Given the speed and ease of information retrieval these days, one might expect such glaring oversights to be quickly pointed out. However, the “fact checking” process typically focuses on discrete, readily verifiable points as opposed to either (a) big concepts, or (b) important points that should have been made but were not.

Here are two examples of seeing the trees while missing the forest, both taken from the FactCheck.org review of the Biden/Palin debate.

Biden wrongly claimed that McCain had said "he wouldn't even sit down" with the government of Spain. Actually, McCain didn't reject a meeting, but simply refused to commit himself one way or the other during an interview.

Palin wrongly claimed that “millions of small businesses” would see tax increases under Obama’s tax proposals. At most, several hundred thousand business owners would see increases.

While such errors may loom large to some, we are more concerned about the botched explanations of the subprime crisis. For what might have been said, see “Do Facts Matter?” by Thomas Sowell, 10/3/08.

#It was liberal Democrats, led by Senator Christopher Dodd and Congressman Barney Frank, who for years-- including the present year-- denied that Fannie Mae and Freddie Mac were taking big risks that could lead to a financial crisis.

# . . . it was the government that pressured financial institutions in general to lend to subprime borrowers, with such things as the Community Reinvestment Act and, later, threats of legal action by then Attorney General Janet Reno if the feds did not like the statistics on who was getting loans and who wasn't.

#Then there is the question of being against the "greed" of CEOs and for "the people." Franklin Raines made $90 million while he was head of Fannie Mae and mismanaging that institution into crisis. Who in Congress defended Franklin Raines? Liberal Democrats . . .

Here are some other key misconceptions and/or misstatements during the debate that slipped under the FactCheck radar.

#Following the example set by Senator Barrack Obama in the first presidential debate, Biden claimed that 95% of Americans would pay less rather than more taxes under his running mate’s tax proposals.

Realistically, this cannot possibly happen – and everyone should know it – unless government spending is slashed aggressively (which Obama has not proposed).

For her part, Palin did not deny that McCain proposes substantial tax cuts – which Biden repeatedly claimed were for the benefit of upper bracket taxpayers and big corporations – but has not adequately explained how they would be paid for.

#Neither candidate shone when it came to talking about global warming and its implications for energy policy.

Palin expressed concern about global warming, but did not claim to know what was causing it. As for what to do about this phenomenon, she and McCain propose aggressive development of alternative energy sources as well as permitting drilling for oil in more areas.

We must know what is causing a problem in order to solve it, said Biden, adding that he believes global warming is manmade. He and Obama favor aggressive development of alternative energy sources too.

Both candidates missed the mark. The causes of global warming have not been definitively established by scientists, the warming trend will not necessarily continue (it has stalled in recent years), and there is no apparent justification for undertaking the huge expense of converting to alternative energy systems on a crash basis. SAFE’s in-house expert on the subject, Bill Morris, explains.

The evidence is mounting that carbon dioxide (CO2) is not the major cause of global warming. The CO2 concentration is steadily increasing, but the Earth’s temperature has had distinct ups and downs with a longer- term trend slowly increasing by 0.2 degrees C from 1979 to 2006. As CO2 concentration continues to increase, there has been a distinct decrease in temperature (per satellite data) from 2006 to the present.

Ocean temperatures are in agreement with the satellite data. Temperatures from 3000 Argo Project temperature probes have shown that a slight cooling is under way (Washington Times 3/21/08 p37). As CO2 concentration continues to increase, the Earth is not warming. This is only part of the strong evidence that CO2 is not a major factor causing global warming.

The above information is based on careful measurements, not on computer predictions. It is increasingly clear that expensive efforts to stop global warming by limiting CO2 emissions would be futile.

#Last but not least, there were no questions – let alone answers – about the longer-term fiscal crisis looming on the horizon.

The first presidential debate was similarly devoid of content in this regard, and there are only two presidential debates left.

Wouldn’t it be sad if Americans went to the polls in November without hearing word one from the candidates about what should be the central issue of this year’s campaign? “It’s the long-term economy, folks!”

And given the obvious disenchantment of the public with political leaders in general, it seems to us that both McCain and Obama are missing a real opportunity to show that they “get” the point.

You should get the “decrease spending” message out and tell your members to vote for John McCain. Obama will spend us out of social security! - - Sound reproduction engineer

Thanks for the comment. We can't do what you suggest, as a Section 501(c)(3) organization, but we have been and will continue to hammer home the message that this country needs smaller, more-focused, less costly government. Hopefully, the voters will take the point to heart and make a wise choice

This has been a long, often torturous election campaign – generally more focused on personalities and insults than on substance.

Do not be surprised. As columnist Thomas Sowell observes, “If you took all the fraud out of politics, there might not be a lot left.”

The reason so many people misunderstand so many issues is not that these issues are so complex, but that people do not want a factual or analytical explanation that leaves them emotionally unsatisfied. They want villains to hate and heroes to cheer-- and they don't want explanations that do not give them that.

SAFE continues to believe that issues matter, however, notably the dismal long-term fiscal outlook. Thus, we suggested a theme for this year’s election in January (1/14/08 entry): “It’s the future economy, folks!”

Instead of obsessing about whether the U.S. is in a recession yet and expecting the government to provide “economic stimulus,” the idea would be to ask the candidates questions and demand answers about the government’s (and by extension the nation’s) slide towards insolvency. For instance . . .

#What do you think should be done about the projected fiscal gap as the baby boomers retire and healthcare costs continue to soar?

#What are your ideas for restructuring the entitlement programs of the government, i.e., Medicare, Social Security, and Medicaid, so they will not bankrupt the country?

#How would you go about eliminating wasteful government spending programs, and what specific programs would be on your “hit list”?

#Do you agree that the U.S. tax system needs to be made a great deal simpler than it is now, and if so how would you propose to bring this about?

Other questions come to mind as well, such as will you support a market-based energy policy versus mandating a government-directed scheme to reduce carbon emissions that would cause energy prices and/or taxes to keep soaring without notable environmental benefits?

By the way, something good just happened on energy policy – Congress was unable to agree on the terms for a revised regime of bans on offshore oil drilling due to the president’s threat to veto a “compromise” proposal that would have banned drilling within 50 miles of shore (where most of the oil is thought to be located), so the current ban will expire on September 30^th. No doubt there will be a move to renew the ban in January, but at least the onus will be on the proponents of perpetuating a policy designed to impede domestic oil exploration and production.

Recent developments may be pushing things in our direction on fiscal policy as well, albeit not in the manner we had envisioned. There continues to be limited recognition of the need to get the government’s fiscal affairs in order to avert a crisis down the road, but turmoil in the financial markets could spark perceptions that a crisis is at hand now.

David Walker of the Peterson Foundation wrote a 9/18 column for the Financial Times comparing the current subprime crisis to “the super-sub-prime crisis brewing in Washington.” There are, he notes, several parallels in the two situations.

#Disconnects between who benefits from imprudent behavior and who gets stuck with the consequences.

Accordingly, in Walker’s view, it is imperative that the nation’s leaders face up to the next crisis (we call it the coming fiscal meltdown) as well as dealing with the immediate problem.

What needs to be done? First, we need leadership from the presidential candidates and members of Congress. We need to re-impose tough budget controls, constrain federal spending, decide which Bush tax cuts will stay, and engage in comprehensive reform of our entitlement, healthcare and tax systems. A bipartisan commission that would make recommendations for an up-or-down vote by Congress would be a positive step to making this a reality.

Hello, is anyone listening? Given the response to the administration’s bailout proposal (aka “the Paulson plan”), it is hard to be optimistic.

In Congressional hearings last week, Secretary of the Treasury Henry Paulson and Federal Reserve Chairman Ben Bernanke attempted to convince legislators of the need to authorize up to $700 billion in federal funds to buy financial assets that do not have a ready market and have led to a vicious circle of declining asset values, write-downs, capital increases, and further declines in asset values.

Action was needed, it was said, to head off a panic in the global financial markets that could have disastrous consequences. Needed changes in the regulatory scheme of things, tax policy, etc. could be dealt with later.

The timing was awkward, to say the least, with Congress racing to adjourn until after the 2008 election. The only reason why the request might be granted, it seemed, was that no one wanted to be blamed if the global financial markets “seized up” and they had explain their failure to do anything to prevent this from happening.

One questioner after another raised concerns about the proposed “bailout,” which admittedly was an extraordinary proposal and subject to objections from either end of the political spectrum.

Why should the investment banks et al. get rescued by taxpayers after taking risks that went sour in hopes of reaping outsize profits? Heads we win, tails the taxpayers lose.

As long as Congress is being asked to be so generous to Wall Street, how about some money for Main Street to help folks who are having trouble paying their mortgages, car companies that are on the ropes due to high gas prices, etc.?

For instance, wouldn’t it be great to authorize bankruptcy courts to alter the terms of mortgages rather than simply enforcing them?

Too much power would be vested in one man, the secretary of treasury, who will be out of office in four months. There must be a mechanism to ensure full transparency and appropriate oversight.

Since the full $700 billion would not be spent (actually invested, since outlays would be applied to buy assets that could eventually be resold) at once, why not ask for say $150 billion now and come back to Congress later if more money is needed?

As taxpayers are being asked to assume a lot of risk, the government should acquire equity stakes in the firms being bailed out. (Never mind that equity stakes have a value, which would presumably inflate the price of assets being acquired.)

The amounts may not be large in relation to the overall problem, but the public will not stand for executives running the financial firms they headed into the ground and then exiting with multi-million dollar severance packages. (This might make more sense for firms being bought out or taken over, such as Bear Stearns or Fannie Mae, than for the larger number of firms that would merely sell distressed assets in an auction process organized by the Treasury Department. Regulating executive compensation in such a big way sounds like Socialism.)

Paulson and Bernanke may be financial experts, but they did not prove adept in making the sale. For better or worse, it seemed the asset purchase proposal might be altered in ways that would significantly increase its ultimate cost and/or eviscerate its effectiveness.

Many of the proposed modifications had a logical basis, however, and it was also clear that the hearings were being conducted partly for show. Maybe a consensus version of the bailout proposal was being developed behind the scenes.

Or maybe not. On Wednesday (September 24), Senator John McCain announced his sense that the bailout proposal was in trouble, wherefore he and Senator Barrack Obama should postpone their debate on Friday evening, return to Washington, and get involved with the president and the Congressional leadership to resolve matters if it meant working all weekend.

The president addressed the nation on Wednesday evening, laying out the background of the subprime crisis in rather professorial terms without attempting to assign blame to any identifiable person or group. This was not merely a rescue plan for Wall Street firms, he said, because if the financial system collapsed everyone in the country would suffer. "We must not let this happen."

The subsequent action has been widely reported, including a White House meeting (between the president, Congressional leaders, and the two candidates) that was expected to ratify a deal but broke down in partisan wrangling and finger pointing.

Negotiations continued on Friday and into the weekend, with expectations that a deal could be announced before Sunday evening when the Asian markets opened.

Meanwhile, the U.S. stock market moved sideways on Friday, but there were fresh signs of strain in the financial system. A Seattle-based thrift, Washington Mutual, folded late Thursday afternoon, which would be billed as “the largest bank failure in U.S. history.” Wachovia Corp. was reportedly seeking a merger partner over the weekend.

As for the first presidential debate, it took place as scheduled, at the University of Mississippi, on Friday evening. By prearrangement, the emphasis was supposed to be about foreign policy (vs. an earlier determination that the first debate would have a domestic focus).

Moderator Jim Lehrer began the 90-minute session with several questions related to the financial bailout proposal before turning to Iraq, Afghanistan, Iran, Russia, etc. Given the immediacy of the financial situation, which affects global markets and not just “Wall Street,” his decision seemed clearly appropriate.

The most interesting point in the financial bailout segment of the debate, we thought, came when Lehrer pressed the candidates as to whether and how a $700 billion purchase of troubled assets would affect their previously announced economic proposals. This was not quite the line of questioning we would have suggested (see above), but at least the point was made that the government does not have limitless resources. If initiatives are taken in one area, therefore, sacrifices may be required in others.

Per the National Taxpayers Union Foundation, both candidates have proposed initiatives during the campaign that would worsen the government’s fiscal situation rather than improving it.

As John McCain and Barack Obama jockeyed for position in the race to appear "leader-like" over the economy and in upcoming debates, the latest update of the National Taxpayers Union Foundation's (NTUF) candidate cost analysis project shows that despite their different styles, the major party Presidential hopefuls have one thing in common: both their agendas would add billions more to the taxpayer's tab every year.

NTUF's fourth and final round of assigning price tags to the candidates' platforms since January 29 found that Sen. McCain (R-AZ) would increase yearly federal spending by $92.4 billion, compared to Sen. Obama's (D-IL) $293.0 billion. NTUF also released a first-time analysis of Libertarian Party candidate Bob Barr, who would instead cut annual federal spending by $200.9 billion. The studies include proposals through September 19.

McCain and Obama were quick to point out asserted flaws in the other’s proposals during the debate, but less forthcoming in volunteering initiatives that they would be willing to forego themselves.

Both candidates are on record as favoring “tax cuts,” the main difference being who would benefit and how. Neither one acknowledged that overall taxes will have to increase (whether the $700 billion bailout takes place or not) unless spending is slashed dramatically.

Senator Obama said some of his proposed spending proposals might have to be delayed or phased in, such as components of the energy plan, but he was far more specific about programs that he says “must” be undertaken on a priority basis – health care, curing U.S. dependence on imported oil, increased federal outlays for education, infrastructure, etc.

Senator McCain vowed that he would veto spending bills containing Congressional earmarks, which is important from a symbolic standpoint but represents a relatively minor portion of the overall budget. He also promised a stem to stern review of every program of government, albeit naming only one program (ethanol subsidies) that should be eliminated, and consideration of a “freeze” on all categories of government spending (except national defense, veterans benefits, etc.)

Most of the talk afterwards was about “who won” the debate, with supporters attempting to spin the discussion in favor of their respective candidates (cheer the hero, jeer the villain).

If there was any sense of outrage that the candidates had squandered an opportunity to get real about preventing the next financial crisis, rather than simply endorsing a cleanup of the current mess, no one seemed to be expressing it.

The current financial crisis was quite predictable, and indeed was importantly triggered by government policies to encourage the relaxation of home mortgage loan standards that go back to at least the 1990s. Had the warning signs been heeded, the situation could have been prevented with far less pain than the country is now experiencing.

Eventually prices rose too high, creating the bubble that popped last year (as all financial bubbles do, eventually). On the way up, government-sponsored enterprise Fannie Mae bragged in a 2002 report that it had succeeded in “fundamentally altering the terms upon which mortgage credit had been offered in the United States from the 1960s through the 1980s.” The company called that “mortgage innovation,” but it was an innovation that eventually caused today’s collapse.

We think a fiscal meltdown is on the horizon, and that it is time to have an adult national conversation about it. If the public continues to sit back and rely on the folks up front to steer the ship of state towards the Promised Land, periodically asking “are we there yet,” the result may be a calamity too big for anyone to fix.

If you agree, let us hear from you. More importantly, we urge you to reach out to family, friends, business associates, political leaders and the media. The election is a mere 36 days away now, and time is of the essence.

On 9/14/08, SAFE conducted a three-question survey on global warming at Newark Community Day (on the University of Delaware campus), much as we have done for other issues in previous years (Social Security reform: 2005; averting a fiscal crisis: 2006; cut spending or raise taxes: 2007).

- one of several important factors [98]; primary cause [34]; not significantly so [9]

•How much would you be willing to spend, in higher energy prices, to combat this situation?

In sum, an overwhelming majority of the participants accepted the reality of global warming, attributed it in significant part to manmade greenhouse gas emissions, and said they would accept an energy price increase of at least 10% (a big number in dollar terms) to combat the situation.

We also reviewed the responses by gender and by age group. This revealed a striking and somewhat surprising difference of opinion (not observed in our previous surveys) between male and female participants.

An overwhelming majority (86%) of the females characterized global warming as a “huge problem” versus slightly over half of the males.

All 12 of the “no worry” responses and 17 out of 18 of the votes against higher energy prices came from males. And the lone woman who voted against higher energy prices added an apologetic note that she was “already struggling with current energy prices.”

Thanks to all of those who participated in the survey, expressing their views on this important topic. As promised, those who provided their names and contact information were entered in a cash prize drawing.

A SAFE check for $100 will be going out to the lucky winner, Michael Paul of Dover, Delaware. Congratulations, Mr. Paul!

The results of the survey demonstrate, we think, that SAFE has a way to go in convincing people (especially women) that the concerns that have been expressed about manmade global warming are overrated.

This could seem like a daunting challenge, as SAFE hardly has the financial resources to make films on the subject, run TV ads and the like, as the global warming alarmists have been doing. However, we do have one advantage: the scientific facts and economic logic appear to be running in our favor.

See, for example, “Global Warming Moves On,” Dr. David Evans, New Zealand Centre of Political Research, 8/7/08, which report why scientific research findings over the past decade have rendered “our current debate over carbon emissions obsolete.”

The key points, per Dr. Evans, are: (1) new ice core data showing that temperature rises have preceded rather than followed atmospheric carbon increases; (2) lack of any other “evidence that carbon emissions cause significant global warming; (3) the warming trend that began in 1975 apparently ended in 2001; and (4) decades of measurement with thermometers in weather balloons have failed to demonstrate a “greenhouse signature.”

Evans goes on to suggest that it would be foolish to mandate huge expenditures to curb the level of carbon emissions based on the current state of scientific knowledge about this subject.

Policy makers must grapple with the possibility that global temperatures don’t rise over the next decade, and that the recent rises were predominately not due to our carbon emissions. Deliberately wrecking the economy for reasons that later turn out to be bogus hardly seems like a recipe for electoral success.

On Newark Community Day, we took the opportunity to offer participants in the global warming survey (and others as well) handouts reflecting our viewpoint, which they hopefully took home and reflected on.

One of the key components was a chart recapping why we believe that “galloping government” is a far more severe and immediate problem than global warming.

A cartoon that was on display makes much the same point. Two men are watching a little pup labeled Global Warming. “Look out!” says one, “that puppy can bite.” Neither man sees a far bigger and more ferocious dog, labeled Financial Disaster, which is standing behind them.

Little did we know when this cartoon was dreamed up by SAFE director Bill Morris just how tumultuous things were about to get in the financial markets. To make the point without lengthy discussion, consider the following headlines from the Wall Street Journal:

9/15/08 – Crisis on Wall Street as Lehman Totters, Merrill Seeks Buyer, AIG Hunts for Cash

9/17/08 – U.S. Plans Rescue of AIG to Halt Crisis; Central Banks Inject Cash as Credit Dries Up

9/18/08 – Mounting Fears Shake World Markets as Banking Giants Rush to Find Buyers

Sounds ominous to say the least, particularly coming after the earlier takeovers of Bear Stearns, Fannie Mae and Freddie Mac. Let us hasten to add, however, that this is not the fiscal meltdown we have so often talked about.

Currently, the U.S. federal government’s credit is considered solid (just as the credit of the aforesaid financial firms was accepted without question a year ago). The government can therefore take over firms that have become overextended in the current environment (housing slowdown, soaring energy prices, etc.) or purchase toxic assets for cash that the firms could not readily find a buyer for under current conditions.

Never fear, the government is here, and by the end of the week the announcement of a systemic bailout plan had at least temporarily calmed the roil waters with the stock market indexes back to around where they had stood at the beginning of the week.

To be complete, we would add that the current financial turmoil is not primarily a result of greed on Wall Street, nor is the creation of new government regulatory structures necessarily the best antidote. William M. Isaac (chairman of the Federal Deposit Insurance Corp. from 1981-85) makes a good case that the root problem is the Fair Value Accounting rules of the Financial Accounting Standards Board, which have been mindlessly enforced to force assets to be written down to unrealistic distress sale levels.

If we had followed today's approach during the 1980s, we would have nationalized all of the major banks in the country and thousands of additional banks and thrifts would have failed. I have little doubt that the country would have gone from a serious recession into a depression.

If we do not halt the insanity of forcing financial firms to mark assets to a nonexistent market rather than their realistic economic value, the cancer will keep spreading and will plunge the world into very difficult economic times for years to come.

Over and above the current turmoil, the U.S. government itself could come to be regarded as overextended. The reasons: reckless spending for wasteful or unnecessary programs, future commitments that cannot be covered, and an inability to collect sharply higher taxes without tanking the economy.

Were this to happen, and we think it will at some point unless decisive action to eliminate wasteful spending, etc. is taken soon, who would bail out the government? Talk about a “huge problem,” just imagine what the headlines might say then.

This electoral cycle has seemed to stretch on interminably, but finally the pot is coming to a boil. The presidential candidates have been nominated, and the first televised debate will take place on September 26^th (University of Mississippi, domestic policy focus).

Advocacy groups across the political and/or ideological spectrum are competing to implant their ideas in the minds and hearts of American voters in a way they hope will influence the positions taken by the candidates, the outcome of the election, and what happens after that.

Experience shows that only a handful of “big ideas” will make the cut, with the other issues winding up on the national back burner – for years or even permanently. With the stakes so high, the competition is intense and at times emotional. Advocates often overstate the merits of their proposals, while neglecting to point out drawbacks, so do not believe everything that you see or hear.

This entry will be devoted to some of the ideas being offered that bear on the SAFE agenda – what is being said, by whom, and does it make sense? The positions of the candidates themselves will be reserved for future entries.

Healthcare – Have you noticed the flurry of television advertisements about people who, due to lack of healthcare insurance or medical expenses in excess of policy limits, are being forced into bankruptcy.

The series features video clips of individuals who have had this experience. Additional videos are available on the “Divided We Fail” (a joint venture of the AARP, Business Roundtable, and other groups) Website, and it is said that there were 1.8 million medical bankruptcies in a single year.

This alarmingly high number was probably arrived at by taking the total number of bankruptcies for the year in question (there were over 1 million personal bankruptcies in 2007) and attributing all of them to healthcare bills (versus business failures, the housing slump, etc.) Here’s an AARP memo that seems to support our surmise.

The “Divided We Fail” ads exhort viewers to tell their political representatives to fix the problem, which by implication would be done by implementing universal healthcare. Saying the viewers should pay the bills in question would probably not go over very well. This may be a distinction without a difference, however, as the government would look to the public to cover its expenditures for universal healthcare.

There is no recognition that the government (or by extension the country) may not be able to afford unlimited healthcare for everyone, even though the soaring cost of existing healthcare programs (Medicare and Medicaid) is generally seen as the biggest contributor to the coming fiscal crisis.

William Novelli, CEO of AARP, effectively acknowledged this point in the panel discussion after the national I.O.U.S.A. premiere on 8/21/08. I.O.U.S.A. is “an absolutely terrific film,” he said, that lays out “the crisis, if you will . . . in a very dramatic and understandable way.” He went on to speak of the urgency of “bring[ing] healthcare inflation under control.”

Nevertheless, Novelli characterized the Divided We Fail campaign –wrongly in our view – as part of the solution rather than part of the problem.

Well, Dave [Walker] has been going around with this fiscal wakeup call. AARP's been doing a similar thing. We started a coalition with big business and-- and small business and with a big labor union. We call it "Divided We Fail." We've been going to the people and we've been talking about these very issues.

Energy – Another series of television advertisements portrays a wave of popular support for giving the energy infrastructure of the U.S. economy a make over (repower America). Spinning windmills and solar panels will replace dirty power plants, cars will run on electricity versus fossil fuels, etc., all to be accomplished in a mere ten years.

The speakers in the ads say they are not asking for such action any more, they are demanding it. Ergo, those who would lead America had better take heed and act accordingly.

Never mentioned is the staggering cost of scrapping the fossil fuel power plants that produce most of America’s electric power and the country’s fleet of motor vehicles, let alone who would wind up footing the bill via higher taxes and/or higher energy prices. Also not mentioned is the possibility that nuclear power might be more feasible than “renewable” energy, that America’s efforts to curtail greenhouse gas emissions could be offset by increasing emissions in other countries around the globe, or that the crash program being advocated could undermine the competitiveness of the U.S. economy.

The ads (and associated material on the Internet) are sponsored by “we can solve the climate crisis,” a project of the Alliance of Climate Protection founded by Al Gore. The rationale: “Our economy, national security, and climate can’t afford to wait.”

Fiscal responsibility – Meanwhile, the Peterson Foundation, Concord Coalition and others are working to drive home the reality of the coming fiscal crisis and the need for decisive action to avert it. The Fiscal Wake-Up Tour and I.O.U.S.A. film have been previously reported, e.g., see the 8/25/08 entry, “Fiscal Wake-Up Tour goes national.” Bottom line: the government is on an unsustainable fiscal path, primarily due to soaring outlays for Social Security, Medicare and Medicaid.

The latest initiative of the Peterson Foundation et al. is an open letter to the political candidates and American people, bearing signatures of fiscal experts and lay people alike, that ran as an advertisement in the New York Times on 9/14/08.

The letter exhorts the presidential candidates to engage Americans in an open and honest discussion of “our $53 trillion financial hole” and commit to fixing it, if elected, by appointing a bi-partisan commission to review the situation – with everything “on the table” – and offer recommendations that Congress would approve on an up or down basis.

Great stuff, in our opinion, except that the call for action seems overly general. The results of such a “fiscal responsibility commission” would depend primarily on who was appointed to serve on it and what guidance they were given as to the results expected. Voters would do well to press the candidates for specifics on these matters before, not after, November 4^th.

Economic stimulus (no more) – The 9/1/08 entry reported that the National Taxpayers Union, Citizens Against Government Waste, et al. were planning a letter to the members of Congress exhorting them to forget about a second economic stimulus package.

Given uncertainty as to the sentiment for a second stimulus package when Congress returns to Washington, and not wishing to assume that such legislation would be so bad that it has no chance of being enacted (never make that mistake), the National Taxpayer’s Union and others have crafted a letter to the Members of Congress for submission on September 9^th. The title is “American Taxpayers to Congress on Stimulus 2: Don’t Squander Our Money on More Government Spending,” and the text (which we will publicize after the letter is finalized and released) makes the case very well.

The letter was sent as planned, and here it is (note the signature of many “grass roots” groups, SAFE included). Conclusion: the way to stimulate the economy is to cut taxes and spending.

Are tax cuts feasible given the dismal fiscal situation? Maybe not, but at least the present system could be simplified and made a whole lot fairer.

Besides, as has been pointed out before, there is no way Congress will go along with the type of spending cuts that are needed – get rid of ethanol mandates, agricultural subsidies, the Export-Import Bank and hundreds of federal grant programs that most taxpayers have never heard of – unless the public draws a line in the sand on tax increases.

Many people apparently agree with us. Per polling done in 2007, U.S. voters perceive that some 40% of the money spent [currently some $3 trillion per year] by the federal government is wasted.

Change is tough, however, so why not give our lawmakers a break and go along with some tax increases? Here are the reasons offered in a hypothetical letter to Congress presented in the 5/26/08 entry.

1. Our acceptance of the tax increases would merely facilitate continuing fiscal irresponsibility on your part. Saying no, on the other hand, could lead to constructive change. Watch a few episodes of the Dr. Phil Show, and you will get the idea.

2. We do not buy the argument that taxes on “the rich” should be increased as a matter of equity. To the contrary, we find it troubling that the top half of taxpayers in terms of income are currently paying some 97% of the personal income taxes collected while the lower half pay only 3%.

3. Taxes would have to be raised to unprecedented levels to cover the long-term fiscal gap. Given the drag effect of taxes on the economy, there is no way for this country to tax its way out of the problem.

In the battle between advocates of making the government ever bigger and those seeking to move the country in the other direction, who is going to win?

You can help us shape the outcome by weighing in on the side of smaller, better-focused, lower cost government. But remember, time is growing short and the current window of opportunity will slam shut after the election.

Write that letter, make that call, join SAFE, or simply start paying attention to where the candidates stand on the issues – today!

We strive to base each entry of this blog on “up to the minute” information, which should help to keep it interesting and relevant. Moreover, new developments are reported from time to time for the purpose of keeping you current. Here are several such reports.

Told you so – While not offering a forecast of future oil prices (and in turn gasoline at the pump), we suggested in the 4/28/08 entry that a market correction might be coming at some point.

The crude oil shortage driving up gas prices is a function of supply and demand, and there is no reason it should continue indefinitely. U.S. consumption of petroleum is expected to decline modestly in 2008 versus continuing to rise. A similar trend (or at least slowing growth in consumption) is probably at work elsewhere in the world.

For a while, the market did not seem to agree – oil prices kept rising, peaking at $147 per barrel on July 11, and some “energy bulls” were starting to talk about $200 per barrel.

With gas prices at record prices, however, the consumption of oil was on a downward trend in the U.S. and elsewhere.

Also, the president announced on July 14 that he had lifted the executive ban on oil drilling on the outer continental shelf. This decision had no immediate effect since a Congressional ban remained in effect, but it did suggest a shift in the prevailing government policy.

At last report, the price of crude oil was below $110 per barrel; it may quite possibly fall some more.

Observation: markets work. Also, lifting restrictions on U.S. drilling might help more than the naysayers are willing to admit.

Harry rocks – The 2/25/08 entry addressed SAFE member Harry Kenton’s suggestion that SAFE is “tilting at windmills because no Congress will ever accept our agenda.”

“With all due respect for a man who is still writing well-reasoned letters to the editor (keep it up, Harry!) at the age of 92,” we concluded, fiscal visionaries should persevere.

Harry’s latest letter to the [Wilmington] News Journal was published on 8/23/08. It characterizes the opposition to domestic drilling for oil and gas as irrational and destructive, which in our view (see 7/7/08 entry) is quite true.

Most clear-minded Americans agree the nation is faced with an energy crisis but there are two schools of thought regarding the solution. One, the overwhelming majority, believes in a comprehensive balanced solution . . . utilizing every source of energy under our control, i.e., renewables, alternatives to oil, nuclear and domestic oil wherever found.

The other school led by environmental, oil-hating zealots, want only their narrow agenda of wind, solar, etc., and energy use restrictions, despite the fact that their solution will take longer to bear results than that required to obtain the oil available in restricted areas.

Someone wrote the News Journal to complain about Harry’s pejorative language, but come on. We notice that opponents of drilling (including politicians of some eminence) are not above using similar language in defending their position.

Thus, a recent speech by Speaker of the House Nancy Pelosi (D-California) was interrupted by chants of “Drill here, drill now!”

“Can we drill your brains,” she shot back, going on to characterize the protestors as “handmaidens of Big Oil.”

Just the facts – The 4/7/08 entry reviewed a talk on climate change that Dr. David Legates, the Delaware state climatologist, had given to the Conservative Caucus.

If the speaker intended to deny global warming, he had a funny way of going about. Thus, in the course of his talk, he acknowledged a warming trend, identified human activity as a contributing factor, and said carbon dioxide (C02) and methane in the atmosphere have a heat trapping effect.

Legates did take issue with the assumption, however, that rising levels of CO2, etc. can be expected to produce a straight-line (or accelerating) increase in global temperatures. How could such a relationship be expected when we know that global temperatures are influenced by many factors, including, probably most importantly, the level of sunspot activity?

Legates covered much the same ground in an 8/15/08 talk to the Retired Men’s Luncheon Club (arranged by SAFE director Bill Morris), adeptly guiding attendees through a blizzard of PowerPoint slides with numerous citations to scientific studies. The audience probably absorbed enough of what was said to conclude that the speaker knows his stuff, but it is just as well there was no exam afterwards.

Among those present were Todd Perkins, representing Congressman Mike Castle, and the Republican candidates for governor (Bill Lee) and lieutenant governor (Charlie Copeland).

Senators Biden and Carper and/or representatives from their respective offices had been invited as well, although they regrettably declined.

Observation: The debate about the manmade global warming threat should be resolved based on objective scientific research, not “everyone knows” reporting and perceptions of political advantage.

Tangled web – In the 8/11/08 entry, we wrote of a near disaster at the Davis-Besse nuclear power plant (Toledo, Ohio) in 2002.

. . . a “pineapple-sized rust hole” ate through the reactor’s steel lid over a four-year period. “Only a thin, bulging liner,” says the [Cleveland] Plain Dealer, “kept the reactor's high-pressure coolant from spurting out.” Although such a disaster was averted, the reactor was shut down for 14 months and $400 million was spent on repairs and replacement power.

A plant engineer claimed to have been fired for blowing the whistle on the maintenance failure, per the Plain Dealer article. His employer saw things differently and litigation was in process.

On 8/27/08, it was reported that engineer Andrew Siemaszko and his supervisor had been found guilty of covering up the problem vis-à-vis the Nuclear Regulatory Commission so that the plant could delay a shutdown for a safety inspection. Siemaszko’s attorneys continue to maintain that their client was “set up” to take the fall (per an article in the Wall Street Journal), and also that he may not have been properly trained for his job.

Observation: The biggest threat to nuclear power plant safety is not earthquake fault lines and such – it is human error.

Pleasant surprise – While severely criticizing ethanol mandates and subsidies, we have tended to assume that they enjoy overwhelming political support in the Corn Belt. See “Ethanol 101: the staying power of government programs,” 5/12/08.

The ethanol program benefits big corn farmers and agricultural processing companies, which in turn provide political contributions and votes. Senators Tom Harkin (D-IA) and Chuck Grassley (R-IA) probably disagree about many things, but do not expect them – or other members of Congress from the Corn Belt states – to reverse course on the ethanol program after years of hard work to get it accepted.

Archer Daniels Midland (ADM) is commonly credited with leading the ethanol lobby, and they have been at it a long time. See “Archer Daniels Midland: A Case Study in Corporate Welfare,” James Bovard, Cato Institute, 1995.

A recent poll by the National Commission of Public Policy Research suggests a more optimistic conclusion. Disturbed by soaring food prices and revelations that the ethanol program has been increasing (rather than reducing) greenhouse gas emissions, a majority of Americans now favor eliminating ethanol mandates entirely or at least repealing the huge increase required by the energy bill enacted last December.

This is true even in the Farm Belt [same as Corn Belt?] states, although the sentiment for ending or scaling back the ethanol program is weaker there (55%) than nationally (76%).

Observation: The fight against ethanol mandates and subsidies is not only one that must be fought – it is one that can be won.

SAFE will be participating in Newark Community Day on 9/14/08. This year’s focus: Is global warming the crisis in the making that the United States should be worried about, or is “galloping government” the real problem?

For those who live in Delaware or nearby, be sure to stop by our booth (it will be on Main Street this year, near the bandstand) and let your opinions be known.

9/1/08 – Not another one: the first “economic stimulus package” was bad enough

When the idea of an economic stimulus package to head off a possible recession came up in early 2008, we suggested that longer-term concerns were more important. “New spin on an old theme could make a big difference,” 1/14/08.

Short-term prognostication is not SAFE’s specialty, so we will leave it to readers to draw their own conclusions about how the economy is likely to fare in 2008.

We must admit to being disappointed, however, that the experts seem more concerned about the possibility of a recession in 2008 than they are about the effect of a continuing lack of action on the government’s long-term fiscal problems.

For better or worse, the idea of providing some economic stimulus proved irresistible in an election year. A $160 billion or so package (primarily income tax rebates) sailed through Congress and was signed into law by the president. Millions of tax rebate checks were mailed out in the May-July timeframe, no doubt contributing to higher consumer spending in the short run but also hiking the FY 2008 (year ended 9/30/08) deficit to nearly $400 billion. The FY 2009 deficit (which the next president will inherit) is expected to be even higher than that.

Despite continued weakness in the housing and automotive sectors, the U.S. economy appears to be bearing up. Indeed, the Commerce Department reported last week that the economic growth rate for the second quarter was 3.3% (on an annual basis) vs. the initial estimate of 1.9%.

"For a recession the economy is certainly growing very quickly," said Avery Shenfeld, senior economist at CIBC World Markets.

While there should be little reason to worry about a recession at this point, inflation is another matter. For the 12 months ended July 2008, prices rose by 9.8%, a rate of increase not seen since the early 1980s.

No wonder cereal boxes seem to be getting smaller, the price of dog food is surging, newspaper prices are being hiked (the News Journal just raised its newsstand price from 50¢ to 75¢), banks and credit card companies are tacking on sneaky new fees, and so on. One does not need a PhD in economics to sense what is going on.

True, a partial reversal of the run-up in energy prices could hopefully improve matters before inflationary expectations become engrained in the public consciousness and a virulent price-wage spiral gets started. Hope is not a strategy, however, as the saying goes. The Fed’s easy money policies and Congress’s budget deficits could have serious consequences, and it is high time for these bodies to rethink what they have been doing in recent years. Neither of them seems to be doing so, however, at least thus far.

As an illustration, some members of Congress are angling for a second fiscal stimulus package in 2008. They envision the measure would be enacted between Congress’s return from a 5-week summer recess (must be nice!) on or around September 8 and its adjournment in early October until after the November elections. The available time could be better used, in our view, to finish up the budget bills for fiscal year 2009 and lift the federal ban on domestic drilling for oil and gas in vast “restricted areas.”

A key element of the contemplated stimulus package would be some $15 billion for infrastructure, e.g., accelerated release of money from the highway trust fund and additional funds for mass transit projects. Per Congressman James Oberstar (D-Minnesota), chairman of the Transportation and Infrastructure Committee, the result would be an additional “700,000 people working in three months.”

Other members of Congress want to include funds for other categories of spending (there is no shortage of ideas), which could raise the ante to $50 billion or more. Speaker of the House Nancy Pelosi (D-California) has acknowledged, however, that the envisioned legislation could not be enacted without bipartisan support. The president and his party have been noncommittal thus far, and the majority’s game may be to try blaming them for opposing more stimulus rather than actually implementing this ill-conceived proposal.

Signatories will include the NTU, Citizens Against Government Waste, Americans for Prosperity, Americans for Tax Reform, and American Shareholders Association. We are proud to report that SAFE’s name will be on the letter as well.

We earlier announced (6/23/08 entry; summer 2008 issue of the newsletter) a contest to evaluate the blog based on the first year entries and offer suggestions for the future. Anyone could enter, the only caveat being that SAFE directors would not be eligible for the “fun prizes” to be awarded for the best entries.

In hopes of encouraging widespread participation, an entry form was posted on the Website that could be completed and submitted electronically (or printed out and mailed in).

The designated August 30 deadline having passed, here are the contest results. We’ll start with the good news.

Two hard copy responses were received from SAFE directors, both giving the blog a 4 out of 5 rating.

The entries singled out as “the most interesting and effective” were: With liberty, justice and healthcare for all (3/10/08); Treatment courts: a concept that makes sense (6/9/08); and several entries on global warming.

While the emphasis on soaring energy costs exacerbated by misguided government policies has been appropriate in recent months, it was suggested, we should also keep pounding on Social Security, bloated government spending, and the ever-rising national debt.

The bad news is that none of the electronic submissions looked genuine. We elected not to click the links provided in entries like this one to find out what they would lead to.

No doubt we asked for too much. People are busy, their time is limited, and we should not have expected readers to review 50 odd entries (the first year of the blog), identify their favorite, and explain their choice.

Be assured that every effort will be made to keep this blog relevant to the interests of Americans who are worried about this nation’s future. In particular, as the general election campaign heats up, we will have lots to say about the candidates’ positions on economic policy issues.

Please contact us at any time if you have questions or comments about the blog. We really like to know what people think, and your comments will be posted whether pro or con.

Individually there is little we can do; together we can change the world. Stay tuned!

I.O.U.S.A. – a film to dramatize the coming fiscal crisis (considering current liabilities plus commitments, the government was in a $53 trillion hole as of 2007 that is growing about $2-3 trillion per year) – has been released nationwide.

The recently formed Peterson Foundation (Chairman, Peter G. Peterson; President and CEO, David Walker) will use the film as a key element in the plans to reach out to the general public on this issue. “Plot thickens as the Peterson Foundation cranks up,” 7/14/08.

The Fiscal Wakeup Tour, in which David Walker has been a key player along with Robert Bixby of the Concord Coalition et al., will also continue. The most recent stop was on June 30 (Milwaukee, WI); three stops are scheduled in October (Cleveland, OH; Austin, TX; Philadelphia, PA).

On August 21, I.O.U.S.A. premiered at 350+ theaters around the U.S. in conjunction with broadcasting of a live panel discussion in Omaha, Nebraska. Several SAFE members were present at the Regal Brandywine in Wilmington, Delaware. Our impressions follow.

The total audience appeared to be about 200 people, which would suggest a nationwide audience (350 theaters x 200) of 70,000 – not bad, especially considering that the ticket price around the country was $10+.

For those who arrived early, the screen displayed the I.O.U.S.A. icon and a huge number (“our nation’s unfunded liabilities”) that was continually being updated: $55,250,xxx,xxx,xxx. The first few digits stayed the same while we watched, but lesser digits were changing with growing rapidity as one’s eyes moved to the right. Also displayed was the countdown to the start of the show: 8:00 p.m. in our time zone.

At the appointed time, Becky Quick (a correspondent for CNBC’s “Squawk Box”) appeared on the screen facing the Omaha live audience. She introduced the principals for I.O.U.S.A. Then came the film, running time about 85 minutes.

Various adjustments had been made (we loved the added segment in which David Walker takes down pictures, turns out the lights, and leaves his office at the Government Accountability Office for a new job at the Peterson Foundation), but in most respects the film tracked the version we had viewed at a screening in April. Here is an excerpt from our earlier review (4/14/08 entry), which continues to apply.

The film offers a compelling mix of gee whiz graphics (eye candy to make the financial data go down), statements of numerous speakers in settings both formal and otherwise, and action scenes from America (losing its way) and China (on the rise). Did you know the [third] biggest U.S. export to China is demolished vehicles to be melted down and made into steel?

There are sound bites from U.S. presidents going way back. Some are more appropriate than others, but the point is fairly made that the fiscal mess has been developing for decades under leaders from both parties.

David Walker (identified as the U.S. Comptroller General) and Robert Bixby of Concord Coalition are shown speaking out on the Fiscal Wake-Up Tour and also behind the scenes. Walker’s framework of the four American deficits (budgetary, savings, balance of payments, and leadership) serves as the structure of the film.

There are appearances by William Bonner (“Empire of Debt”), Warren Buffet, former Treasury Secretaries Robert Rubin and Paul O’Neill, several members of Congress (notably Ron Paul from Texas), actor Steve Martin et al. in a skit about the strange notion that things should not be bought unless one can afford them, and “ordinary people” who stumble when asked basic economic questions.

The film concluded to the refrain of “you’ve gotta be cruel to be kind,” there was a round of applause from the Omaha audience, and the panel discussion began.

The five panelists were billionaire investor Warren Buffet; Peter Peterson and David Walker from the Peterson Foundation; William Niskanen, chairman of the Cato Institute; and William Novelli, CEO of the AARP.

Moderator Becky Quick called on members of the Omaha audience to ask previously submitted questions, read some questions that had been e-mailed in from around the country, and asked a few of her own.

Unlike I.O.U.S.A., the panel discussion of the fiscal problem was unscripted, and there was more talk about solutions. Differences of opinion became apparent, as well as areas of agreement, as is reflected in the following synopsis.

No argument: America needs better leadership, the panelists agreed, but politicians perceive that telling people what they want to hear and sweeping long-term problems under the rug is the best way to get re-elected. The situation will not change unless and until the voters become concerned about the fiscal mess and make clear that they expect it to be cleaned up.

Other points of agreement: politicians must work across party lines to get anything done (possibly via a bipartisan commission); healthcare is the biggest single piece of the puzzle; Americans need to save more, both to provide for their own future needs and to provide adequate funds for investment in the economy.

If there is any segment of our society that should worry about the government’s spend & promise now/ pay later habit, it is the age cohorts most at risk of getting stuck with the bill. Peterson said the Peterson Foundation will use “all of the websites to get kids involved and organized and activated.”

Urgency: We have generally tended to assume that “experts” agree on the nature and dimensions of the fiscal problem, even though they do not see eye to eye on solutions. Judging from the panel discussion, however, experts are no more immune to wishful thinking than “ordinary people.”

#Buffet minimized the gravity of the long-term fiscal problem. There may be disagreements as to who should get the most, he said, as between the baby boomers and later generations. But the U.S. has the greatest economy in the world, the economic pie will continue to grow, and in the long run there will be plenty for everyone.

Walker said he hated to disagree with Buffet, but the statistics cited in I.O.U.S.A. take growth of the economic pie into account by expressing spending, revenues, and national debt as a percentage of the Gross Domestic Product (GDP). The national debt will grow to a level of some 250% of GDP by 2040, per official government projections, which is without historical precedent and clearly unacceptable.

#As for the hollowing out of the U.S. industrial base that is depicted in I.O.U.S.A., Buffet said this country has lots of human capital and will keep developing cutting edge technologies to replace activities being lost.

Niskanen and Walker were less sanguine. While the U.S. educational system is the most expensive in the world, they said, it is consistently being outperformed by the educational systems of other countries. How long will it be before other countries start developing the cutting edge technologies and America is left with a second rate service economy?

#In response to a question about the future viability of Social Security, we thought several panelists were too quick in saying today’s young workers will receive the benefits that have been promised when the time comes.

For all the apparent precision of fund accounting, the federal fiscal equation is interconnected. Should the government run out of money on an overall basis, there can be no guarantee – so long as personal accounts are not permitted and the system operates on a pay as it goes basis – that Social Security will be more secure than other programs.

Taxes: One response to soaring budget deficits would be to raise taxes, as is repeatedly brought out in I.O.U.S.A. by citing historical situations where higher taxes led to lower deficits or vice versa. The panelists expressed varying views about raising taxes.

Multi-billionaire Buffet feels investors pay less income tax than they should. Thus, why should he pay roundly 15% tax on dividends and capital gains while his cleaning lady is subject to self-employment tax of 15.3%? [Among other things, this ignores the fact that corporate earnings are typically subject to tax at both the corporate and individual level.]

Walker emphasized the need to make the tax code far simpler than it is now [bravo!], and he also suggested that the government is in too big a fiscal hole to get out just by raising taxes.

Niskanen questioned the country’s willingness to accept tax increases anywhere near big enough to cover the deficits projected. [He might have gone on to suggest, we think, that tax increases of the indicated magnitude would tank the economy and therefore result in much less added revenue than expected.]

“Discretionary” Spending: It was generally agreed that eliminating earmarks and “tough budget discipline” are desirable, but also that such steps would not in themselves go very far in closing the fiscal gap.

None of the panelists mentioned the possibility of more aggressive action, e.g., scrapping wasteful government programs (agricultural subsidies, corporate welfare, etc.) in the manner that SAFE advocates.

Entitlements: There seemed to be general agreement as to the need to rethink the big entitlement programs (Social Security, Medicare and Medicaid), but little consensus as to what specific changes should be made.

#Niskanen offered the idea of increasing the age for full Social Security (“and I think Medicare”) benefits to 70. [Under current law, an increase in the full benefit retirement age for Social Security, from 65 to 67, is being phased in by 2027; Medicare benefits will continue to start at 65.]

Such a change would greatly improve the long-term fiscal situation, and with appropriate advance notice so that people could plan their affairs it would not seem unreasonable.

After all, Americans are not only living longer these days – they are living young longer. Why shouldn’t they work longer as well?

Many seniors are already working longer, responded Novelli when asked about this, but as a matter of economic necessity rather than choice. With defined benefit pension plans being rapidly phased out by private employers, more and more workers will be forced to rely on Social Security to cover their needs in retirement – and it is not enough.

#Opinions on Social Security reform ran the gamut, with Niskanen advocating a partial conversion of the system to personal accounts and Novelli panning the idea. The arguments are familiar, no need to go into them here.

Other panelists expressed interest in personal accounts as a means to foster individual savings, but they envision such accounts as an “add-on” to Social Security (possibly making the additional payroll deductions mandatory) as opposed to a change to the existing program. [To us, add-on accounts sound like the proverbial definition of a camel as “a horse designed by committee.”]

#Re the proposals for universal healthcare in play, Niskanen expressed concern that they would stoke increased demand for healthcare services and thereby drive the cost of healthcare up even faster than it has been rising. Instead of helping with the fiscal problem, this would make it worse.

None of the other panelists challenged this point, although no one endorsed it either.

For a complete account of the panel discussion, here’s a link to the transcript.

In our view, the nationwide premiere was a home run, and hopefully it will lead to many other people around the country seeing the film. But I.O.U.S.A. is at bottom a lecture, albeit a relatively painless one, and some folks may not be in the mood. Here are some of the reviews.

Equal parts enlightening and alarming, “I.O.U.S.A.” highlights our unwise preference for short-term reward over long-term planning . . . New York Times

The most entertaining moment in the film is a clip borrowed from "Saturday Night Live," in which Chris Parnell teaches Steve Martin and Amy Poehler about his unique, revolutionary get-out-of-debt program: "Don't Buy Stuff You Cannot Afford." Washington Post

For those who missed the premiere, I.O.U.S.A. is now being shown in 10 major cities (including Philadelphia). If Americans are genuinely interested in engaging their political leaders on the fiscal issue, they ought to go see it.

Great article. By the way, on CNBC the next morning Warren, Pete, Bill Novelli (AARP) and I all agreed on two things. First, we must focus more on the future. Second, we need a capable, credible and bipartisan Fiscal Future Commission. - - David Walker

Your blog synopsis and critique is good, and I will recommend it to some people who I have been trying to explain the film and topic too. - - Financial executive

Just back from Tokyo, thanks for the heads-up. In fact, Quad Cinema and Regal E-Walk 13 will both be screening IOUSA in New York the next few weeks, so it should have a wider audience. I plan to see it at QC soon. - - Asia/Pacific consultant/author

8/18/08 – Nuclear power: building for the future, and hold the subsidies

The nuclear power industry has flourished in recent years, sparking talk of a renaissance. The existing plants (104 reactors on 65 sites), which produce about 20% of this country’s electricity, will continue to operate successfully. Some 30 new nuclear plants have been proposed and several applications have been submitted to the Nuclear Regulatory Commission (NRC) for review.

But will any of the new plants actually be built? Let’s begin this week’s discussion with factors that augur well for nuclear power; then some obstacles will be covered.

#Current profits: Nuclear power is very capital intensive, meaning it is expensive to build power plants initially (and probably to decommission them if and when they are shut down). Period costs for fuel, plant payrolls, etc., on the other hand, are relatively low, and the industry is now (in marked contrast to prior years) operating at over 90% of capacity.

Meanwhile, with surging demand for electric power (to run air conditioners, plasma televisions, etc., and before long recharge automobiles over night) and sharply higher fossil fuel costs, power prices are on the rise.

The combination of relatively low operating costs and buoyant power prices has made nuclear power plants very profitable. “Nuclear Revival, the Sequel,” Stephen Maloney, Electric Light & Power, January 2008.

Current operating costs are under 2 cents per kWh [kilowatt hour]. A typical nuclear operator sells forward to investment-grade counterparties some 90 percent of its capacity at more than $50/MWh [or 5¢ per kWh]. Anyway you do the math, that’s a money machine. There aren’t too many other generating options looking as good as that.

Never mind the years in which the nuclear power industry struggled to survive, demands to cap its profits now (thereby blunting the incentive to build more nuclear plants) are predictable. “Power surge: As electricity cost spike and demand taxes the grid, some states are eyeing ways to insulate consumers,” Christopher Palmeri & Adam Aston, Business Week, 7/24/08.

While consumers may be feeling pain, utilities that operate plants in states with minimal regulation are making handsome profits. Chicago-based Exelon (EXC) and Baltimore's Constellation Energy Group (CEG), among others, have tripled their profits over the past five years. One reason: They're running nuclear plants that cost much less to run than natural-gas-fired facilities. Yet they can charge the same prices as rivals with higher operating costs.

#Global warming: For those who buy into the theory of manmade climate change, nuclear power offers a huge advantage over fossil fuel plants. The point was highlighted in an MIT study on nuclear power released in 2003.

In the U.S. 90% of the carbon emissions from electricity generation come from coal-fired generation, even though this accounts for only 52% of the electricity produced. Taking nuclear power off the table as a viable alternative will prevent the global community from achieving long-term gains in the control of carbon dioxide emissions.

Here could be some “icing on the cake,” it seems, which could fuel a consensus to go ahead and build more nuclear power plants – but now for the obstacles.

#Old business: See our 8/11/08 discussion of issues that have plagued the nuclear power industry and need to be cleared up, i.e., (1) set attainable safety standards for the nuclear power industry, (2) empower the private sector to reprocess spent nuclear fuel, and (3) work out a modus operandi to complete and open the Yucca Mountain waste repository by 2017 (at the latest, not the earliest).

Achieving these goals should not be overly difficult, in our view, if the government provides the appropriate leadership vs. attempting to please everyone and getting nothing done. It remains to be seen, however, whether such leadership will be forthcoming.

#Capital costs: Historically, nuclear power plant costs far exceeded the initial estimates. A key factor was regulatory delays (8/4/08 entry). The use of “cost plus” contracts did not help either.

This time, it is said, there would be one or two nuclear plant designs – already perfected – versus every plant being a one-of-a-kind installation.

[According to vendors], it won’t take a decade or more to design and build a nuke. Buyers get a standardized design, pre-approved by the NRC, and can count on construction techniques proven offshore to deliver in a few years rather than a decade or more.

Moreover, the NRC will combine the construction permit and operating license process, reducing the potential for unexpected delays once a project has been started.

In the old system [U.S. officials point out], intervenors would get “two bites” in their efforts to use the regulatory process to make a plant too expensive to complete. Today, it’s one-stop shopping with a combined construction and operating license (COL) before construction gets a green light.

Tower Perrins consultant Jerry Maloney cautions against excessive optimism, however, that things will go more smoothly than in the 1970s.

Problems can be expected even with certified reactor designs, says Maloney, just as they do with aircraft that have been in service for years. Also, the “not in my back yard” prejudice is alive and well.

Not everyone wants a nuke (or a wind turbine for that matter) down the road. And “down the road” can mean 30 miles or more away.

A pattern of rapidly escalating cost estimates for new plant seems to be developing already – and it is only partially due to inflationary pressures. Our take is that nuclear power firms are “low balling” project costs and then expecting investors, government agencies, and ratepayers to accept big upward adjustments as implementation proceeds.

Thus, Progress Electric (St. Petersburg, Florida) recently tripled its estimate for a new nuclear power plant (two reactors) to an eye-popping $17 billion. One reason cited was surging prices for steel, concrete, etc., but the recognition of costs that had not previously been factored in, e.g., land acquisition, financing costs during construction, and a $2-3 billion transmission system, was probably more important.

The first reactor would not go on line until 2016, the St. Petersburg Times reported, with the second to follow a year later, but ratepayers would begin paying for the power much sooner. A $9 per month surcharge was foreseen starting in 2009.

No matter, Governor Charlie Crist expressed continued support for nuclear power. The next step was to be a detailed review with the state regulatory authorities.

What about the private sector? Wall Street investors would need to be persuaded to put up the money for new nuclear power plants, said John Schoen in a January 2007 article, necessitating some degree of assurance that state utility regulators will “bless the higher rates needed to pay for these multi-billion-dollar projects.”

The federal role in the process, besides having the NRC ensure the safety of proposed projects, seems to be perceived as providing financial support – and this is hardly something new.

In 2003, the Cato Institute decried the “handouts” embedded in that year’s energy bill. “No Corporate Welfare for Nuclear Power, Navin Nayak and Jerry Taylor.

The energy bill has evolved into the mother of all pork barrels, an indefensible package of handouts regardless of one's political persuasion. It's time for Congress to pull the plug on this legislative abomination once and for all.

The Energy Policy Act of 2005 contained more perks for the nuclear power industry, as summarized by John Schoen in his aforementioned article.

Lots more help is contemplated, notably a carbon tax or “cap-and-trade” system that would increase the cost of power produced from fossil fuel. There would also be “several important sweeteners” for “the first few companies [n.b. subsidies are easier to create than to kill] that come forward with plans” for nuclear power plants.

Small wonder that companies are floating proposals for nuclear power plants, even though they do not have a clear handle on the costs and are far from decided to make a major investment. Their objective is an option to proceed if conditions appear favorable, e.g., enough money is put on the table. Stephen Maloney, “Nuclear Power, the Sequel.”

As matters currently stand, operators like keeping their options open about adding to their nuclear fleets. The COL provides a licensee the option to build a nuclear plant. Exercising that option is another matter. The application will cost some $40-$80 million, which can be viewed as an option premium.

Presently, it’s not obvious the option is in the money. To actually build a plant will cost more than $5 billion. Investments of this scale are in the “bet the farm” category and exceed the market capitalization of most companies.

Now suppose the federal government made clear (to SAFE’s delight, see 8/4/08 entry) that it welcomes new nuclear power plants, but will not support them either (a) directly (subsidies, loan guarantees, etc.) or (b) indirectly (carbon tax or the like to discourage use of fossil fuel).

There would be a shocked reaction from the nuclear power industry, no doubt, with many currently proposed nuclear projects being dropped like hot potatoes. Longer term, however, we suspect some nuclear power plants would get built anyway. Here is why:

#The economics of nuclear power will continue to improve if fossil fuel prices keep climbing – as they should due to demand growth and progressive depletion of the most accessible reserves.

#Spent fuel reprocessing could contribute to the economics of nuclear power; so could building more reactors at existing nuclear complexes versus creating “green field” sites. (Many existing sites were designed to house up to four reactors; on average, there are only 1.6 reactors per site.)

#The capital costs for new coal-burning plants might be lower than for nuclear power plants – certainly this is so on a per plant basis (one nuclear plant produces as much power as several coal plants) – but they would be considerable.

#Global warming aside (we are not about to rely on this argument), nuclear power offers clear-cut environmental advantages (e.g., no appreciable discharge of demonstrably harmful pollutants into the atmosphere) over coal plants.

Lest our suggestions be dismissed as extreme, note that the UK government has announced a policy of welcoming new nuclear power plants without propping them up.

[Business Secretary John] Hutton conceded that no nuclear plant had been built anywhere in the world without public money - but he insisted there would be no subsidies from the UK government.

"It is a matter for the power companies to bring forward proposals on the basis that there will be no public subsidies," he told BBC Radio 4's The World at One.

This “no subsidy” policy is hardly air tight (the UK is a party to the European Union emissions trading scheme, which is intended to discourage the use of fossil fuels), but it represents a step in the right direction.

What about subsidizing other forms of alternative energy, e.g., windmills, solar power, biofuels, etc.? The main argument for government support of these technologies, so far as we can tell, is that they cannot be expected to catch on without it.

Take the Boone Pickens plan for “energy independence,” which is being promoted aggressively via television advertisements, etc. Build windmills instead of generating power with natural gas, use compressed natural gas to power motor vehicles, and tell OPEC et al. to take a hike because this country is not going to keep paying them $700 billion a year for oil.

Surprise, surprise – the government would be expected to pony up $1 trillion to help make the vision a reality. This would presumably be raised from a carbon tax or a cap-and-spend regime, as though the funds from this source represented “free money.”

Look a bit closer, and it becomes apparent that the Pickens Plan is ill conceived and shamelessly self-serving. True “energy independence” would raise energy costs rather than lowering them. There is no sound reason to invest huge sums in wind power while ignoring the demonstrated potential of nuclear energy. If compressed natural gas (CNG) vehicles were an economically sensible alternative to conventional gasoline powered vehicles, then no government "master plan" would be necessary to deliver them to market.

Even if reducing mankind’s carbon footprint were viewed as a matter of the utmost urgency, the most effective way to get there would be to impose a carbon tax and let the market decide what alternative energy options should be implemented. “T. Boone Hard-Wired for Subsidies,” Jerry Taylor, Cato Institute, 7/24/08.

Maybe it will mean windmills and CNG, but maybe not. Perhaps it will mean more nuclear power, new hydrogen-powered fuel cells, "clean" coal, the emergence of cellulosic ethanol, battery-powered cars or hybrids—or a continuation of the existing energy base but less consumption as a consequence.

Everyone seems to subscribe to “a level playing field” in the sporting world. When Michael Phelps swam for a 7^th gold medal at the 2008 Olympics, the issue was who touched the wall of the pool first (thank goodness for the electronic sensors, which showed Phelps had won the 100 meter butterfly by one hundredth of a second), not who “deserved” to win.

So why all the demands for special treatment when it comes to economic transactions? Let’s have a level playing field in the business world too; it will work out better for everyone in the long run.

It remains to be seen whether there will be a nuclear power renaissance, but of this much we are sure. A crash program to build a new wave of plants, with massive government involvement, is not the way to go. Our advice to nuclear power advocates would be that a methodical, step-by-step approach is more likely to produce constructive results.

The starting point, it seems to us, would be addressing some of the issues that have bedeviled the existing nuclear power industry (which generates about 20% of the nation’s electricity) over the years.

There are no nuclear plants in Delaware (“the First State”), by the way, but five are located in Pennsylvania, three in New Jersey, and one in Maryland.

Thanks to the interstate power grid, 38% (2004 data) of the electricity used by northern Delaware customers of Delmarva Power is generated from nuclear power. Type in the five-digit zip code and check out the situation in your own area.

Regulatory scrutiny: Periodic relicensing by the Nuclear Regulatory Commission (NRC) is required to continue operating. It was a big deal when the Calvert Cliffs plant in Maryland became the first nuclear power plant in the U.S. to have its license renewed (for another

GROSS OUTLAYS - $B	House Bill		Senate Bill
GROSS OUTLAYS - $B	2010-19	2019 x 10	2010-19	2019 x 10
Medicaid & Chip	425	850	374	870
Exchange Subsidies & Related	602	1,200	447	1,060
Small employer tax credits	25	20	27	30
Total	1,052	2,070	848	1,960

*5 largest HCI providers*	*Premiums (millions)*	*Market share*
Blue Cross Blue Shield of Delaware Inc.	$423	55%
United Healthcare	171	22%
Coventry Healthcare of Delaware	130	17%
Aetna*	31	4%
Amerihealth HMO	18	2%
Total for the 5 companies	$773	100%

Gross cost of added healthcare coverage	(829)
Tax effects (principally excise tax on high premium insurance plans)	284
Penalties	27
Other cost savings (principally Medicare cuts)	404
Tax effects from certain Medicare & Medicaid provisions	16
Other tax effects (per Joint Committee of Taxation)	180
*Net Decrease in Deficit*	81

	Medicaid/Chip	Exchanges	Tax Credits	Total
Gross cost of providing HCI	(365)	(461)	(23)	(829)
Net cost of providing HCI	NA	NA	NA	(518)

	2010-13	2014	2015	2016	2017	2018	2019	10 years
Insurance coverage cost (gross)	14	56	115	143	155	166	180	829
Insurance coverage cost (net)	1	30	78	96	101	104	107	518
Cost savings	(24)	(42)	(47)	(55)	(66)	(78)	(93)	(404)
Other tax effects	(58)	(20)	(21)	(22)	(23)	(25)	(26)	(196)
Net increase (decrease) in deficit	(81)	(32)	10	20	13	1	(12)	(81)

HCI coverage (in millions)	2010	2019
HCI coverage (in millions)	2010	Current Law	House Bill	Senate Bill
Medicaid & CHIP	40	35	50	50
Employer plans	150	162	168	157
Nongroup & other	27	30	25	27
Exchanges	0	0	21	25
Uninsured	50	54	18	23
TOTAL	267	282	282	282

	Replace	Keep	Not sure
August 2009	57%	25%	24%
October 2008	59%	17%	24%

Nonelderly U.S. people (millions)		Existing law	Baucus bill
Year	2010	2019	2019
Employer coverage	150	162	159
Nongroup (traditional private coverage)	13	15	10
Other, e.g., Medicare	14	16	16
Medicaid/CHIP	40	35	49
Exchanges	0	0	23
*Uninsured (incl. “unauthorized immigrants”)*	50	54	25
Total nonelderly people	267	282	282

	2008actual	20009fcst.	2010	2011	2012	2013	2014	2015-19	2010-19
Revenues	2524	2100	2264	2717	3010	3221	3403	19562	34177
Outlays	2983	3688	3644	3638	3600	3759	3961	22712	41314
Deficit(-)	(459)	(1587)	(1381)	(921)	(590)	(538)	(558)	(3150)	(7137)
*% of GDP*	*(3.2)%*	*(11.2)%*	*(9.6)%*	*(6.1)%*	*(3.7)%*	*(3.2)%*	*(3.2)%*	*(3.2)%*	*(4.0)%*
Debt	Debt Held by the Public at End of Period
$B	5803	7612	8868	9782	10382	10870	11439	14324	14324
*% of GDP*	*40.8%*	*53.8%*	*61.4%*	*65.2%*	*65.9%*	*65.5%*	*66.0%*	*67.8%*	*67.8%*

Government Spending as % of U.S. Economy (GDP)
	1900	1950	2005
State & Local	5.0%	6.6%	11.0%
Federal - Nondefense	1.8%	9.0%	16.0%
Federal - Defense	1.0%	5.7%	4.0%
Total	7.8%	21.3%	31.0%

DOLLARS IN MILIONS, EXCEPT AS NOTED	FY 2010	FY 2011
Higher corporate franchise taxes	$97	$73
Higher individual tax rate on income over $60 thousand	30	78
45¢ per pack increase in state tax on cigarettes	16	21
Increase in gross receipts tax	7	19
Public utility taxes	7	9
50% increase in alcohol taxes	3.5	6
TOTAL TAX INCREASES	161	206

U.S. Health[care] Expenditures – % of GDP, $ in billions
	1960	1980	2000	2007
Private	3.9%	5.3%	7.7%	8.7%	$1,206
Federal government	0.6%	2.6%	4.3%	5.5%	754
State & local gov’ts	0.7%	1.2%	1.8%	2.0%	281
Total	5.2%	9.1%	13.8%	16.2%	2,241

	*Deficits in trillions of dollars, by fiscal years*
	2010	2011	2012	2013	2014	2015-19	2010-19
*White House*
Baseline	1.2	1.0	0.8	0.7	0.8	4.5	9.0
Budget	1.2	0.9	0.6	0.5	0.6	3.2	7.0
*CBO analysis*
Baseline	1.1	0.7	0.3	0.3	0.3	1.7	4.4
Budget	1.4	1.0	0.7	0.7	0.7	4.8	9.3

U.S. Civilian Labor Force – workers in thousands
	3^rd Qtr. 2008	4^th Qtr. 2008	January 2009	February 2009
Total	154,650	154,648	153,716	154,214
Employment	145,299	144,046	142,099	141,748
Unemployment	9,350	10,602	11,616	12,467
*Jobless rate*	*6.0%*	*6.9%*	*7.6%*	*8.1%*

	Dow Jones Ind.	S&P 500	Nasdaq
3/6/09	.47	.44	.46
12/31/08	.62	.58	.56
11/4/08	.68	.65	.64
6/30/08	.81	.83	.82
12/31/07	.94	.95	.95
10/1/07	14,087	1,547	2,794

9/1/97	7/24/07	7/24/08	7/24/09
$5.15	$5.85	$6.55	$7.25

	Surplus (deficit)		National Debt (in public hands)
Fiscal Year	$ in billions	% of GDP	$ in billions	% of GDP
1960	$0.3	0.1%	$237	45.7%
1970	(3)	(0.3)	283	28.0
1980	(74)	(2.7)	712	26.1
1983	(208)	(6.0)	1,137	33.1
1990	(221)	(3.9)	2,411	42.0
1993	(255)	(3.9)	3,248	49.4
2000	236	2.4	3,410	35.1
2008	(459)	(3.2)	5,803	40.8
2009	(1,752)	(12.3)	8,364	58.7

FY 2009 Budget	Revenues	Less: Expenditures	Surplus (deficit)
2/08 proposed	$2,699B	$3,107B	$ (407)B
1/09 CBO estimate	2,357	3.543	(1,186)
Current estimate	2,186	3,938	(1,752)

Fiscal year	As projected in January	Added by stimulus bill	Adjusted deficits
2009	$1,186B	$185B	$1,371B
2010	703	399	1,102
2011	498	134	632
2012	264	36	300
*4-year total*	*2,651*	*754*	*3,405*

	January Projection		With stimulus bill
Fiscal year	Public debt	% of GDP	Public debt	% of GDP
2008	$5,803B	40.8%	$5,803B*	40.8%
2009	7,193	50.5%	7,378	51.8%
2010	7,829	54.2%	8,413	58.2%
2011	8,238	54.4%	8,956	59.1%
2012	8,475	52.8%	9,229	57.5%

($ in trillions)	FY2009	FY2010	1983
1/09 CBO Projection	$1.2T	$0.7T	$0.5T*
% of GDP	8.3%	4.9%	6.0%

Economic Stimulus Package	$0.2T	$0.6T	--

Combined Deficit	$1.4T	$1.3T	$0.5T*
% of GDP	9.7%	9.1%	6.0%

	*Galloping government*	*Global warming*
Probability of a crisis if no corrective action is taken.	High – projected deficits cannot be solved with tax increases or borrowing. No country is “too big to fail,” including U.S.	Low – global temperatures have fluctuated in the course of human history without dire consequences.
Time left to act.	10 years or less.	50 to 100 years.
Understanding of how to avert a crisis.	High – the solution, basically, is to acknowledge there is a problem and drastically cut government spending.	Low – proposed actions could at best (with full cooperation of all countries) slow the rate of global warming.