Letter to the Editor: Healthcare

By Mike

Editor,
We can all agree that healthcare costs can be, and often are, unaffordable for many; the system needs reform, but to what end? A recent proposal from Congress would create a public option for individuals earning up to a certain percentage above the poverty line in an effort to ensure that the roughly 47 million uninsured individuals in this country are covered.

Unfortunately, that number is a bit disingenuous, but effective, in helping push legislation. Let’s break that number down a bit: roughly 18 million can afford insurance, but do not want it; 8 million are young 18-25 year olds and choose not to sign up; 12 million are non-citizen residents or illegal; 9 million are between jobs and only temporarily uninsured; 8 million are covered children, who have merely not been signed up; and another 3 million are eligible for government health programs but have not signed up. This adds up to more than the 47 million uninsured that is often cited, but many individuals will fall under multiple categories. What we also know is that roughly 80 percent of those that are uninsured are in good to excellent health and the majority tend to be young. Additionally, the numbers cited are merely a snapshot, or a moment in time, of the true picture of the uninsured, which could be higher or lower than the official figures.

So just from looking at these rough numbers, we can see that it can be a bit misleading to claim a government option is needed immediately for the health and well being of the citizenry.

From a financial perspective, the Congressional Budget Office gives a pretty clear picture of why bringing a public option to the table should be so unpalatable. By its own reports, the claimed savings on Medicare of $2 billion over 10 years is small in comparison to the roughly $1 trillion it would cost in that same time frame to fund the public option–and we’re only in the first decade of the program. Beyond that the net cost of coverage would continue to grow by 8 percent a year. What this means is an unsustainable level of deficit spending over the long term, unless taxes are raised significantly on everyone–including the middle class and poor. Any move towards a single-payer system would force these numbers sky high to a level that would bankrupt government and the system.

This program is unneeded and too expensive, in addition to the many other problems presented by the House’s version of the legislation, to be seen as a real solution.

There are other options available for decreasing costs and reforming the insurance industry, but keeping it out of the hands of government is best if we respect the principles set forth in the constitution. Otherwise we trample on them in order to gain more entitlements and increased tax obligations–perhaps not for ourselves but certainly for our progeny, and at the unintended cost of changing the face of what liberty means in this country.

Mike Mattner

Update: To be published in the Herald Palladium. Not sure on the date yet.

Jul 28, 2009 • OP-ED, Politics

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Gold, Welfare Statists, and Economic Freedom

By Mike

A formerly wiser man once warned of “an almost hysterical antagonism toward the gold standard” as a force which unites all statists. I wanted to wrap my mind around that particular statement because I’ve grown up in an era entirely dominated by fiat money, easy credit, booms and busts, and a great deal of inflation; and because I wanted to know why it would be beneficial to a statist, or someone interested in affecting a “positive” change in the economy, to seek to abolish the gold standard, I had to explore popular thinking on the matter.

What would a gold standard accomplish in terms of wealth and debt, and what would a system based entirely on fiat, or paper, secure without the backing of a commodity as a store of actual wealth?

In 1966, Alan Greenspan wrote that, “in order to understand the source of their [statist's] antagonism, it is necessary first to understand the specific role of gold in a free society.” ¹ We must first assume that money, as a commodity, is the means by which economic transactions take place, whether it be for goods or services, in a given society, “and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.” ¹ Without it we cannot build wealth, discharge debts, exchange goods and services, or plan for the long term in any meaningful fashion. Exchange of any asset would become quite difficult. ¹

In the development of international economic systems, precious metals, particularly gold, became the means by which goods and services could be exchanged; gold became a preferred choice because by “having both artistic and functional uses and being relatively scarce, [it had] significant advantages over all other media of exchange.” ¹ Gold is a limiting resource in this fashion simply because of its scarcity; if all transactions were paid in gold, it would become difficult to handle larger payments and economic development would be sharply limited. “Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.” ¹

Greenspan dives into what this development means in terms of free banking:

A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.

Unbalanced expansions of business activity (the booms we often see in modern times) are held in check because credit cannot be extended too far beyond limited gold reserves; however, in some cases banks would extend credit too far, and “as a result of [this] overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession.” ¹ Most often these recessions were seen as mild in comparison to more modern experiences.

In order to solve this economic puzzle, it was determined that if shortages were what caused declines in business activity it would be best to ensure that no shortages ever existed.

If banks can continue to loan money indefinitely-it was claimed-there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks (paper reserves) could serve as legal tender to pay depositors. ¹

In 1927, business in the United States experienced a mild contraction, and in order to shore up the possibility of a shortage, the Federal reserve printed more paper reserves; more disastrously, “however, was the Federal Reserve’s attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable).” ¹

The basic idea was to pump excessive paper reserves into the US system in order to create interest rates that would be comparable to England’s, thus stopping the outflow of gold. Unfortunately the success of this plan in stopping the outflow of gold added additional credit to the market that created a speculative boom in the markets. To stop this boom, Reserve officials decided to destroy the excess paper reserves; unfortunately it was too late because “by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence.” ¹

The American economy collapsed. “Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. World economies plunged into the Great Depression of the 1930’s.” ¹ In short, the machinations of central banking created a mess that was largely blamed on the gold standard, because, it was reasoned, “if the gold standard had not existed…Britain’s abandonment of gold payments in 1931 would not have caused the failure of banks all over the world.” ¹ Irony in this case is not lost on Greenspan, as he notes that we had not in fact been on a de facto gold standard since 1913, but instead a sort of mixed system.

Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. ¹

Abandoning this standard made it possible for welfare statists to expand credit in an unlimited fashion; paper reserves are treated as a commodity, as assets, as if they were a gold deposit. “The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets.” ¹ Thus because as the supply of money increases relative to assets, prices are forced to rise in order to balance the books. Money is devalued, thus any savings–and relative wealth in terms of money–is diminished in value. “When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.” ¹

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

Thus, one could conclude a government that is dedicated to welfare state policies, dedicated to spending on a deficit, and dedicated to the confiscation of wealth in order to suit their plans and maintenance of power, will make a return to the gold standard increasingly less likely as time passes–if not impossible.

I can also conclude that a gold standard is the only real way to maintain wealth. In our current arrangement we are forced to invest for the future in order to outpace inflation, but no market can guarantee a secure investment and it is often subject to booms and busts as a result of the Federal Reserve’s management of the ‘money’ supply; but in order for the government to continue to operate it’s entitlement programs, as well as finance itself, we are forced to maintain this system not of wealth but of constant debt. And we do this by borrowing our own tax payments; ironically those payments are pretty worthless if you consider that we’re simply returning what was originally borrowed, at interest, in order to discharge the debt of the government. We are in perpetual debt to a perpetual debtor.

In light of this, how could one advocate for a system based entirely on paper reserves and tax obligations?

Tags: Gold Greenspan

Jul 08, 2009 • OP-ED, Politics

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Cap and Trade: A Regressive Tax

By Mike

Among the ruling elite, the party of “I won”, there is a consensus that something drastic must be done in order to mitigate the effects of human induced global climate change. They say we must do something to reduce greenhouse gases; we must do something to reduce carbon “pollution”; we must do something!

My first response to this is, “Why?” Why must we take action in this particular case? What is it about carbon dioxide that requires our attention more than any other form of pollution? Are you stumped? I would have to say that I am as well.

There exists a supposed consensus of scientists, despite the large number in opposition that are ridiculed and belittled without the evidence they present being taken seriously, that are convinced humanity is on a course that will alter this planet in a way that will do more harm than good unless we change our behavior.

The solution proposed by the current ruling classes in this country is the American Clean Energy and Security Act, which is essentially a cap and trade program, drafted in a paltry 1,200 pages, drafted explicitly for the reduction of carbon pollution.

According to the Heritage Foundation’s report on the economic impact of this act it amounts to “nothing more than an energy tax in disguise. After all, when you sweep aside all the complexities of how cap and trade operates–and make no mistake, this is the most convoluted attempt at economic central planning this nation has ever attempted–the bottom line is that cap and trade works by raising the cost of energy high enough so that individuals and businesses are forced to use less of it.”¹

That particular statement in the report is a bit alarming to say the least–and in a number of ways that should at least worry a lot of people.

What will this do?

An act, billed as a solution to climate change, designed to ultimately reduce economic activity, output, efficiency, and productivity cannot in any way help us on any course towards newer greener forms of energy production. Again, this is about “inflicting economic pain…that is how the ever-tightening emissions targets will be met.”¹ This is an attempt to force a behavioral pattern on the market, when the market is not ready for it, in a way that will hinder more than just the energy sector.

This will hinder economic development across the nation, across just about every sector; as operating costs rise, jobs will be lost, economic output will diminish, and our high standard of living will likely not be maintained. This would come at a particularly bad time as the government is also moving to takeover healthcare and create a single-payer system. As a result of the reduction in capital, tax revenues would decrease creating an even greater shortfall in the federal government’s budget; then, healthcare spending would have to decrease, alongside many other entitlements–that is unless the government goes bust first. One can see where this is going pretty quickly.

Particularly troubling, though, is why we will be affected by legislation that is designed to regulate an industry many of us have no direct part of:

The only entities directly regulated by Waxman-Markey would be the electric utilities, oil refiners, natural gas producers, and some manufacturers that produce energy on site. So, the good news for the rest of us–homeowners, car owners, small-business owners, farmers–is that we won’t be directly regulated under this bill. The bad news is that nearly all the costs will get passed on to us anyway.

What are those costs? According to the analysis we conducted at The Heritage Foundation, which is attached to my written statement, the higher energy costs kick in as soon as the bill’s provisions take effect in 2012. For a household of four, energy costs go up $436 that year, and they eventually reach $1,241 in 2035 and average $829 annually over that span. Electricity costs go up 90 percent by 2035, gasoline by 58 percent, and natural gas by 55 percent by 2035. The cumulative higher energy costs for a family of four by then will be nearly $20,000.¹

Simply put, because costs go up for energy producers, our costs will increase as well creating a regressive tax affecting the poor more harshly than the rich; energy is not a luxury good, but will be a luxury only available easily to the rich, elite, ruling classes if this is allowed to become law (one of the problems with this socialist vision is that it is less about the working classes then it is about maintaining power). Granted the consequences might not be seen immediately, but rest assured, they will be seen and they will be terrible for the future economic prosperity of this nation. The chart above, while not reflecting the current cap and trade legislation, shows the possible economic effects of curbing carbon emissions.³

I’m taken aback by this strange agenda, and I hope that at some point we can reverse it’s effects; there is perhaps another Regan waiting in the wings ready to rid us of this Jimmy Carter.²

Tags: Cap and Trade

Jul 01, 2009 • OP-ED

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