Effective Legislation

Bush wants $70 Billion from Medicare and Medicaid according to this article. Federal Spending on the two programs is listed as totaling $554 Billion last year (for reasons known only to myself, I think they are about $60 bn short). Spending on these programs are expected to rise by more than 7% per year (Optimists aren’t they?). The article states Bush’s main attack is on the Health Care Providers (is that a Joke!), because he wants to suppress inflationary-payments to Health Care Providers, and freeze Medicare and Medicaid payments. The article says the Bush Budget expects Medicare payments to Doctors to be cut by 8% next year. It finally makes much of Bush not attempting Curbs to privately-managed Care plans.

What will be Saved in this Budget which will not pass Congress?

The Approach, first of all, is all wrong. Democrats and Republicans both concentrate on Budget Dollars and Percentages, not on what is wrong with the Health Care system. The focus of the Health Care industry must be altered; not on how to keep the Checking Account from being Overdrawn when the Doctors write too many Checks. We must protect the Health Care industry from itself, and do this through proper legislation which does not deny Care. The final Result desired is reduction of Health Care Costs.

Effective Legislation to reduce Health Care Costs:

1) An Act empowering Cities, Counties, and Parishes to declare Protected Health Zones, where the practice of Medicine requires not only a License, but Practitioners must be salaried Employees of the Governing Body who enacted the Requirement. Salaried Employees cannot charge for their medical provision inside the Protected Health Zone where they are employed, or can they refer Patients to medical attention outside of the Protected Health Zone. The Federal legislation empowering these Zones will allow Public Condemnation of all Health facilities within the radius of the Zone, if and only if these condemned facilities are owned by a Non-Profit corporate structure. All Patients will retain the right to seek medical assistance from outside these Zones, but Medicare and Medicaid reserves the right to restrict Patient medical payments to levels equivalent to what Charges come from these Protected Health Zones.

2) Medicare and Medicaid payments for Drugs will be restricted to only Those Drugs which have already been on the Market a full Five years of their Patent life, and whose benefits have been verified by extensive usage. The Health Care industry has been in business for a long time, and has managed to provide Us with Health Care sufficient to keep All alive this long, and so the previous Drug base is equal to the task of continuing to provide Us with Health Care. This will imposed by specific legislation passed by Congress and President.

3) Medical Schools and other Medical Training facilities will henceforth be required to justify their restriction of Student Body size, and Medical Associations will have to identify and justify exactly what medical procedures must be reserved for Those with a Medical Degree. lgl

Direction of the Economy

Graphaholics will find heaven in the latest Post by Menzie Chinn. Those without the innate gifted skills of Graphic arts should read the link to James Hamilton provided, before slipping through Menzie Chinn graphs ( Hint: Once you are confused about what is being shown, reread the notation under each graph, then begin to speculate). One may ask why study both Posts closely? They explain We are winning the Trade Wars-ex Oil imports, but that devaluation of the Dollar may not be the route to gain greater Victories in the Trade Wars. It also explains why further Victories are necessary: Imports are still 47% greater than American Exports. Devaluation of the Dollar, though, does not reduce the Dollar Cost of Oil Imports, which will rise in Dollar price with Dollar devaluation. Dollar devaluation will also raise the Cost in Dollars of other necessary Imports, while it will not provide the equal advantage to American Exports. Strengthening of the Dollar, on the other hand, readily raises the value of American Exports; this dependent upon the high quality and lack of Substitutability of Export Products from America in the Short-Run. I must qualify here, and state both Menzie Chinn and Hamilton may disagree with my interpretation of my evaluation of the findings presented in the Graphs.

Bloomberg report that the Institute of Supply Management’s manufacturing index fell to 49.3 in January (below 50 equals a Contraction). The ISM raw materials index rose to 53 from 47.5 the month before (but this possibly reflects automatic Price Schedules increases for the new year–little economic indication). The Institute’s New Orders index fell to 50.3 from 51.9, but New Orders are still expanding. The number of Orders Waiting to be Filled fell to 43, but in the face of expanding New Orders, simply reflects greater streamlining and Productivity. The Inventory index slid to 39.2; Some would claim this expresses Business doubt about future economic performance, but I would suggest it is beneficial, as Orders Delivery has also slowed to 52.7 and is proof that Business must increase Production activity simply to fill Orders. The Production index had fallen to 49.6 in January, but cannot stay there, as Manufacturers must fill Orders without built Inventory. Consumer Spending jumped in December by 0.7%, and all indications suggest that it is not slowing; Business will have to come back with a strong Spring and Summer forecast (contested by significant segments of the economic community, but the numbers say We will have another good Year). lgl

Answers to Answers

I thought I had better explain some of my sketched material in previous Posts. The first item of examination might be my desire for a Flat Income Tax of 24% without any Tax reductions except true Business Costs of the current Year, but with inclusion of Local, State, and Entitlement taxes in the total estimate of 24%. Depreciation of Capital can be determined as it was under the old Tax system, before the Devotees of the Kennedy Cuts developed the sculpted Accounting system in use Today. Income does not have to be split into originating segments in order to be taxed; it can hold to the old Adage: If you made it, you Pay! The next Statement is easy to understand, but possibly detested: If any Entity insists on the power to accrue liabilities and assets within the economy, they can and must be considered a taxable Entity with an independent Income. Local, State, and Entitlements taxes can be integrated into federal taxation by standardized Average payments per Income Group of each State; this Process may seem complicated, but really is quite an easy Accounting procedure, especially when aided by State provision of Statistics. The importance comes in the theory of Tax inclusion and limitation, not in individual cries that true Income tax limitation is not being maintained to the last Cent.

The next item must be my position on Keynesian theory of Government need to maintain Economic performance, especially Employment, through Deficit Spending. I have never believed this Thesis, but I also lacked any belief that Free Market forces could maintain the Demand for Consumer Goods sufficient to realize any Full Employment cycle in the Economy. Deficit Spending by Government simply worsens an already bad situation, by generating the effective equivalent of Printing Dollar bills; Treasuries are simply larger and Prettier. They propel the same effect, which is Inflation; a substance which will not deflate until those Treasuries disappear. Government Deficit Spending will not have long-term economic value to an economy, and not even a Short-term effect if non-funded Government Spending exceeds 3% of GDP ( We are not talking total Government Spending here, only non-funded Government Spending). The real Solution to the Great Depression was the simplest, therefore ignored, but Government should of bought those filled Warehouses of Goods, and hired men to scrap out those Consumer Products. They would not even had to tinker with the Money Supply. Incredible Expense?–probably only about 30% of what the New Deal cost, and without the development of Keynesian thought. lgl

Real Change

Lawrence Mishel of the EPI testified before the Ways and Mean Committee today, and the EPI investigation of American labor losses due to Trade probably are the best so far (with least axe to grind in favor of Trade). I wonder, though, about the curative proscriptions. Most who read my blog know that I don’t favor Trade that much, and like Trade agreements even less (they are simply instruments to destroy Trade Advantage in the first place). My position is basically bolstered by the knowledge that none of the World’s individual economies can afford the Transport Costs of massive Trade volumes. The shift from Rail traffic to Semi-Tractors of Transport volume over the last 50 years probably accounts for a 50% increase in Diesel fuel consumption in this Country. Gasoline Costs have probably risen by 15% as a result. Commercial Air Transport of Goods assuredly has increased total Aircraft traffic by at least 20%, and Aircraft fuel Costs by at least 30%. Trade must account for at least 40% of all total Transport Costs in this Country, without consideration of the Transport Costs of transferring Import or Exports Goods across the oceans. The fact is $50/barrel of Oil will strangle Trade; it will simply take a little time. What We do as We wait, though, can affect the final Outcome.

The EPI, itself, has been captured by the mystique of the Free Traders. Their first proscription for improvement is entirely wrong, as they advocate a devaluation of the Dollar. The Standard of Living of Americans will never be improved, by a devaluation of the value of their production. The real solution remains a complete opposite of this Proposal; i.e., concentrated efforts to increase the value of the Dollar. Why is this the Answer? It resolves almost all of the problems afflicting the American economy. It requires bringing the Federal Budget into balance, and more importantly, return to a program to pay off the Public Debt. It raises the Cost of American Exports in foreign markets, inciting a counter-cyclical rise in the Price of Imported Goods in the United States; the best spur to American manufacturing to be found. It forces return of American Capital Investment to domestic enterprise, especially if Tax Credits are removed from foreign investments by Americans.

Repayment of the Federal Debt will generate deep deflationary pressures (I estimate by the ratio of Debt Service/TM) until the Federal Debt is repaid in entirety (Al Greenspan is most decidedly wrong to imagine We need Debt to regulate the Money Supply; all We need is a consistent Interest rate of 4.25% on the Overnight rate). We need restructuring of the Tax system, both to pay off the National Debt, and to pay for essential Government Services; I could endure a Flat Rate Income Tax of 24%, if it was a Flat Rate, meaning that Local, State, and Entitlement taxes are taken off the Top with the Federal Government receiving the remainder. This form of Taxation requires and insists on literally not Tax Exemptions, Tax Credits, or Tax remissions. I have not did the Bean-Counting on this (being a Theorist), but seriously estimate it will triple federal Tax revenues if Local and State assessments can be restrained. People become defeated by the total mess, but there are rational lines to adopt to resolve these issues. lgl

The Way It Was (is?)

Hersheys is subcontracting Production in Shanghai to the S. Korean Lotte Confectionary for sale in China. Candy is probably the best Ton-weight Transport product to be shipped. This means you get the best ‘Bang for the Buck’ in transfer, which require only Cool conditions higher than refrigeration. The major difficulty of Transport comes only after arrival in China, where lack of adequate Road networks and Air-Conditioned Retail outlets inhibit Sales of Candied Products. Lotte Confectionary need only supply the Production facilities, while Hersheys still need insure sufficient Sales. It sounds like Expansion Fever without adequate evaluation of the difficulties, but can One tell? I hope Hersheys plans to spend heavy Advertising funds in the developed Asian markets as well as China.

Jeff Cornwall gives a nice Overview of the extra Cash out there for use as Venture capital. The Real Estate market has been a disappointment to the Venture Capitalists, while an alternative to Venture capital, i.e., Hedge Funds, exhibit a marked tendency to be too expensive in managerial terms, with little better Returns than the Open Market. Funds are drifting from the Hedge Funds, adding to the Venture Capital. Entrepreneurs would do well to get their projects online this year.

Felix Salmon gives a good review of articles dealing with Milton Friedman. There is to be a new biography on the man on PBS tonight. The entire Process bores me, like chewing on the bones of the Dead; something which Milton Friedman never did. Milton came, saw, and conquered whether he was right or wrong; never bothering to glance behind himself at the Dead. The best thing, to me, which could be said about Milton Friedman was that he could find three Excuses for being Right, and twice that many for being Wrong. Gad, but I do miss him! lgl

Types of Graft

Both David Altig and Mark Thoma pursue an article in the WSJ about the costs of regulations on financial markets performance. Mark does not seriously comment on the article, simply lets the article speak for itself. David takes the position such regulations are harmful for Markets’ performance. I take the contradictory view, thinking the elimination of fraud, advertent and inadvertent, is worth the time-delay and Accounting Costs. Altig’s views are formed in the Profits dramatization of a financial boom, but the downturn of the Housing market and deteriorating aspects throughout the rest of the financial markets may outline the value of established assets in determination of Investment advantage. It is in a way like this Post by Dean Baker on the Inflation-Scoring of actual Oil prices. Everything Dean say is the truth about Oil prices in that actual increase in Oil prices is only about 70%, but he leaves out the Inflation-Adjusted direction of Production Costs for Oil over the intervening Period; this leaves up in the Air the question of whether Oil production are obtaining economic profits in the Process.

William Polley and Ben Stein may have it right in their claim that Greed can only flourish if there is a limit to that Greed. Corporate CEOs and Hedge Fund managers may have to learn this lesson the hard way. I possess an old-fashioned Mutual Fund, originated to please my now-deceased parents, but kept for reasons of nostalgia. The fact is it has not grown in Years, though I still make contributions to it on a monthly basis; the rationale behind this is the ever-increasing Managerial fees charged by the Fund. It is obvious I should sell my Holdings, and a few more Statements of such derogatory Accounting may lead me to take action. Such Fund managers, and CEOs towards their Stockholders, rely on the inertia of Investors to maintain the current system. Their Customers, like myself, find such behavior becoming so egregious We may have to divest ourselves of such chicanery. This is what William Polley and Ben Stein perceive, and on which I agree.

Brad DeLong tries to define the long-term Health Care Cost Drivers. The truth states he is wrong, but only because basically his focus is fallacious. He would support the basic Status Quo of Health Care, which We all realize is endemic in fault. Where is the disease in Health Care? It is again Greed, and again at all levels. Everyone wants economic profits at every level. Doctors will not accept Set Salaries and/or standard Workweeks. Health Care Providers and Insurers insist on huge administrative staffs, rather than a common Schedule of Payments for provided Services. Drug companies insist on unlimited royalties for Drugs, often which work no better than unpatented Drugs, and buy a medical staff to proscribe them by underhanded graft provision to Doctors. Hospitals resent Demands that they present an Averaged Day Cost for Hospital Services in total, as it would prevent inline Accounting Profit-taking. Does this Situation fit in with the rest of this article? lgl

Minimum Wage Effect

Frederic Sautet makes the claim that Economics should be axiomatic in this article. He uses as reference a Becker/Posner article in the WSJ. Sautet searches for certainty in a profession which has none. Take the Becker/Posner position: They basically claim that Minimum Wage increases will reduce Employment of low-Skilled labor, alter Capital Inputs, and lead to higher Prices. No One asks, though, if this is an Immediate Effect, Intermediate Effect, or Long-Term Effect. The market for Unskilled Labor has the irreverent habit of increasing Employment after a Minimum Wage increase. Is this a suggestion that such losses are not an Immediate Effect, but a Intermediate Effect, even possibly a Long-Term Effect? This might bear some examination.

The Immediate Effect of a Minimum Wage increase seem obvious to increase Labor desire to work at such occupations, as they will receive greater recompense. The wider choice of Applicants for such work allow for greater discernment by Employers of proper labor cadres at less Cost of evaluation, and with the better choice of Labor, lower Job Training Costs. Capital Inputs may be lessened by the Wage increase, but to what degree does this impact the Business concern; it could actually lower total Capital Costs, by fully exploiting the Life Expectancy of all Capital Inputs without degrading the Business quality. Product Price increases have a distinct Shock Effect on Economists, though there are Questions to be asked: Are current Product Prices what is called Market-Ready?–this means have they previously been advancing in common rate with the total mix of Product pricing, or have they been enjoying an economic profit from falling in relationship to other Prices? Will there be a disadvantageous Jerk in the Product Price increases, or will it be a natural flow upward to conform to the General Product pricing? What does all This impact on Our study of Immediate Effect of Minimum Wage increases?

We must turn now to the Intermediate Effect of Minimum Wage increases. Business firms who have integrated the Minimum Wage increases will express no impact, Business firms who cannot integrate the Minimum Wage increases will fail, while Business firms organized after the Minimum Wage increases will not feel the increases at all. The major impact of the Minimum Wage increases on Business comes within the scope of competing within the new Product Price schedules, or incapacity to restart effective reCapitalization; new firms being immune to this effect else they would not have started in the first place. Business firms capable of integrating the Increases obviously possess a operational format based upon an effective Product list. Business firms which could not integrate the Wage increases obviously were already operating on marginal Profits sufficiently inadequate that reCapitalization would probably have incited failure anyway. Capital formation rates would suggest that Business entrance (new firms) remain relatively unaffected by total Production Costs, so the total number of Business firms will remain relatively stable or increase. It seems the Intermediate Effect of Minimum Wage increases demand simply greater Business efficiency, without much impact upon Business Debt Service.

The Long-Term Effect of Minimum Wages increases does indeed seem to reduce Minimum Wage employment, but for reasons which appear beneficial. Employers tend to utilize Incentive Pay increases to a greater degree with their previously Hired to retain them, the higher Minimum Wage costing firms a higher Price in lower Productivity from untrained labor. The other major push comes in Minimum Wage labor learning greater skills, and moving on to better employment which suits their career goals. I, as an Individual and as an Analyst, have no trouble with either of these effects. lgl

Economics for Economists

Here is another Tract calling for resumption of Trade Talks, claiming dire need before Bush loses his ‘Fast Tracking’ authority in July. Many cannot understand that the Trade Talks are a dead issue with the Farm States aligned to Vote down any Treaty which touches their farm supports before Bush’s authority lapses in July. Those pleading the Case for Free Trade fail to understand that the Opposition positions of the EU, Brazil and India, and the United States are all based upon refusal to make further Concessions in areas which are their basic Trade strengths; EU could not control the flow of Goods into their respective Countries, Brazil and India would be faced with a Consumption market which they cannot finance, and the United States would lose its real Trade advantage of Food Grains. Evaluative study would conclude surrender of any of the major positions would wreck havoc in the economies involved, with only marginal gains to be made by Anyone. The EU, Brazil, and India would face a Trade imbalance functionally equal to that presently endured by the United States, while the United States would lose its last real Trade position in the World beside Boeing. Economists need to forget Trade theory, and examine Trade balances.

Robert Bohannon might develop a reputation as horrendous as the Columbian Cocaine Cartel, with his design to caffeinate baked Goods. Turning such a Power over to the Corporate structure might unbalance the entire American Dietary network. I can see it now: ‘I will have the uncaffeinated Cheesecake, please! And a Cup of Coffee on the side. The Caffeinated Cheesecake always gets me Wired.’ We will be holding Congressional Hearings to determine how much Caffeine is being added to Our Pound cake. State Legislators might as well start debates on the proper Minimum Age for children to have access to Caffeinated Baked Goods. The FDA will be ordered by Congress to come up with the correct labeling format for Donuts and Pies. Oh, the legislative effort which will be required to insure the proper levels of Caffeine for Cookies!

Laurence Kotlikoff thinks We, as Americans, may be saving too much money for Retirement; and actually, he is probably right. Americans do not need a multiplex of new Investment plans and planning systems, We need a universal Pension system. We have Social Security, and though it has had its detractors since its inception, has still provided more People with more financial security than any other effort in history. Social Security would still be sound, and paying its obligations for the next 40 years, if We could convince Congress to raise its own taxes, and invest Social Security revenues in sound Banking nodules. Economists, and Taxpayers, should understand the great Entitlements Crisis has been caused by Politicians and Lobbyists, not by the revenue-generating Economy We all live within. lgl

Modern Economics

Tim Haab finds new hope for hydrogen fuel with developments in Australia. His only problem comes in the concentration on small units. I picture a closed power system for vehicles carrying about 10 gallons of pure water in source tank, a hydrogen holding tank, an electrolyser, and a Drop-In Battery source–where placement automatically makes the connection with the Power unit. Commercial Solar Power stations would own the batteries and rent them Charged for an appropriate fee. These Power stations would utilize a combination of Solar cells and Magnifiers of Sunlight to produce Power. Burned hydrogen would collect as water in the water tank. The Electrolyser would work continually until the hydrogen tank was full. Battery Charge would be considered sufficient with 300 miles per Car, and 75 miles for a Semi-Trailer. Insistence on an integral Battery system will defeat any Electric or Hybrid vehicle design. Battery replacement must consume less than 3 minutes of time, and Charge levels must be uniform across stations.

Ambitious Bloggers should read this article by Arnold Kling. It highlights the fact that blogging is a Sensation-Junkie industry, where one has to capture the interest of the Readers immediately. Does this detract from blogging? I do not think it does. Readers search for Bloggers whose words they can trust and understand, and return to the same Blogs because they receive a level of competence fit for themselves. Does this sound patronizing–it should not; Bloggers are themselves Readers, and the gist of their message changes to conform to basic tenets that flow across all the Blogs. Arnold brought in the subject of citations and links, but Bloggers must also deal with contrary opinions–if they expect to keep their Readership. One has to ask, like Arnold, if academia suffers from a bias on the Internet. I doubt it seriously! Academics present the most reasoned arguments, which other Bloggers must respond to, and present an academic style which Bloggers must aspire to or be considered inept. I think the flow of ideas is good for All.

Don Boudreaux again presents an attack on Minimum Wage legislation which is a non-Contender. He cites France, where Minimum Wages is a lot closer to the Average Wage than is the fact in the United States. He states that married French women have far less labor participation than American wives; this ignores the statement by most young American wives that they would stay home and take care of their children, if they could afford it. It also ignores the possibility that the higher Wages in France affords young French wives and mothers a right to a traditional household. His quote of the unemployed levels among French residence Muslims as being near 40% forgets the unemployment levels of intercity Black and Hispanic youth. Why do Economists accept and approve of all Cost increases to Restaurants except Pay Hikes for already disadvantaged Youth? lgl

Playing with Externalities

Why does this article make sense to me? The externalities of City life have been known since early American times. Why has it taken so long to devise a plan of rubberized panels for Sidewalks which can be lifted and tree roots removed? Speculation might center on many concerns; the previously cheaper Cost of Concrete, the greater beauty of Concrete over ground tires, the shortage of sufficient numbers of discarded tires, the fact City budgets could not handle tree root destruction of Streets and tree root destruction of Sidewalks simultaneously, because kids can run too fast to be caught with the added spring of rubber sidewalks, or because Adults found too much bounce in their lives with rubber under their heels. I personally have always favored elevated Sidewalks, where you could meet your girlfriend eye-to-eye when engaging in the practice of Serenading. I worry about the odor of scorched rubber on those hot July days.

Political Calculations has a good piece on Minimum Wage increases (actually quite a number of them–check the bottom of the Post). It doesn’t highlight one of the greatest aspects of a Minimum Wage increase; the effect of Minimum Wage upon Creative Destruction. Millions of Jobs are eliminated and created every Year, Economists calling the process Creative Destruction. The Process purportedly has vast benefit for the economy, redirecting labor assets to their most optimum allocation. It is surprising that most Economists so rapidly abandon this relevant economic theory, as soon as it touches the range of low-Wage unskilled Labor. It again is only a process of Creative Destruction, where cheap labor is being destroyed; business practice will have to advance to greater efficiency, or be eliminated. Will such Jobs losses be permanent to the Market? Will the Business sector be abandoned with the exit of unprofitable firms? The Answer is No in both Cases, and Minimum Wage increase is only increased sharpness of the mechanism of Creative Destruction.

Don Boudreaux comments on the Tyler Cowen article in the NYTimes. The gist of the argument of both men amuse me, because of the externality existent here as well. Don even lays claim to a justification for regressive taxation, though he fails to explore the area. Tyler’s argues that We should continue attempts to advance the opportunity of lower Incomes; why then does he not advocate a Minimum Wage increase to say $12/hour? The Boudreaux argument against Progressive taxation combined with the Cowen argument for Opportunity could only insist on consistent, and massive, increases in the lower Income ranges. I, like these two Economists, believe the only acceptable progressive taxation which is realistic must be increasing Wage scales. Do We have agreement here? lgl

The Electric State of the Union Address

I agree with Aeon McNulty and Tyler Hamilton when they are not excessively thrilled about the claims that a new ultracapicator power system will replace current electrochemical batteries. I am not as sure about the utility (or lack of it) in the new powders being developed to store Energy. I see such Designed powders as the answer to Solar power continuity. A correct-composition powder could be the large underground storage batteries for Solar power through the night. These powders must possess the capacity to absorb massive amounts of electrical energy with very minute additions of Water vapor, and release vast amounts of electricity with only minute Drying capacity. Connected to Solar panels, the massive absorption capacity of such powders when moistened could vastly increase the Solar generation capacity of Solar panels because of the rapid absorption of Ions, while Energy use to produce Electricity during the Night would require only a Moisture evaporator at the battery. Science has already proven somewhere that electrical absorption rates are high under extremely Dry conditions, with only a minor increase of Humidity. It might work.

Cactus at Angry Bear chose not to watch the State of the Union Speech. He was far from being alone. Blogger after Blogger admits to not having watched the Speech; I myself did not. I checked around my immediate environment this morning; even Those most likely to watch such political pronouncements did not watch the Speech. It may easily have the lowest Viewer Air share of any TV programming all week. What does it all mean? G.W. Bush first took Office in an era when the United States was basically at Peace with the rest of the World (except for a few fringe fanatics). Today: most of the World is mad at the United States, and even Americans blame Bush for what he has done, and what he has not done. Americans are simply tired of listening to George W. Bush, as he continuously bombards Us with Problems in the hope of gaining American support; Everyone knowing he will never provide a resolute, effective Solution to any of those Problems.

The NeoCon Republicans have again brought the American people back to despair. The Bush Tax Cuts, initially so attractive, have long since lost their appeal; the Cuts generating more Public Debt than Jobs, and Tax Costs seeping back to previous levels for all but the Wealthy. The Wars, Afghanistan and Iraq, started with such great fanfare; now they grind out only Casualties and Death with no end in sight. Bush policy has did much to create this Situation as well. The huge sums spent in Iraq and Afghanistan have all went to American Corporations demanding American Profits-Taking at all levels; Afghans and Iraqis could have rebuilt their own Countries with those funds, at far less Cost, and with far less Unemployment amongst their native Labor elements. One of the greatest Angers of both Afghani and Iraqi is the fact that the Bush administration did as much for their economies, as he has for the American economy–only Injury. Now Bush wants to gut the Social Security administration and Benefits, and grant more Tax breaks for the Wealthy. Would you want to watch George W. Bush speak? lgl

The Paranoia Club

(the Post I attributed to Felix Salmon was actually written by Mark Thoma. My only Excuse consisting of a Statement that they are both so gifted and prolific that my brain gets confused)
Felix Salmon (really Mark Thoma) gifts Us with an excellent montage of links of Authors evaluating the new Bush health plan. The Genus of the Bush plan concerns me more than the other Authors included in the Salmon(Thoma) Post. Utilization of a Standard Deduction instead of a far more sensible Expense Justification Deduction begs for rationality; a Tax Credit of such magnitudes proposed makes more sense than a Standard Deduction–which is a straight reduction of the Tax rate open to Anyone needing further reductions of the Tax rates–only the Wealthy. A Tax Credit would not impel health care coverage among the Poor, but would at least be a boost to Consumption. A Standard Deduction would not generate better health care coverage, as the Young would purchase the Cheapest to Pocket the greatest difference (Ezra Klein link). A Standard Deduction vastly increased the number of non-Tax-Paying Income Earners in this Country (as Philips of the Tax Foundation notes in the links), and gives Business the opportunity to finally dump Employer-Paid Health insurance.

What is George W. Bush attempting with this health plan?

He cannot seriously be contemplating this Plan will resolve the mighty Health Cost problem in this Country. Business abandonment of Employer-Paid health insurance will bring on more uninsured numbers, even if the Plan was turned into a Tax Credit as Mankiw proposes. Bush cannot expect Health Care insurance premiums to attain higher national levels with this Plan; there are extensive reasons why the total level of premiums paid for health insurance will drop under this Plan. Bush has only Two years left in office, and cannot have any expectation that he can forestall any resolution of the health care crisis in this Country after his Leave-taking, with a preemptive strike using such a worthless initiative. Bush cannot expect the Health Care Expenses of Federal, State, and Local Government agencies will decrease under such a Plan. He certainly does not expect this Plan could possibly raise Tax revenues for the Governments involved, or actually benefit any of Those actually in need of health care insurance.

Is there a hidden malignancy within this Plan?

Could the Answer be that Bush desires to generate a Credit Crisis for the United States? No One has crunched the Numbers as yet, but I would estimate this Plan would reduce Federal Tax revenues by an additional 11-20% of total revenues. The Dollar is already losing value against foreign currencies, and no one could expect foreign central banks really desire to increase their holdings of Dollars. International Corporations, which George W. Bush so capably represents, are awash in liquid assets; garnered, to large degree, with previous Bush Tax polices. Could Bush possibly be inciting another Great Depression, so that the International Corporations can buy out the rest of the industrial capacity of the World at extremely depressed Property values? Could Anyone be so diabolical and Evil as to plan and work for such an Event? On the other hand, could Anyone be so paranoid as to so question the motivations of American leadership? (This Advertisement brought to you from the Man who is paranoid, and proud of it). lgl

Unworkable Trade Agreements

The current NABE survey (National Association of Business Economists) may provide light to the expectations for the current year. Rising material costs has lessened in intensity, but Price increases appear stickier. A bad note states that Goods-producing firms were still reducing labor rolls, while a majority of firms intended to hire within the next six months. Capital Spending was down in most firms, reflecting most business enterprise was positioned to hire more labor without repositioning. The report states that Profit margins are generally improving, but I have some doubts on this, as I smell a major Cost shifting to the coming year by business, who want a heavy-loaded Expense Accounting in the face of a Democratic Congress. The only fault with the Report may be the lack of a developing Capital Investment trend.

The United States is again under fire for its Farm Support programs. The American Farm program has much domestic defense what with Business and Politicians covetous of the Voting power of the agricultural States in Congress. It is not an Issue which can be cured easily, like previously in removal of Steel tariffs. I have always been passively opposed to the WTO and multilateral Trade Agreements in general, and specifically for this reason: The United States was bound to be outvoted in international Trade associations, it being the wealthiest Trading partner in the World. He who has the most at stake should not pursue General Agreement about anything.

The United States will undoubtedly face eventual Trade sanctions, as Farm States refuse to surrender their Farm supports, but the United States is outvoted in the WTO. The United States Government will be able to do little, except to attempt to separate the small American farmers from the major Agribusiness corporations, then continue the Farm Supports to the majority of Voters in the Farm States while insisting the Corporate structure assume natural Business practice free of Supports. The hazard here (like playing Golf, only worse) is formed by the fact that Congressional Farm States Votes are actually controlled by Agribusiness–not the majority small farm Voters. If the reverse were true, a reasonable deal could be worked out; small farmers being the most pragmatic of people–I know, as I used to be one. The Corporate structure, on the other hand, will resist any relinquishment of Profits whether earned or criminal in nature. I personally would state, no fan of multilateral Trade Agreements, that the United States should unilaterally withdraw from any Trade organization which backhandedly reimposes a tariff system upon the United States, simply because of cultural and political practice in existence prior to the Trade organization. lgl

Health Care Costs

Greg Mankiw, along with my other Economists, may miss the most important aspect of the Health insurance, here, here, and here. What is the major element wrong with their thinking, which apparently even includes the current Administration? It consists of two Parts, both vital for any benefit to accrue to health care insurance regulation. The first states that any attempt to restrict Consumer choice, without an attempt to limit health care Costs, will not curb Health Care Expenses or satisfy cancellation of overdraft of insurance services; something all three articles pretend Wish to curb. The second Part insists that any Change in health care insurance must be understood by the Users of such insurance, to get any change in their behavioral use of the insurance. Most Consumers, under these Proposals, will not even notice any regulatory change.

How can there be curbs placed on Health Care Costs through regulation?

Instead of making all Health Care insurance premiums Tax-deductible, or the opposite, making even employer contributions non-Tax deductible, One could take a positive role and define exactly what Type of Health Care insurance can be sold: I suggest three basic of Types of Health Care polices be allowed, each of which would give a separate Rate schedule set payment for each policy use: Doctor Visit, Hospital Stay, or Procedure payment; the three separate Types separated by set Dollar amounts for each service. The policies would be issued for say $25, $50, or $100 per Doctor’s visit, Hospital Day rate of $250, $500, or $750. Procedure rates would again be set on specific payment rates in Dollar terms. The Health Insurance policies themselves have been expressed in terms all Consumers can understand. They will easily grasp what policy Type provides their best Risk-avoidance avenue in relation to their own Income level. This translates into instant awareness of health care insurance regulation change.

You may ask how this could limit excessive Health Care Costs, or excessive use of insurance benefits?

The Government could, under such a Sea Change in issuing Insurance, regulate far more than Consumer use of benefits. It can insist on hard Accounting, with Insurance industry justification of premiums and Costs. It can insist on major elimination of Administration Costs, demanding Insurance Coverage cover the listed Rate schedules. It can pass regulation which states Tax-deductibles will be issued only to cover the Costs of the cheapest Type of Insurance offered, stating it is up to the Consumer to further insure against health risk. Such a program of regulation will incite Health Care Providers to minimize their Charges in pursuit of higher Patient Turnover, when it is known that higher Charges will vacate Patient utilization of health services. No Change at one end of the Health Care Payment system will resolve the issue of high Health Care Costs; both ends must be assaulted effectively by regulation. lgl

Musgrave and Cheney?

Richard Musgrave has died, one of the last monuments (if not the last) of the Great Economists prior to the mathematical revolution in the Economic profession. David Warsh has an excellent article on Musgrave’s contribution. It would be nice to say I had read all of Musgrave, but actually I have only read his first article from 1939 (one of those History Term Paper research projects). I say this regretfully, as he and I probably hold most of the same precepts dear to our hearts. Musgrave would agree with me in the statement there is never sufficient time to pursue all that one wished to do; there being simply too much good Work out there to explore.

This Post by HedgeFundGuy somewhat ties in with the work of Musgrave, and may be a Must-Read for Any adventurous enough to consider teaching macroeconomics. His statement that macroeconomics is more of a History course rather than a study of Economics holds a vital truth. Macroeconomics almost always devolves into a pursuit for the major concepts advanced by the premier Economists, Musgrave most assuredly being one of the Esteemed. HedgeFundGuy has his own axe to grind, claiming the absolute need for protection of Property Rights, which might not be the most essential Concern; I personally favor an intrinsic enforced Deserved Pay system, often at odds with entrenched Heritage transfers of Wealth to heirs. Growth theory can be reduced down to a simple statement in my mind: Growth is dependent upon Educated Labor; who are propellent for Growth development opportunities. The downside here lies in the fact there exists Diseconomies of Scale to Education, where too great numbers of Educated labor generate decreasing Marginal utilities for Labor under constrained resources.

This Post by PGL at Angry Bear may also have a bearing on the discussion. PGL’s basic critique is of Dick Cheney’s performance in office; reinforced by many other Sources, and consideration of Cheney’s Character by the Public. The real element relating to the Above comes in Cheney’s likely incitement of vast expenditures of Public Funds for potentially personal ends of a petty nature. Musgrave’s major contribution to economics may be the assertion that there must be a moral justification to Public Finance, and such Expenditures must be rationally devised within the Public forum. lgl

What Works and What Doesn't

I agree with Mark Thoma that liberalization of markets are not the causation of The Great Moderation. The Educational levels of Labor, plus the availability of packaged Skill programs for elements necessary to establish a business, have allowed Labor to create their own Jobs; if traditional Business programs fail to do so. ‘How To’ Studies can be accessed in library or online for completion of all forms of business organization, from writing a Prospectus for a loan to Cost Accounting for a Business. Many Small Business personnel even locate their own Advertising avenues, and do their own Withholding Accounting. Simply put: Small Business has learned to complete those aspects of Business organization which previously had to be outsourced to expensive Agents. This Cost-Cutting has undoubtedly doubled the Profit margins of small business, and made independent Job creation much safer.

Ecelectecon has a good Post on cartel theory, but misses a central point. The article would imagine that with 23 Players in the cartel, a reduction of Supply could be achieved. All are perfectly aware of the Prisoner’s Dilemma, and realize that few in the cartel will meet the agreed reduction. Now Maximization of Profits provides additional inputs to the game theory, and realization there are additional Profits to be made, by increasing Output to maintain the current Production level and Price. Eleven out of the 23 Producers are expected to maintain their Production schedules without change, and 7 can be expected to actually increase their Production schedules. None of the rest of the 23 can be expected to meet the quoted reduction. Welcome to real life cartel theory.

Brad DeLong tries to support both Minimum Wage and the EITC (Earned Income Tax Credit), stating both forms are relatively necessary for the reduction of Poverty. He points out, though, that the Minimum Wage is practically self-enforcing, while the EITC is very difficult to administer and doubtful in reaching the right people (recipients who manage to satisfy eligibility requirements likely do not list their professional help as Income). Brad states the IRS is better served by enforcing tax law on rich people–I agree wholeheartedly. The EITCs suffer a much greater defect as well: the inability to effectively track Income through multiple Jobs, a necessary criterion for any program designed to aid low-Income laborers. Minimum Wage increases pressure Incentive Wage increases throughout the lower Income structure, and thereby aid far more Workers than simply Those working for Minimum Wage. EITCs were a fancy academic idea sounding great on Paper, but unenforceable in practice. lgl

Soak the Rich??---Me!!!

This Author will not verify that several names have been ascribed to himself since his last Post, but he would like to clarify his position on Taxation. I would first like to establish the fallacy of claims of lack of Investment, if Taxes were raised. Investment stands as the only means by which Individuals and Business can make further Profit from excess funds coming to them from Labor or Business operation. Investment will exist, and at the same equivalent levels, no matter what the Tax rates are set at. Economists will claim Investors will Consume more than investing with higher Tax rates; here is the essential fallacy, as Consumption is beneficial for the Profits of existent Business operations, and impels Businesses to increase Productivity levels and hire additional labor. Business will benefit, no matter how the Funds are allocated. Suppression of Tax rates aid only in building individual wealth, whether by Households, Partnerships, or Corporations. Any Economy with the prerequisite financial institutions need not fear any loss of Capital aggregation. The United States has the absolute least threat to Capital aggregation of any nation in the World.

I will next turn to the steps by which I would reintroduce Taxation in it’s proper form to this Country (here is where you can be glad I am only a blogger, who can be left unread). The Steps necessary to limit Government Costs as well as introduce genuine Taxation are simple, with little alteration of law, or with little Paperwork in legal definition or Collections procedure. Here is my List:

1) No Investment Tax Credits, or the total accreditation of such Investment credits, will exceed $10,000 per Taxpayer, $20,000 per Joint Return, or $50,000 per Business, Partnership, or Corporation per year. Standard Tax rates will be implemented against the rest of all Income.

2) Any established Foundations must pay at least 50% of the applicable Inheritance tax normally associated with the death of an Individual, when the Benefactor of said bequeath dies.

3) Any Charity which employs a Fund-Raising staff consuming over 20% of total Contributions gathered by such Charity, must pay all requisite Taxes associated by such Business of such total Income.

4) Patent Rights are a convention to incite Research and Development, but the nature of Patent Rights are the prerogative of the Issuing Agent. American Patent Rights will be altered so as to not exceed 10% of the actual Production Cost of the Product or Service. All Patent Rights will be grandfathered at the previous issuance, but no such Patent will exceed 16 years in duration from passage of the new Patent law; future Patents will be for 100 years but receiving the stipulated award, while renewed Copyrights will conform to the stipulated awards.

5) All Contractors receiving Public payments or Funding (including all Health Care Providers) are forbidden to utilize Sector Accounting, or subdivision of Profits except through the umbrella parent organization, who must list and account for all such awards before they receive any payment of Service Costs by any Government agency. Bonuses must never exceed 16% of total Labor Costs on any Government contract by law. lgl

Time of Taxation

Mark Weisbrot has a good article in the International Herald Tribune Opinion section and another at the TPM Café (courtesy of Felix Salmon). The two Posts reflect one aspect of the situation, but portray the Period from 1970-2005 in a bad light, one which can be easily be explained by evaluating the Population Growth in Latin America throughout this Period. The Past in Latin America has been one of economic growth attempting to keep pace with the Population Growth. The new regimes remain utterly necessary to the reduction of Poverty in the area, but only in the sense of breaking the Traditional caste systems in the Countries involved. It is more of a question of breaking the Strangle-holds of the Past, than implementation of vital, vigorous economic policies. Chavez and his fellow travelers in Latin America will find the old economic policies of the Communist Left were discredited for sound economic rationale, and have not improved with transplantation or tweaking the mechanics. On the other hand, the IMF and other financial institutions supporting the Traditional castes were equally at fault (check this later Post of Felix’s).

Dean Baker presents a good Post which in a way validates my previous paragraph. Ben Bernanke, as spokesperson of the Traditional caste system in the United States, had suggested that Social Security should be restructured and Benefits reduced (Baker implies Bernanke is only following the Kirchner example in Argentina of defaulting on the Public debt, Our's held by American labor). Dean, though, goes on to say this default should be extended to holdings of the Privileged as well. I would say, and Dean Baker as well probably, that it is the Tax system which should be restructured, and that the funded Pension Plan be allowed to pay its Benefits until such time as contributions run out. The fact that the American Wealthy will be forced to pay Taxes, which they have skipped paying since Reaganomics, should not be germane to the Issue.

One might study this Post by Menzie Chinn which itself contends, though he might contest this statement, that the Wealthy in this Country should restart to pay those Taxes sooner than later, as the Public Debt has shifted to foreign Creditors. The Well-to-Do in this Country may be contemplating transferring their citizenship and residence to foreign shores, to leave lesser Americans to pay the Federal debt, but I suggest that We tax them now before they go. lgl

Ecological Awareness

Daniel O’Connor has posted a very good article clarifying the elements of environmental economics and Decision-Making. It concisely defines all the troublesome aspects of economic decision-making in the pursuit of a sustainable economic ecosystem (one which can propagate itself over and over so as to avoid Resource depletion). He outlines the problems of achieving a fair distribution of economic benefit, so that while social classes will still exist, economic oppression will be minimized. My Take on this Issue remains what it has always been: an informed Tax policy rigorously enforced will produce the best result.

We must devise a sustainable economy for Our progeny, though some of Us older often wonder why. Greg Mankiw will be immediately amused because of his promotion of the Pigou Club, but taxation must extend beyond the simple precepts of the Pigou Club. There must be a Mining Tax, and One imposed upon the Consumers of mined materials of all types, not just on energy or materials in shortage. It must be a Business tax, a Surtax upon Production which overuses set industrial standards established by the Taxing agent. I would advocate a 9% Mining Tax on all mined material used in Production, with a 1% increase in the Surtax for every 5% use of mined materials above 12% of all materials used. This places an obvious premium upon reclamation of materials (a boon to Everyone, not just Junkyards). There will be much Comment that the added Taxes will only be passed on the Consumer, but that is exactly this Author’s intent.

An effective, enforced Tax schedule applied to Product Durability must also be applied in my estimate. Business Production will be taxed (by added percentage increase on Production Income tax) based upon the durability of the manufactured Products. An Example: A pair of denim jeans whose average Product life does not exceed 3 years will pay an additional 8% in Income tax. Some would say 8% is too high a added Tax, but it seemed to me to be a relevant Surtax for provision of inferior product anywhere in the Economy; negating the increased Costs of quality Product provision. Product Durability Schedules would be set by industry experts paid by the Industry Associations themselves, but requiring appointment by Congress. These Committees or Commissions would set industry standards which had to be approved yearly by Congressional Committee after Expert testimony Hearings.

An equitable Tax policy obviates much of competition between Private Sector and Government policy decision-making debates. Testing procedures for Products would be set up by industry experts and Standards set, but under the supervision of Government to insure Consumer protection is paramount. The Economy is redirected towards a more ecologically-friendly economy closer to sustainability, while Business does not have to bear the total burden for the Shift. lgl

AMCs and G8

There is a major effort going on to get G8 funding for Advanced Market Commitment (AMC) for vaccine to combat disease in the developing world. The scheme basically pays Pharmaceutical companies to develop vaccines to stop malaria, HIV-AIDS, and tuberculosis. The current discussion is for a Grant of around $6 billion. Andrew Farlow, the head of Economics at Oriel College, Oxford, is writing a Paper stating this methodology will only generate low quality vaccines which will not actually cure the diseases in question (think of the use of Antibiotics and the evolution of Drug-resistant strains of the disease). He will also claim that the lack of infrastructure in these developing nations will forestall proper utilization of whatever vaccines are developed. Farlow asserts that the G8 should fund traditional methods for combating these diseases, and the creation of infrastructure to provide such treatments. Thanks to the Private Sector Development Blog for the link.

ScientificAmerican.com published this article examining the Issue of the lack of demand in developing nations for the products of Pharmaceutical companies to combat the known extreme diseases. The trend of the articles sympathizes with the big Drug companies, rather than with the poor developing nations; who may be so rude as to consider these Drugs overpriced and relatively worthless to handle major crises within their own nations. Developing nations’ major complaint at the big Drug companies consist on the ineffectiveness of the drugs involved, the lack of provision of qualified Administrative personnel to adequately supervise drug applications, and the ridiculous Prices demanded for the drugs. I personally tend to side with the Developing nations.

The entire issue of AMCs remind myself of the Proscription D debacle. The great advance in American health protection granted vast Tax relief to Big Pharma immediately, and short-term immediate relief to Social Security recipients. Insurers also made great Bonuses in signing up the Elderly in such Plans. One has only to examine the increases in Insurance rates and Drug prices to estimate Recipients of the great Plan may be paying as much for their Drugs as they were before the Plan, by some Period shortly after Bush’s Leave-taking of Office. Who knows? Maybe Big Pharma needs a few more billions in Profits.

AMCs could be easily substituted by a Plan which stated G8 nations would guarantee $3 per dosage for any effective Drug or Vaccine with an Administrative fee Payment of $200 per 200 administrations of a Drug or Vaccine if and only if Pharmaceutical companies provided On-Site qualified Medical Staff to administer such Drugs or Vaccine. But wait: Where is the big-time money in that? lgl