Saturday, March 31, 2012

Krugman’s Table D'Hote: Delusive Broccoli

“Why? When people choose not to buy broccoli, they don’t make broccoli unavailable to those who want it. But when people don’t buy health insurance until they get sick — which is what happens in the absence of a mandate — the resulting worsening of the risk pool makes insurance more expensive, and often unaffordable, for those who remain. As a result, unregulated health insurance basically doesn’t work, and never has.

There are at least two ways to address this reality — which is, by the way, very much an issue involving interstate commerce, and hence a valid federal concern. One is to tax everyone — healthy and sick alike — and use the money raised to provide health coverage. That’s what
Medicare and Medicaid do. The other is to require that everyone buy insurance, while aiding those for whom this is a financial hardship.” - Broccoli and Bad Faith, Paul Krugman, 03/29/2012, New York Times

One might want to examine the following statement more closely:

“But when people don’t buy health insurance until they get sick — which is what happens in the absence of a mandate — the resulting worsening of the risk pool makes insurance more expensive, and often unaffordable, for those who remain. As a result, unregulated health insurance basically doesn’t work, and never has.”

Krugman’s statement is backwards. Krugman is substituting the concept of mandate for the concepts of the pre-existing condition clause and the risk selection process [underwriting the risk]. Stated alternatively, Krugman is stating that without a mandate the risk pool [collection of underlying risks] deteriorates when people don’t buy health insurance until they get sick when in fact the collection of underlying risks remains unchanged as anti-selection is avoided by a pre-existing condition clause and risk selection aka underwriting the risk. That is to say, in order for Krugman’s statement to be correct if would have to be written as: … the absence of a pre-existing condition clause and medical underwriting, anti-selection occurs hence driving up the price to insure the underlying collection of risks.

The next question is how in the world does private insurance work well without a mandate? According to Krugman  "in the absence of a mandate — the resulting worsening of the risk pool makes insurance more expensive" however no such mandate exists in life insurance and that particular private insurance program works well. What about private property that is insured without mandate? That insurance program works well. What about pet health insurance? No mandate and the plan works. Hence putting forth "mandates" and asserting "worsening of the risk pool" concluded by "makes insurance more expensive" is a sweeping fallacious statement.

Looking at Krugman’s statement from another angle, its actually the “mandate” in conjunction with the elimination of pre-existing condition clause and the elimination of underwriting that makes the underlying collection of risk characteristics deteriorate. How so? If all comers are insured, as Krugman suggests in the following statement “The other is to require that everyone buy insurance, while aiding those for whom this is a financial hardship“ then he is making the implicit assumption and explicit assumption based on his prior statement of “…..don’t buy health insurance until they get sick” as he assumes all comers are healthy and totally insurable as they are purchasing insurance before they are sick. Nay, nay! The collection of all comers would be made up of some healthy, some healthy but with penned up demand for health maintenance, some unhealthy with acute problems and some unhealthy with chronic problems. Hence the assumption Krugman makes is that the healthy comers somehow, someway outweigh the unhealthy comers in the area of cost and by some magical pixie dust phenomena known as “insurance” the risk characteristic and associated cost disappears.

Examining Krugman’s other statement:


“There are at least two ways to address this reality — which is, by the way, very much an issue involving interstate commerce, and hence a valid federal concern. One is to tax everyone — healthy and sick alike — and use the money raised to provide health coverage. That’s what
Medicare and Medicaid do. The other is to require that everyone buy insurance, while aiding those for whom this is a financial hardship.”

Krugman yet again substitutes concepts. Krugman substitutes a social insurance [social welfare plan] concept/argument for a private welfare plan [private insurance] concept/argument. What Krugman is stating, in effect, is that the entire field of insurance, both private and public, is based upon social insurance concepts which is fallacious. Moreover, he fails to tell the reader that “tax” and more succinctly escalating tax over time, in social insurance [social welfare plans] is a substitute for “reserve” in private insurance [private welfare plans]. That is, in a private insurance plan adequate premium supports reserves that are in anticipation of future losses. In most social insurance schemes, no reserve exists for future losses [does the phrase “unfunded future liability” ring a bell?] hence the private insurance “reserve” for future losses becomes escalating tax over time in social insurance schemes as no reserve exists hence increasing taxes function to pay for unfunded future losses [fund future losses = increasing tax].

One can only surmise that there is economist Krugman, then there is Mr. Krugman, and finally there is columnist Krugman.

Friday, March 30, 2012

The Buffett Tax: Ops! Buffett being sued by the government to pay more taxes? No way! Way!

"Legendary investor Warren Buffett, who grabbed headlines and ruffled feathers by saying that the rich don't pay enough in taxes, is being sued by the government to pay more taxes, the New York Times reports.

Or at least one of his companies is.

The government has filed a lawsuit against a unit of Buffett’s investment vehicle Berkshire Hathaway, seeking $366 million in unpaid taxes and penalties, the newspaper reports.

The unit in question is NetJets, a private aircraft company that caters to the wealthy, the very people riled by Buffett's tax proposals.

The company and the government are at odds over whether a certain tax applies to NetJets users." - Government Sues Warren Buffett Firm Over Taxes, Forest Jones, 03/27/2012, money

Link to the entire article appears below:

Thursday, March 29, 2012

Wind Farm Realities

“Two years ago, I launched Wind Farm Realities, subtitled “Going Where the Evidence Takes Me.” Here’s how I describe my website.


“The more we want it to be true, the more careful we have to be.” Carl Sagan, The Demon-Haunted World: Science as a Candle in the Dark.


This web site is in the unenviable position of being a messenger of bad news about wind energy. And wind energy was, at least intuitively, so promising! Most of us know we can’t keep doing what we’re doing – burning through all the fossil fuels we can find – and wind seems to promise a carbon-free, inexhaustible, and benign source that doesn’t send money overseas.


As much as all of us, including myself, would want this rosy picture to be true, the actual evidence so far paints a far different picture. I understand that many people will resist hearing this bad news, preferring to label me a NIMBY, a Luddite, unscientific, oil-industry-loving, climate-change-denying, jealous – anything to dismiss me.

I’m sorry to disappoint, but I’m simply someone who thinks evidence is a better guide to reality than wishful thinking. And the existing evidence says to me that wind energy has no redeeming value, while its downsides are substantial.


The first indication that I had of the failings of wind energy was when I had the temerity to actually read the references that the wind industry used to “prove” how beneficial and benign wind was. As an example, if you read AWEA’s “Fact Sheet” on 20% by 2030, it claims a savings of 825 million tons of CO2.

But if you follow the references to find out how they got that number, you find out that AWEA itself was ultimately responsible for it. Worse, that number was not based on any actual measurements – they simply assumed any energy created by wind automatically lessened emissions by an equal amount, an assumption we know is untrue.


One of my more depressing observations is that the wind energy movement has acquired almost a religious following, where faith is more important than real-world facts. But while our souls’ origin and destiny may not be knowable, surely the effects of wind turbines on our power grid and environment are. In almost every aspect of wind energy the serious (dare I say, scientific) studies that would be needed to settle these issues have simply not been done (or at least, not published).

I’ve been looking on an almost daily basis for several years; I’ve asked the local universities; I’ve been in contact with interested people all around North America; and I cannot find any of the following:

A study that confirms the carbon dioxide savings advertised by the wind energy industry, based on real measurements on a real grid. You’d think that at least in Germany or Denmark, and maybe Texas or Spain, such figures would be available, but they aren’t. And the more you look into the details and the actual evidence, the more you suspect there’s no savings at all.

A study that shows wind turbine noise levels actually conform to the models that are used to place them. There are several studies that show that too often they don’t, and the complaints from neighbors are growing.
An epidemiological (aka a serious, scientific) study of any potential health effects from wind turbines. The evidence from actual neighbors is pretty strong that there’s a problem.

A study that shows how wildlife adjusts (or doesn’t) to wind turbines. As more (and no longer just anecdotal) reports come in, the effects continue to look worse and worse.

The fact that we are spending billions of dollars without any empirical indication it will do anything but further destroy our environment is a problem in itself, indicating a real lack of scientific proficiency. In spite of conclusive studies not being available, I have found enough evidence to form solid opinions on the various issues relating to the wind energy industry, and as much as I might wish that wind turbines were truly effective and benign, the evidence points differently.” - Wayne Gulden, Wind Farm Realities’ Website,, 03/28/2012

Link to the entire essay appears below:




Upon Further Review: ObamaCare Rhetoric vs. Reality

Twin Political Dupery: When the Both Sides of the Table Phenomena Dupe the Taxpayer AND the Union Member

What is the "both sides of the table" phenomena regarding collective bargaining in conjunction with a government monopoly? The public choice theory proposition of the both sides of the table phenomena is basically:


(1) if bureaucrat X is negotiating with collective bargaining public sector union Y, exactly what motivation does bureaucrat X have regarding negotiations? The problem goes back to Milton Friedman's fourth category of spending: other people (bureaucrat X), spending other people's money (taxpayer money), on other people (recipient class which in this case is a public sector union). Therefore the bureaucrat has little motivation because he/she is spending other people's money not his/her own money,

(2) public sector unions have found that they can collect dues through members and funnel dues into political action funds. They then fund the campaigns of politicos that promise them [public sector unions] more compensation/benefits. They not only fund certain politicos but actively encourage their union members to campaign for the politico. Once they get their particular candidate elected they have now secured a politico who over sees bureaucrat X.

Political dupery in action

The public choice theory proposition of both sides of the table phenomena many times is discussed in terms of collective bargaining by unions and resulting rich benefits bestowed upon the union and its members. However, rather than pointing to the richness of the benefits and the inability of the taxpayer to pay such benefits, what if one focuses on the political dupery of the benefits.

The both sides of the table phenomena, long the norm for public sector unions, is no longer in play in many locals as tax revenue streams have been reduced, the taxpayer can‘t afford more taxes to pay the benefits, and taxpayers have elected politicos that have changed those sitting on one side of the table. Hence the politicos bestowing benefits via taxpayer dollars and/or deficit spending to build dependent political constituency has, for the time being, ended. The accumulation of benefits via the both-sides-of-the-table phenomena is then defended by the now unrepresented yet purposely built dependent political constituency. Hence they can’t rely on the other side of the table and begin a second line of political maneuver which is strike, slow down, picket, etc.

A much overlooked item is the accumulation of benefits bestowed were in fact bestowed based on the short term political time horizons (next election) by a series of politicos (many of which are now long gone). The actual ability to pay the basket of benefits/wages, unfortunately, was never the aim of the politico. That is, its not the accumulation of “unrealistic promises” its really the purposeful accumulation of unrealistic promises [its not an error or oversight, its purposeful].

The result is the union and/or union employee think/perceive they “negotiated” items, when in fact, there never was any true arms-length negotiation. There was never any intent to negotiate long term funded realistic benefits and wages. Rather, the union or union representative, the supposed accumulated “negotiated” benefits/wages thereof, are in reality an accumulation of purposeful politico promises matching politicos short term political time horizon devoid of long term funded realistic benefits and wages.

One might consider this proposition: the both sides of the table phenomena, where the union or union member thought they where negotiating benefits, was a benefit mirage. Stated alternatively, the purposeful political dupery of the politico toward the taxpayer in the both sides of the table phenomena was simultaneously the purposeful political dupery of the union side of the table as the politico actually, in the long run, duped both the taxpayer and the union.


To make this concept even clearer, the both sides of the table phenomena is portrayed as duping the taxpayer. True. But the both sides of the table phenomena is duping the union and union worker as well. The politico is duping everyone in the room as well as outside the room.

The end result is a union that thinks they have played a role along with politicos to dupe the highly defused taxpayer when in fact they themselves were duped. The basket of benefits is a basket of promises not a basket of negotiated benefits that are funded and realistic. Therefore, the union strikes, performs walkouts, performs work slow downs and pickets based on dupery. That is, they have yet to figure out that benefits promised are much different than benefits negotiated and funded under a limited tax revenue stream. Stated alternatively, their very strike is occurring as they have yet to figure out they have indeed been duped too.


Wednesday, March 28, 2012

Sunoco’s Philadelphia Refinery to close 07/01/2012: 335,000 More Barrels Going Offline

“U.S. gasoline prices jumped 6% in February, and market experts predict they will climb higher because critical refining operations in the Northeast are shutting down.

From New York to Philadelphia, refineries that turn oil into gasoline have been idled or shut permanently because their owners are losing money on them. Sunoco Inc. is expected to close the region's largest refinery in July, taking another 335,000 barrels per day in production capacity off the market.

The East Coast refineries are getting squeezed by the soaring cost of crude oil, the major component in gasoline. The cost of oil has jumped in the past year due to global economic growth and rising tensions between Western nations and
Iran, a major producer. Refineries haven't been able to increase their own prices enough to compensate.”

“Refineries in the Northeast are under financial pressure for two reasons. They have limited access to cheaper, high-grade crude oil produced in the middle of the U.S. because there are not enough pipelines, which is forcing them to pay more for oil from elsewhere, most of it from overseas.

And many of their facilities aren't set up to process lower-grade crude that is cheaper.

As Northeastern refining capacity declines, it will force distributors in the region to buy gasoline from elsewhere, pushing up prices across the country and increasing the likelihood of price spikes, government officials and analysts warn.

"There's now going to be a question if we can get enough gasoline into the East Coast for summer," said David Greely, an energy analyst at Goldman Sachs Group Inc. The U.S. Energy Department has warned a shortfall could develop as early as July.” (1) (2)

“Originally published Sept. 7, 2011:

Sunoco Inc., an iconic Philadelphia company and a manufacturing mainstay along the Delaware River for more than a century, is getting out of the refining business.

Sunoco said Tuesday that if it cannot find a buyer for its oil refineries in Marcus Hook and on the Schuylkill in South Philadelphia it will close the plants in July.

About 1,500 of Sunoco's 10,000 employees work in refining, according to the company.”

“Elsenhans said the refineries had lost money for eight of the last 10 quarters - $772 million since 2009. Sunoco can no longer justify the investment required to maintain the plants, much less to improve their competitiveness in a world where refining profits are increasingly elusive, a spokesman said.”

“Sunoco opened the Marcus Hook refinery in 1902 to refine crude oil brought up by ship from Texas. In South Philadelphia, it acquired the Atlantic Petroleum Corp. refinery in 1988 and Chevron Corp. refinery in 1994 and merged the two Schuylkill plants into one of the nation's largest refineries.

Together the Marcus Hook and Philadelphia refineries can process more than 500,000 barrels of crude a day, making them one of the largest refining centers in the country.

The U.S. refining industry has suffered in recent years from reduced demand caused by the economic downturn, improved fuel mileage of vehicles, and the introduction of ethanol into motor fuels.

Domestic refiners say they are also at a competitive disadvantage with imported fuels from overseas refiners who face less rigid environmental controls.

Sunoco's refineries in Southeastern Pennsylvania have the added disadvantage of relying on more expensive low-sulfur crude as their raw material, which has depressed their profitability relative to other refineries.” (3)

“A New York billionaire appears to be interested in buying the Sunoco refinery in Philadelphia.

John Catsimatidis, who formed United Refining Energy, said that in an interview with Bloomberg News.

The refinery is set to close on July 1st if a buyer isn't found.

Catsimatidis told Bloomberg News that he will decide this month if he will make an offer on the plant.

One analyst said the refinery may be a bargain at $400 million since Sunoco was planning on shutting down the refinery.

Sunoco, which owns three plants on the U.S. East Coast and announced plans to exit refining in September, lost $1.68 billion in 2011 as the profit margin for turning oil into fuel shrunk to the lowest point since 2009, according to data compiled by Bloomberg. The Philadelphia plant is Sunoco's only operating refinery.

United Refining operates a 70,000 barrel-a-day refinery in Pennsylvania.” (4)


(1) As gas prices rise, no relief in sight at pump FoxNews, 03/17/2012

(2) As gas prices rise, no relief in sight at pump, The Wall Street Journal, 03/17-03/18/2012

(3) Sunoco to sell or close its refineries in Philadelphia, Marcus Hook. 12/02/2011

(4) Billionaire mulling bid for Phila. Sunoco refinery,, 03/02/2012


Roscoe Filburn, Wheat, The Supreme Court, and the “interstate commerce clause”

“When a 1942 Supreme Court decision that most people never heard of makes the front page of the New York Times in 2012, you know that something unusual is going on.

What makes that 1942 case -- Wickard v. Filburn -- important today is that it stretched the federal government's power so far that the Obama administration is using it as an argument to claim before today's Supreme Court that it has the legal authority to impose ObamaCare mandates on individuals.

Roscoe Filburn was an Ohio farmer who grew some wheat to feed his family and some farm animals. But the U.S. Department of Agriculture fined him for growing more wheat than he was allowed to grow under the Agricultural Adjustment Act of 1938, which was passed under Congress' power to regulate interstate commerce.

Filburn pointed out that his wheat wasn't sold, so that it didn't enter any commerce, interstate or otherwise. Therefore the federal government had no right to tell him how much wheat he grew on his own farm, and which never left his farm.

The Tenth Amendment to the Constitution says that all powers not explicitly given to the federal government belong to the states or to the people. So you might think that Filburn was right.

But the Supreme Court said otherwise. Even though the wheat on Filburn's farm never entered the market, just the fact that "it supplies a need of the man who grew it which would otherwise be reflected by purchases in the open market" meant that it affected interstate commerce. So did the fact that the home-grown wheat could potentially enter the market.

The implications of this kind of reasoning reached far beyond farmers and wheat. Once it was established that the federal government could regulate not only interstate commerce itself, but anything with any potential effect on interstate commerce, the Tenth Amendment's limitations on the powers of the federal government virtually disappeared.

Over the years, "interstate commerce" became magic words to justify almost any expansion of the federal government's power, in defiance of the Tenth Amendment. That is what the Obama administration is depending on to get today's Supreme Court to uphold its power to tell people that they have to buy the particular health insurance specified by the federal government.” - Thomas Sowell, Back to the Future, writing at, 03/28/2012.

Link to the entire essay appears below:



Quiz! How many days has it been since the Senate passed a budget? Answer: 1,063 days (32 more days and it will be 3 years)

Monday, March 26, 2012

Gasoline Prices Explained

Domestic gasoline demand is down. Domestic gasoline supplies are up. Uncertainty as always (as in forever) in the Mideast. Speculators as always a favorite politico scapegoat. Meanwhile gasoline prices continue to rise. Would it be that the price of oil is denominated in US dollars?

' "Gas Prices Explained," from the same group that produced "Quantitative Easing Explained" (which now has more than 5 million views on YouTube).' - Carpe Deim, 03/10/2012

SCOTUS and ObamaCare: this week’s schedule of arguments

‘ “Hans von Spakovksy, senior legal fellow and manager of the Civil Justice Reform Initiative at The Heritage Foundation, explains what is in store this week.”


"There's three days of hearings, and the Court has very specifically laid out which issues it wants discussed each day," says Spakovsky. "So on Monday at 10 a.m. [Eastern] they're going to start off with 90 minutes of argument about this 145-year-old federal law called the Anti-Injunction Act, and it's a law that basically says that you can't sue to get an injunction to stop a tax from being imposed. The only thing you can do is file suit after you've paid a tax or after you've paid a tax penalty, and then you can sue to try to get your money back."

Spakovsky says arguments on Tuesday and Wednesday will be about the unconstitutionality of the individual insurance mandate.

"The third day is going to be arguing about severability," he adds. "In other words, if the Court finds one or more provisions unconstitutional, does that mean they have to throw out the entire law?"

On Wednesday afternoon, the Court will hear arguments about the claim being made by 26 states that the expansion of Medicaid as called for by ObamaCare is unconstitutional.

The arguments will not be televised, as the Supreme Court decided against that idea -- although Spakosvky says they have never allowed cameras in the courtroom.

"They do release the audio recordings of arguments," he says. "But no, the Court has always been pretty firm, most of the Justices, on not wanting cameras in the courtroom because they believe that that would change the arguments made before them because it would mean that lawyers might be playing to an outside audience, rather than dealing with the specific issues in their cases, and addressing those to the Justices." (Editor's note: According to Associated Press, the court will release audio recordings of proceedings at the end of each day of legal arguments.)

Spakovksy thinks there might be a ruling by the end of the term.

"Well, the term of the Supreme Court ends at the end of June, and normally they issue all of the decisions in their cases that they've heard in the Spring by then," he says. "I suspect we will get a decision by then, but then they could put it off and say We're not going to issue a decision until we come back at the end of Summer. I think that would actually be unusual." ’ - Kickoff at SCOTUS: Legality of ObamaCare, Chris Woodward,, 03/25/2012



Sunday, March 25, 2012

Those That Facilitate Rent Seekers: Rent Seeking in Action

Although politicos have the final say-so on bestowing taxpayer dollars upon economic rent seekers it's worth one’s attention to look at those that facilitate rent seekers. Those persons and entities that act as the broker between rent seekers and politicos. Those that help spend your taxpayer dollars under the heading “economic incentives” and not so incidentally spend those dollars upon themselves.

 A Greensboro, NC based blog, TriadWatch, proves to outline a rent seeking facilitator example quite nicely:

A few other deals the "Senior Managing Director with CBRE Consulting" is going to present to the "Economic Development Briefing", on Tuesday, March 28 at 8AM at City Hall. – Triad Watch 03/24/2012


Developed an aggressive economic incentives negotiation strategy to maximize economic benefits to the client.

 .. Selected and announced Lawrence, Kansas within six weeks of project kick-off (including community visits and incentives negotiation).


... Achieved total economic incentive package valued in excess of $9.5 million, including income tax credits, property tax abatements, forgivable loans, reduced land costs and job training reimbursements


 ...completed an operating cost analysis including project economic incentives


The icing on the cake was his negotiation of a $32 million package of economic incentives to support the project’s business case.

Incentives Negotiation

Economic incentives package totalling $32 million was negotiated to help offset start-up and short-term operating costs.

Incentives included tax credits, training assistance, property tax abatements, and cash grants.


 Leadership is challenged to identify and negotiate an economic incentives package to create a viable business case for the project.

 Developed an aggressive economic incentives strategy to achieve a level of support for project viability.

 Advised the client during face-to-face negotiations with each state in their European headquarters.

 ... Identified creative financing/bonding solutions at the local government level to significantly increase the packages in two of the three finalist states.


 ... Achieved final offers from each state ranging from $150 million to $250 million including free land, free buildings, property tax abatements, workforce training, tax exemptions and tax credits.” (1)

A little from the bio of the fellow presenting along with Dan Lynch, at the "Economic Development Briefing", Tuesday, March 28 at 8AM at City Hall. – TriadWatch 03/23/2012

“Jonathan Sangster is a Senior Managing Director with CBRE Consulting...He leads a team that delivers strategic real estate solutions to corporate clients, focusing on business location solutions and corporate real estate strategies.”

 “He was also recently nominated and appointed to The Site Selectors Guild, a consortium of top global site location consultants, as one of the twelve internationally acclaimed founding members." (2)

Hence TriadWatch has outlined a meeting between rent seeker facilitators and potential prospects. We have a meeting presented as an “economic development briefing” when in fact it’s a rent seeker facilitator prospecting sales seminar seeking taxpayer dollars with a network of rent seeking facilitators. Facilitators who have a series of firms [clients] looking to rent seek taxpayer dollars. In other words, the “economic development briefing” is in essence a “rent seeker development sales seminar”.

Looking slightly deeper we find:

(1)    The presenter of the rent seeker seminar is highly acclaimed. Yes, “as one of the twelve internationally acclaimed founding members” of The Site Selectors Guild,

(2)    Upon further review, The Site Selectors Guild, “as one of the twelve internationally acclaimed founding members” was founded many, many years ago….way back in 2010. Yes, the Site Selectors Guild, internationally renowned since….2010.

“Founded in 2010 by twelve internationally acclaimed site selectors, The Guild facilitates direct contact between corporations seeking guidance in facility placement and qualified site selection companies.” – The Site Selectors Guild web site, About Us. (3)

The reader would assume an “internationally acclaimed” group, The Site Selectors Guild, would be a guild with a long history which would span decades rather than two (2) years. Would such a new guild offer an annual conference? Yes, the latest annual conference was held at the Orlando, FL Hilton 01/22- 01/24/2012. A sampling of the agenda:

Monday, January 23, 10 am – 11 am Integrated Panel: Economic Development Professionals and Consultants discuss the current state and future of incentives.

Tuesday, January 24, 1:45 am – Noon Consultants Panel: Consultant-Client Relationships. Consultants discuss their client-related issues such as fee/commission structures, non-disclosure agreements, lobbyist registration requirements and how the consultant-client relationship impacts how consultants interface with economic developers. (4)

Hence the conference was how facilitators view and deal with "incentives" [taxpayer dollars] and how the facilitators deals with their clients regarding rent seeking those taxpayer dollars [commissions charged].

Summary and Implications

By no means is rent seeking a random event that occurs in every little burg and town based upon “if they do it, we must do it too”. It’s a perpetual event more based upon “let’s all do it” of which  groups have been formed to facilitate “let’s all do it” regarding the rent seeking of taxpayer dollars. These groups merely rent seek taxpayer dollars on behalf of their client and extract a commission for their rent seeking services.






Saturday, March 24, 2012

Five Stimulus and Jobs Bills: Measuring the Abysmal Keynesian Results

'Even before the 2010 midterm elections, with Democrats controlling massive supermajorities in both the House and Senate, President Obama had passed five stimulus and jobs bills. If you add up the promises, he boldly promised well over 5.5 million jobs “created or saved.” But reality turned out very differently: There were 2 million fewer people working in September 2011 than when Obama took office. On top of that, population growth by itself should have generated more than 3 million new jobs.'

'By the end of the summer, in August 2011, the unemployment rate was still at 9.1 percent. It was no longer possible to claim the Stimulus had worked well. Obama claimed that the sluggish economic growth wasn’t the fault of his own economic policies; it was the fault of other circumstances that he had no control over. It was either events outside the United States or the irresponsible political behavior of others in Washington. Obama claimed:

"In the last few months, the economy has already had to absorb an earthquake in Japan, the economic headwinds coming from Europe, the Arab Spring and the [rise] in oil prices—all of which have been very challenging for the recovery. But these are things we couldn’t control. Our economy didn’t need Washington to come along with a manufactured crisis to make things worse. That was in our hands. It’s pretty likely that the uncertainty surrounding the raising of the debt ceiling—for both businesses and consumers—has been unsettling, and just one more impediment to the full recovery that we need."

There are a couple of problems with his argument. Economic growth had already ground to a halt during the first three months of 2011—with GDP growing by just 0.1 percent. This was well before the Arab Spring, the renewed debt crisis in Greece and other countries, and the July and August 2011 debate over the debt ceiling. And whatever the impact of the March 2011 earthquake, its initial impact during the first quarter in the United States would have been very limited. The president also blamed Republicans for not passing his new legislation when they took over the House of Representatives in January 2011. But with Democratic supermajorities in both the House and Senate for the two previous years, it is pretty hard to blame for the slow growth in the first half of 2011.

In addition, it seems a little hard to blame the Japanese earthquake for our poor unemployment rate when the Japanese unemployment rate fell and ours rose in the five months following the earthquake. Nor is it clear how we can blame “economic headwinds” from Europe when our unemployment rate from January to August 2011 rose while it fell for European countries such as Germany, Italy, and Sweden and stayed the same in France.'

'No matter how you cut it, 3 million jobs have not been added since the recession ended. The recession officially ended in June 2009, and at that time 130.49 million people held jobs according to the Bureau of Labor Statistics’ Establishment Survey. The numbers for September 2011 show 131.33 million, an addition of just 840,000 jobs. But with the working-age population having grown by 4.6 million people in the same period, this should be viewed as a miserable failure. Furthermore, out of the 840,000 additional jobs, the vast majority—540,000—were merely “temporary help” service jobs.' - Debacle: Obama's War on Jobs and Growth and What We Can Do Now to Regain Our Future, Grover G. Norquist and John R. Lott, Jr.

The entire excerpt from the book Debacle: Obama's War on Jobs and Growth and What We Can Do Now to Regain Our Future can be read at the following link:

Wednesday, March 21, 2012

Greetings From the Third World: Detroit

"Detroit Mayor David Bing is begging Gov. Rick Snyder for a bailout. He warns that the city won't be able to pay its bills come May without state aid. The Republican governor has agreed to throw a lifeline to the underwater city. Trouble is, there's no free cash attached.

On Tuesday the governor floated a "consent agreement" that would turn city operations over to a nine-member financial advisory board and give them the power to renegotiate and nullify collective bargaining agreements, which are the city's biggest cost drivers. Mr. Bing, however, blasted the proposal for forfeiting "the electoral rights of the citizens of Detroit guaranteed by the democratic process." He also claimed it "circumvents the role and power of the City Council as the legislative body, waives the ability of elected officials to contest any aspect of the agreement, and dismisses the unprecedented effort and concessions made by the City's labor unions to avoid an economic catastrophe."

Mr. Bing may want to reconsider his objections. Employee benefits now make up about half of the city's general funds. Health costs have soared by more than 60% since 2008, while the city's pension bill has quadrupled to $200 million. That also happens to be approximately the size of the city's budget deficit. The only way the city will ever get a handle on its budget is by nullifying and renegotiating its collective bargaining agreements.

To be sure, it would be much better for Mr. Bing and the city council to do the messy work than an unaccountable board of bureaucrats. But neither the mayor nor the city council want to break their promises to the unions. Instead, they're hoping that the state will provide the city with $100 million to $200 million to tide it over until the unions make some concessions and revenues rebound. The prospects for the former are dim since the city has lost 25% of its population in the last decade. Plus, its high crime rate and diminishing public services make it an unattractive place to live and do business. The prospects for the latter are even grayer since the unions have no incentive to come to the table unless politicians threaten them with a big stick like bankruptcy.

The governor wants to help Detroit avoid bankruptcy since a municipal default on the magnitude of Motown's would hurt Michigan's credit rating. Nonetheless, if city leaders are intent on spurning the governor's overtures, allowing Detroit to fail may be the only way to revive it." - Allysia Finley, The Wall Street Journal, Political Diary, 03/14/2012

Tuesday, March 20, 2012

Hippocratic Ethic Becomes the Veterinary Ethic? And about that Federal Commission for the Coordination of Comparative Effectiveness Research (FCCCER)….

If one considers F.A. Hayek and his writings, one important proposition discussed at length by Hayek was the mundane, real time, applicable-on-the-spot, grand attempt to create maximum utility knowledge of the many and the plans thereof.

Hayek explained the plans of the few which are based on non-real-time, average knowledge of the "expert", regarding an impossible to calculate number of situations, calculating with the expert's average knowledge of most situations, that ends by yielding average or below average results. -Or- the plans of the many vs. the plans of the few.

Hayek's overriding point being: as an economy enlarges and becomes more and more complex, no one single mind or handful of minds, the plans of the few, can possibly comprehend let alone plan the dynamic and ever changing number of situations occurring. Conversely, as an economy enlarges and becomes more and more complex, that the spontaneous/emergent order resulting from the plans of the many, that is, the mundane, real time, applicable-on-the-spot, grand attempt to create maximum utility is the very best and very decentralized way to deal with an ever enlarging and increasingly complex economy.

Yet the "one big brain" idea persists in that some central brain can out think, out smart, out plan and basically trump the mundane, real time knowledge of the many, and the plans thereof. Further, the "one big brain" error, the classic example thereof, is the price fixing schemes of the former Soviet Union and the price planners that somehow had the knowledge to set price of every last item in every last situation. The results were beyond abysmal.

Let us also add in that not one price fixing scheme, never-ever, in all of recorded economic history, has been successful.

However, "the few" remain undeterred! Enter Federal Commission for the Coordination of Comparative Effectiveness Research (FCCER):

“For centuries, my predecessors and I have been inculcated with what has come to be called the “Hippocratic Ethic.” This tradition holds that I am ethically required to use the best of my knowledge to recommend to my patient what I consider to be in my patient’s best interests—without regard to the interests of the third-party payer, or the government, or anyone else.

But gradually the medical profession has been forced to give up this approach for what I like to call a “veterinary ethic,” one that places the interests of the payer (or owner) ahead of the patient. For example, when a pet owner is told by a veterinarian that the pet has a very serious medical condition requiring extremely costly surgery or other therapy, the veterinarian presents the pet’s owner with one or more options—from attempt at cure, to palliation, to euthanasia—with the associated costs, and then follows the wishes of the owner.

Several factors in combination are bringing this ethical approach to my profession.

Since the mid-1980s, Medicare has imposed price controls on health care providers. Over the years, in order to accommodate increasing Medicare utilization, physician payments have steadily dropped.

Meanwhile, the regulatory burden on physicians has increased. In the last few years, CMS required all providers to adopt electronic health records or face economic sanctions from Medicare. It is the ultimate goal that every health care provider, including pharmacies, will have electronic databases that will be accessible to the U.S. Department of Health and Human Services (HHS).

In 2009, as part of the so-called stimulus bill, the Federal Commission for the Coordination of Comparative Effectiveness Research (FCCCER) was created. Its mission is to collect the data culled from all electronic health records and make recommendations regarding the comparative effectiveness of drugs, procedures, and therapies. In rendering advice, the FCCCER will essentially answer the following question: What is the most cost-effective way of allocating a fixed amount of resources among a population of roughly 310 million people?

With this same question in mind, the U.S. Preventive Services Task Force, a committee that reports to HHS, concluded in 2009 that mammogram screenings should not be recommended to women under age 50. This caused an uproar among both private health care providers and breast cancer advocacy groups, and the task force soon backed down. Similarly, in the fall of 2011, the task force recommended the abandonment of certain routine prostate cancer screenings. Once again, health care providers and cancer advocacy groups protested, and the task force rescinded its recommendation.

In 2010 the Patient Protection and Affordable Care Act established an Independent Payment Advisory Board (IPAB). Beginning in 2014, the 15 presidential appointees on this board will determine what therapies, procedures, tests, and medications will be covered by Medicare, using advice provided by the FCCCER. Such determinations will then be used to design the coverage packages for the non-Medicare insurance offered through the government–run exchanges. The decisions of the IPAB are not subject to Congressional oversight or judicial review.

Meanwhile, in an effort to control costs now, CMS has developed practice guidelines and protocols for physicians to follow. Committees of health care academics and statisticians developed these guidelines, using data from large population samples.

These protocols govern the therapeutic decisions made by the health care practitioner—right down to the pre-operative antibiotics a surgeon may order. Despite the fact that several recent peer-reviewed studies concluded that the protocols have had no positive effect—in fact, one study showed post-op skin infections increased since the protocols were instituted—CMS imposes financial penalties on hospitals that fail to get protocol compliance from their medical staff.

Medical students and residents are now being trained to follow federally-derived protocols and guidelines as a normal part of medical practice. As a result, this new generation of doctors will be less inclined to challenge the recommendations of federal task forces and agencies. Some academics also worry that “teaching to the protocol” might discourage independent thinking and the use of intuitive knowledge, two traits essential to the practice of good medicine.” -
The Coming Medical Ethics Crisis ,, Jeffery Singer, 03/15/2012


Sunday, March 18, 2012

When the Taxpayer Is Also the Recipient

The video above is a discussion of future unfunded pension obligations regarding public sector workers of the city of San Diego, CA. A referendum will soon appear for voters to decide upon new hires of the city of San Diego having a 401k-type retirement plan rather than extending to new hires the defined pension plan currently in place for current workers.

Putting aside defined pension plans and future unfunded pension obligations, one might want to examine 5:14 into the video where the union representative states “I’m a taxpayer too” when the discussion moves to taxpayers faced with funding pensions at the expense of core services. In other words, the taxpayers have to weigh the cost of providing pensions as they stand today at the expense of core services -or- realign pension funding in order to preserve core services. Note that the union representative immediately interrupts the discussion to point out that she too is a “taxpayer”.

Yes, she is a taxpayer.  However, upon further examination, she is exhibiting a classic public choice theory proposition regarding the taxpayer also acting as the taxpayer-recipient. "I'm a taxpayer too" comment exposes the proposition that the incremental cost to her [union rep] is rationally smaller than the summation of thousands of incremental tax increases, applied to the highly diffused taxpayers, which are then, the summation thereof, funneled back in a focused way to her benefit.

That is, the classic public choice theory example is: taxpayer A supports and campaigns for a tax increase of say $1 as rationally she understands the $1 incremental cost is to her - much, much smaller than the summation of incremental tax increases applied to the greater amount of taxpayers A-Z, of which, is then aggregated, then bestowed upon her [$1 tax increase to her is less than the benefit bestowed upon her].

Hence its rational for her to suppot, campaign for and happily pay the tax increase [tax increase required to fund a defined benefit plan and pay for core services] and its pure politics for her to make the claim that "I'm a taxpayer too" as she is making the implicit argument that she too is “a concerned taxpayer”. However, in effect she isn't really acting in the role of "taxpayer" she is really acting as the "recipient-of-the-taxpayer". She plays two roles: as taxpayer and recipient. Her taxpayer position less costly than her benefit in the recipient position.

Saturday, March 17, 2012

EPI, the Everyday Price Index, Measures 2011 Inflation at 8.2%

There are many measurements of inflation. There is the CPI, CPI-W, CPI-U, the C-CPI-U, as well as other measurements available. The measurements are statistical estimates using price data and weighting data. The measurement generally uses a market basket or bundle of a fixed list of items although the list of items can change over time depending upon consumer preference. (1)

Enter the EPI [Everyday Price Index]. The EPI was developed by the American Institute for Economic Research. With the EPI the market basket of goods becomes items used by consumers on a everyday repetitive basis. That is, the measurement basically strips out durable goods that one may only purchase occasionally and concentrates on those items purchased "everyday". The major components of the EPI are listed in the chart appearing above. (2) (3)

The EPI is an interesting concept regarding measuring items purchased repetitively by consumers. What does the EPI yield as an inflation rate for 2011? Try 8.2%!

Below is a link to the entire report from the American Institute for Economic Research. The report is very comprehensive:


(1) Consumer Price Index, Bureau of Labor Statistics

(2) 'Everyday' inflation significantly higher,

(3) The EPI Reflects Basic Economic Change, AIER

Friday, March 16, 2012

The Supreme Court and ObamaCare: Shifting Arguments to the Necessary and Proper Clause

“The Obama administration has shifted its legal arguments as it prepares to defend the president’s healthcare law before the Supreme Court.

Written briefs in the landmark case increasingly have focused on a part of the Constitution that didn’t get much attention in lower courts.”

“Justice has aggressively defended the mandate as its own regulation of economic activity, but is now stepping up a separate argument emphasizing that the mandate is part of a broader regulatory scheme.

The shift moves the focus of Justice’s argument from the Commerce Clause of the Constitution to the Necessary and Proper Clause, which says Congress can make laws that are necessary for carrying out its other powers.” - Obama shifts healthcare defense,, 03/15/2012

Link to the entire article appears below:

ObamaCare: The Ultimate Premium Increase, $940 billion becomes $1.76 trillion.

Many headlines appeared 03/14/2012 such as the following:

CBO: ObamaCare Price Tag Shifts from $940 Billion to $1.76 Trillion, YahooNews. (1)

What does the $1.76 trillion price tag mean vs. the old price tag of $940 billion? It means your premium came due, again, and….. ouch! What an increase!

By The Numbers

First off, the $1.76 trillion is a ten year cost period hence $176 billion per year. The $940 billion figure is the ten year comparison period number generated at inception of ObamaCare -or- $94 billion per year.

The most recent total expenditure on health-care in the US is 2.6 trillion (2010 stats):“U.S. health care spending grew 3.9 percent in 2010 following record slow growth of 3.8 percent in 2009; the two slowest rates of growth in the fifty-one year history of the National Health Expenditure Accounts. Total health expenditures reached $2.6 trillion, which translates to $8,402 per person or 17.9 percent of the nation’s Gross Domestic Product (GDP).” (2)

Moreover, as of 2010, total annual private health insurance premiums written were $378 billion, Medicare cost was $446 billion and Medicaid was $380 billion. Hence private and public equals $1.204 trillion premium/quasi-premium volume. (3)

With ObamaCare you have a new total consisting of: $1.204 trillion plus $176 billion = $1.38 trillion of premium.

Note: the $1.76 trillion would appear in private subsidized premium and Medicaid costs as many will merely end up on Medicaid and part of the $176 billion goes to that quasi-premium portion.

Hence, by-the-numbers, you have a social insurance scheme of some sort, that has an old premium of $90 billion, and in two annual renewal cycles since inception, the social insurance scheme premium changed to a $176 billion annual premium. A 95% premium increase since inception, two short pricing cycles ago. According to research, and stand to be corrected, a $86 billion dollar increase in premium over two years might be considered the ultimate premium increase.

What Does Your $176 Billion Per Year Insurance Premium Buy?

The $1.76 trillion (over the next decade) regarding the cost of ObamaCare is made up of the following:

(a) the cost to provide coverage to the current uninsured (should fall from 16% to 6% uninsured i.e. not all will be insured),

(b) cost of expanded coverage,

(c) administration cost.

The cost to provide coverage to the current uninsured:

(1) many of the uninsured will be placed in Medicaid and hence the annual cost of Medicaid increases,

(2) those purchasing coverage that have means, but not total means to buy, will be subsidized (up to 133% of poverty level qualify for subsidy),

(3) those firms ending coverage due to cost, those subsequent uninsured employees will then purchase individually and some will fall into #2 above (subsidy).

The cost of "expanded coverage" (scope of coverage) e.g. first dollars coverage for annual physical, colonoscopy, etc. means the premium is driven up, hence the cost for subsidies increases with the underlying premium cost increase to cover expanded benefits. Also, the scope of coverage will include no pre-existing condition exclusion yet charge the impaired risk nothing extra, hence driving all premiums higher, hence driving the subsidy higher.

The administration of ObamCare by a federal bureaucracy speaks for itself.

The Other Side of the Coin


What about the payment of the annual cost of $176 billion vs. the old annual cost of $90 billion per year?

That is, the myriad of ObamaCare associated taxes, the penalty fines for not buying, the penalty fines for not providing (firms), etc. had to equal $90 billion. Now it has to equal $176 billion hence the tax and fines have to increase -or- you decided to deficit spend -or- you cut the program benefits -or- all of the above.

And About That Base Economic Model that is Broken?

What about this $176 billion regarding changing the base model of health-care (a $2.4 trillion dollar per year broken model)? It does nothing about fixing the model. If anything it exacerbates the broken model through mandated coverage under ObamaCare which is a basically a low deductible major medical plan which causes over utilization......meaning the coverage itself is a cost driver and hence you are subsidizing an ever increasing cost driver. Ops!

Cost Containment and Price Fixing Schemes

The "cost containment" within ObamaCare is a price fixing scheme. That is, they intend to contain cost ala Richard Nixon. There is not one price fixing scheme in all of economic history that was ever successful. Why? If one doesn't use price as a rationing agent, then some other rationing agent must replace price. That is, price fixing merely affects supply quantitatively and qualitatively. Or, alternatively, supply merely deteriorates in quality and the new lower quality supply is rationed over time.


(1) CBO: ObamaCare Price Tag Shifts from $940 Billion to $1.76 Trillion, YahooNews.


(3) Insurance Industry Overview,