An open letter to President Obama

Dear Mr. President,

I am a concerned American citizen who has a few honest questions for you regarding your policy and rhetoric.

Throughout your campaign you embraced the idea of a government that is not entangled in special interests and lobbying. The day after your inauguration, you addressed this issue once more by placing barriers between your administration and lobbyists. Despite your words, you have granted waivers to several lobbyists over the past few months to work with your administration and the presence of special interests has not changed in a significant way compared to past administrations. Why the difference in rhetoric and policy?

You later also said that bills would be released 5 days in advance so that the American public and Congress could get a fair chance to see them before they were voted on. Yet, there have been no significant changes on this front either. Several bills, including the CARD Act, were not released within the promised time frame. Why the difference in rhetoric and policy?

You heavily criticized the Bush administration and their handling of the Guantanamo Bay prison. You assured us that it would be closed by January and the torture stopped. Yet, you recently backed out of that time frame and have not given us any estimate as to when it will actually happen- if you still plan on doing it. Why the difference in rhetoric and policy?

Over the course of the last year you have often said that you believe in capitalism and free markets. Yet, virtually every step you have taken, from pushing the stimulus to supporting the bailouts to supporting Cash for Clunkers, has been against the very system you say you still hold in high regard. Why the difference in rhetoric and policy?

Your administration has called for a stronger dollar several times over the past few months, especially recently as the dollar has weakened dramatically. Yet, you have supported policies that increase spending, increase the deficits, and weaken the dollar as the Fed is forced to devalue the currency to help fund these programs. Why the difference in rhetoric and policy?

You often blasted the previous administration for their absurd spending habits and told us that any spending increases you make would be counteracted by spending cuts, making net spending equal or lower. Despite the hopeful words, your spending this year has created a deficit of over $1.4 trillion, more than three times Bush’s biggest spending year. Why the difference in rhetoric and policy?

During your campaign you told us that the health care reform debate would be televised on CSPAN where viewers would be able to see Congressman and doctors negotiating with one another. You said this would show who really cares about the people and who adheres to the special interest groups. Despite the good idea, most of the dealing has been done in private and the American public has had the same amount of insight into the Congressional proceedings as with any other bill. Why the difference in rhetoric and policy?

In one of your debates you also said that there would be no insurance mandate. Yet, in HR3962, the plan that you are currently backing, there is such a mandate. Why the difference in rhetoric and policy?

You came to the White House offering a change from the heavy politics, special interest manipulation, and opacity between the people and government. You offered us transparency, fairness, and government accountability. Yet, this has not happened. So, with that I would like to ask you Mr. President, why the difference in rhetoric and policy?

A concerned citizen,
Miraj Patel

Stimulus: projections vs. reality

Earlier this year, the stimulus was pushed through Congress and quickly signed by President Obama in what supporters deemed a necessary step and one which would further recovery. Just as with the current healthcare debate and most spending plans, there were projections created by the government during the debate process. Below is a projection created by the administration’s economic team back in February concerning the affect the stimulus would have on unemployment as opposed to without it:

The maroon dots are the actual unemployment numbers (thank you to innocentbystanders.com for adding those in.) As you can clearly see, the predictions were drastically off. History has shown that government projections are often overly optimistic- social security and medicare being perhaps the most titanic examples. This graph doesn’t tell us what the unemployment number would’ve been had the stimulus not been passed (and we will never know the exact figure), but it is quite clear that the stimulus has not been able to curtail unemployment as expected by Washington economists. It also shows how little grasp many politicians and politically-sided economists actually have of the market.

With unemployment currently over 10%, the argument can be made that the stimulus has in fact not helped the situation. Either way, we are still left with the ~$780 billion tab that came with the legislation and it is clear the government was wrong in its outlook.

The monstrous miscalculation by the Obama administration should really serve as a caution for citizens in that we can not simply take what the government tells us as truth- especially when it comes to projections concerning markets. Government predictions are often wrong, and in some cases distorted due to political reasons (such as trying to push through legislation.) This is why it is important to consider several different sides when it comes to any government legislation, especially massive spending increases such as the stimulus, bailouts, or state-subsidized healthcare.

Healthcare reform: the heart of the issue

The big news of the past weekend was the passing of HR3962: The Affordable Health Care for America Act. The bill, which has gone through numerous revisions over the past few months, finally passed in the House and now a similar version will be voted upon in the Senate. The Obama administration has been very adamant on the passage of a healthcare reform bill over the past few months and opponents of their plans have been just as strong in spreading word of the negativities of each plan. Over and over again we have heard politicians talk about the need for reform to fix what is deemed by many, including myself, a broken system. The caveat with this process, however, is that not all reform is necessarily beneficial and some plans may in fact make things worse. We have seen a plethora of ideas over the past few months; some economically viable, others not, some which would considerably improve market outcomes, and others which fail to address the actual problems and would only make things worse. Unfortunately, an examination of the current healthcare market reveals that HR3962 does not effectively address the heart of the issue and hence, falls into that last category.

The fact of the matter is that under current market conditions, there is simply not enough healthcare to meet the demand of everyone at once. With the Baby Boomer generation getting older, projections only predict the worst is coming. HR3962, like many of the plans backed by the Obama administration, does not offer any solution to combat this problem- instead it relies on mandates to ensure people are covered. Specifically, the legislation requires the purchase of insurance for most Americans and penalizes those who don’t. There are increased government subsidies, but in the end, that money comes from the people’s pockets and we still bear the cost. Without any sufficient plan to increase the supply of healthcare, this legislation will only lead to rationing, longer wait times, and reduced quality of healthcare.

There is no getting around it. When there is a limited amount of something, you cannot simply create more out of thin air by passing legislation that requires everyone to have it. What we should be doing is working on ways to increase the supply of healthcare, which would automatically decrease costs and offer Americans more choices. Also, instead of mandating the purchase of insurance and subsidizing it, which will leads to trillions in future debt, we should consider options that actually decrease insurance costs through increased competition.

The primary way in which to accomplish both of these goals is to let the market grow and compete in an efficient manner- something that is being stalled by government policy today. Under current law, the government has massive, often overlooked, barriers on insurance and healthcare competition, which leads to high prices and reduced efficiency.

Among the most constraining regulations today, is the law that forbids Americans from buying insurance across state lines. This restriction has led to many states being dominated by only one or two insurance companies, leaving consumers with very little choices and giving a lot more market power to these firms. Opening up competition across state lines would immediately reduce prices as hundreds of companies compete with one another to meet the demand of consumers. Americans would have more choices to choose from and individuals would be more likely to find the perfect plan for their needs. Fewer restraints on insurance companies could also lead to new firms entering the market and further increasing competition.

Reducing the government bureaucracy can also help further growth and competition. Particularly, the government could ease licensing laws to allow nurse practitioners and other skilled workers perform more medical procedures. Many of these nurses and physician’s assistants are already trained to handle some of these procedures, but the law stops them from actually carrying out these procedures. Easing such laws would increase the healthcare workforce for many procedures and would also drive down costs.

Prices can be further driven down by increasing market efficiency by fixing the tax code, which currently favors certain parts of the market and in turn, leads to abuse. The primary example of this can be seen in the drastically different tax laws for individual vs. employer-purchased insurance. The government currently heavily favors employer-purchased insurance for workers through tax breaks and subsidies. This policy has led to many employers purchasing any one particular plan for a large group of their employees. This has led to abuse as many employees of such firms have misused the insurance since they are not directly paying for it. Some of these employees may not even need insurance, while others may need bigger plans. If this law was eliminated, companies would be able to pass on a lot of the saved money to their employees so that the individuals could purchase insurance based on their personal needs, which would effectively reduce abuse and in turn, cut costs.

While the Congressman supporting HR3962 say that this is the reform we need, an examination of the actual legislation reveals that it does very little to solve the actual problem because it really just circles it. When looking towards reform we need to look at solutions which would solve our healthcare shortage problem and the lack of competition in the market. The real question we should be asking right now is not should there be more government in our healthcare decisions, but whether there should be less.

Congress and fiscal irresponsibility

Millions of people in debt around the world are often told that they should cut back on their spending in order to reduce what they owe over time. It is the only guaranteed way to get out of debt. With the current recession, people with and even without debt have started to save more as a way to ensure a brighter future, or at least one that is less rough than had they not cut back. Unfortunately, while we try to reduce our future bills, the government continues to increase them through aggressive and often unnecessary spending.

Our government, which is in trillions of dollars of debt and pays millions in interest alone each and every day, still hasn’t grasped the idea of cutting back. Even for those who believe in the flawed ideas of stimuli and bailouts, it is apparent that a lot of our spending has nothing to do with the economy or any other major issue. Bills are still laden with pork and some Congressmen are still supporting spending increases on things that almost everyone knows are not necessary, but some still insist upon. These Congressmen usually act this way to appeal to a small group of constituents (in many of the unnecessary spending cases it is usually not a majority of constituents) or campaign donors. They are afraid to say no for fear of losing votes- it is politics getting in the way of getting things done and it is leading to a growing debt and no end in sight.

Thankfully, there are some Congressman who have shown fiscal responsibility and others who are starting to. First term Republican Representative Jason Chaffetz, is one of these people. The following video is his response to a funding proposal for a new farmer’s market in Arizona. His logic is very clear and it is exactly what we need in Congress:

It really is amazing what some Congressman are willing to support despite our trillions in debt. Acting like $1, let alone $250,000, is nothing is absurd when we have trillions in debt. We need to let these big spenders know that if they continue to support pork and completely unnecessary spending, we will hurt them in the next election by not voting for them. We need to remind them that the Constitution does not call for this sort of spending from the Federal government. We need to refresh them on the fact that state and local governments also exist and if something is really so necessary, they could also provide it for the people.

Our greatest weapon at achieving all of this is through the ballot. Threatening to take away votes and following through on it is a very effective way for change. We need to elect more people like Chaffetz, people who are willing to cut back in order to save this nation; people who are selfless and understand our dire situation. It is time to get through to the pork spenders and to let them know that we want fiscal responsibility because it is not fair that we cut back and the government doesn’t.

Remember the Laffer curve

As President Obama continues to push the expansion of government, his plans to raise taxes may not be too far off. Obama has had his eyes of raising certain taxes from the moment he began his campaign and he will surely try to follow up on what he said. He believes that these tax increases will help reduce the deficit by paying for his massive programs. There is one problem though: in many cases they won’t.

It all comes down to the Laffer curve and the fact that increasing taxes does not always mean tax revenue increases. In fact, it can often decrease tax revenue by forcing some firms to leave the market, hence reducing the overall market production by whatever those firms produced and in turn, actually reducing tax revenue by the difference in the amount that firms which decide to stay in the market pay subtracted by the total tax amount that the firms who left paid with the previous, lower tax rate.

One of the taxes that Obama plans to increase is the capital gains tax. That tax though, is past the optimal tax revenue mark on the Laffer curve, or at best is sitting right at the peak with the 15% tax. This is evident because when Bill Clinton reduced the tax rate from 28% to 20% in 1997 the capital gains tax revenue actually increased. The same happened when George W. Bush further reduced it to 15%. On the other side, the tax was increased in the 1980s and the tax revenue from it actually decreased.

Obama has been questioned about this before and he still chooses to increase the tax for purposes of “fairness.” First of all, not only is he punishing the 100 million people in this nation who own stocks, but he is also decreasing government revenue. The logic behind it? He claims “fairness.” How he figures hurting about at third of Americans during a time like this and at the same time decreasing tax revenue and increasing spending is justified? I don’t know.

The worst part of this situation is that it is not only the capital gains tax that is in this situation. Many of our taxes are beyond the optimal tax revenue amount they should be at and increasing them will only hurt how much the government can take from taxes. In fact, many companies are already threatening to leave American markets if Obama imposes tax hikes on them. Among them is Microsoft, who’s CEO Steve Ballmer recently said that the company would move some employees offshore if Congress enacts the President’s proposal to increase taxes on foreign profits. Ballmer isn’t alone in the software industry, with nine other software executives also fighting back the hikes.

These tax increases will only hurt our economy and in many cases they will even decrease government tax revenue. Dan Mitchell of the Cato Institute recently said, “Even if all of Obama’s tax wishes comes true, the revenues won’t come close to satisfying his appetite for bigger government”- figure in the fact that many firms will even leave the market and production and sales will suffer as a result, and the argument that these tax hikes will make things worse is very reasonable.