If we continue to increase the debt ceiling every time we approach it, then what is the point of even having such a limit? Considering where we are heading right now, I think it is pretty clear that a stand on the national debt ceiling should be taken now as opposed to later. Instead of raising the ceiling, spending can be cut in order to keep the debt below our current legal limit. In fact, without a firm debt ceiling, it doesn’t look like those is D.C. looking for quick political points will ever stop the spending- that is, until it is too late of course. We need to take a stand on this debt and we need to let the politicians know it. We need to let them know, that this is no longer acceptable:

Image credit goes to CNN.

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

The whole debate is of course being stressed in light of the economic failures of the last year and the mishandling of the bailouts by the government. There is one issue that really should be discussed even before any proposal is considered- does “too big to fail” even exist? In capitalism, a failure of any large corporation would simply mean that other firms would pick up the market share if the demand for the product was still there. When there is demand, supply will always follow to meet it. Employment may go down temporarily, but as the market picks up, firms would hire more people as well. Markets are self-adjusting in this way. As for the process of dissolving failed corporations- that already exists. It is called bankruptcy. Any large corporation that fails can go through bankruptcy where other firms would be able to buy any assets that they want to invest in or acquire. Toxic assets that no one is interested in would be the only losses and no matter what the government does, those assets would still be losses under any failure plan.

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.

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.

The most shocking thing about the whole ordeal is that the government’s initial projections suggested that the initial $1 billion in funding would be sufficient until November 1st, 2009. The government generally tends to be short-sighted when trying to react to markets, but this particular example is especially shocking due to the huge miscalculation in their projection. It is the perfect example of why government should not meddle in markets.

Some are claiming that the approximately 250,000 car sales spurred by the program is proof that it has been a success. Upon further scrutiny it becomes apparent, that this just isn’t true. Not only has the government miscalculated greatly and spent $1 billion of taxpayer money like it is nothing, but it has also hurt successful parts of the market in order to do it. That $1 billion and now possibly $2 billion more was taken from current and future Americans in order to pay for this. It was taken from naturally successful parts of the market in order to subsidize those who were not able to naturally compete. Not only that, but the wealth of over 300 million Americans was reduced so that 250,000 other Americans could upgrade their cars. From a monetary standpoint, it really wasn’t fair spending, especially considering that the $1 billion (maybe $3 billion soon) would have otherwise stayed in the pockets of Americans where they would have eventually have spent it and boosted the economy anyway. In that circumstance though, there would be no need for a government bureaucracy, so less money would be eaten up and also, the money would have gone to parts of the market where there is natural demand.

One of the other “selling points” for “Cash for Clunkers” was that it would help the environment by replacing older cars with newer, more fuel efficient ones. While in theory it makes sense, in practice it just hasn’t. One of the requirements of the program is that the “clunkers” have to be demolished shortly after they are traded in. This requires a lot of energy and in fact, harms the environment. Not only that, but 250,000 cars is frankly not even a dent in the amount of cars that Americans own- over 62,000,000.

The program is not going to help the environment much and it is not going to help the economy much. In fact, it may end up hurting both of those things. It shouldn’t be surprising news though, considering how ineffective government has been over and over again. It not only took $1 billion of the people’s money, but it also propped up parts of the market that couldn’t compete by hurting those who could. And yet, Congress is about to expand the program. Just like in previous cases, this will end up backfiring and hurting the economy and the American people.

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.

The way cap and trade works is that each firm in the market is given permits, each which allow a certain amount of heat-trapping gas production. These firms cannot produce more emissions than what their permits allow them to. Firms are allowed to buy and sell permits in order to gain extra allowance or extra cash for permits they need/don’t need. Upon economic analysis and scrutiny it is clear that this system poses several problems and is yet another short-sighted and economically imprisoning proposal.

No matter what way you look at it, cap and trade is essentially a tax. Any companies that are currently producing more emissions than the amount their permits will allow them to will have to spend money to either buy more permits, cut production, or buy more energy-efficient means of production. These costs could be in the billions for some companies and there is no doubt that a lot of that cost will be passed on to the consumer, just as with any tax in a market with elastic supply. Several companies have already hinted at massive price hikes should the legislation go through. More taxes will only hurt production and hurt job growth.

Those in favor of cap and trade say that the legislation will create thousands of jobs, but that response is the result of a failure to see the big picture. With more financial burden on firms, everyone won’t simply upgrade to energy-efficient systems. Some will buy new permits, which will take a lot of capital, which could otherwise have gone to labor. In this way, it could actually hurt employment. Other firms may simply cut production in order to fall under their permit allowances, which could also mean jobs lost. Then, there are those firms that will simply leave the market as this legislation may be the tipping point for them on the Laffer curve. They may instead opt to move somewhere else like India or China, where pollution control is almost non-existent and where it would be a lot cheaper to operate. This possible outcome would also hurt jobs.

For the companies that do upgrade to more energy-efficient equipment, they may produce a few jobs in the short term, but after the new gear is in place, a lot of those jobs will be lost. Furthermore, the high costs of this equipment will mean prices hikes for consumers.

Basically, those that go ahead and upgrade their systems will end up charging consumers a lot more. Those that decide to simply cut production will end up cutting jobs as well as hurting the economy due to the lower production. They will also indirectly drive up market prices as supply goes down with the production. Those that decide to leave the market altogether will create a lot of unemployment and a lot of production losses. Either way, there isn’t a great scenario.

Unfortunately, even those inevitable circumstances are not the end of it. Considering that energy-producing firms produce a lot of emissions, cap and trade would mean less energy production in the United States and higher energy prices, and with the demand for energy growing once more, that could mean record-high prices for consumers in the near-future.

Not only would we have to suffer the cost of higher energy prices during a recession, but there is also the issue with where the government sets the allowed pollution rate. As we know from history, the government is inefficient and often incapable of setting such regulative rates because it is too hard to gauge the market. If the cap is set too high, then this bill will simply create more bureaucracy and pollution won’t be reduced. If it is set too low, we will see severe cutbacks in production and further troubles in the markets. In this way, cap and trade could even be worse than a simple tax.

From every standpoint, this bill has the potential to be disastrous. There are better ways to reduce pollution, such as allowing nuclear power and letting the free market find new alternate sources. By cutting regulations and taxes on energy companies, they would have a lot more capital to use on R&D towards new technologies, which would also mean new jobs. When there is demand for something, the market always meets it and with the recent green movement, it wouldn’t be long before the market would naturally find more energy-efficient and environmentally-friendly ways of doing business. The difference would be that the private sector would be able to do that without hurting long-term production and without distorting markets. This is why it is so important that we stop this bill in the Senate before it becomes law. Call or email your Senator and let him/her know that you oppose this bill. We really owe it to ourselves to take our government back and to make it for the people once more.

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.