Energion Roundtable Week 7 Responses
In Arthur Sido’s response to this week’s Energion Roundtable question on Jobs, there was little with which I would disagree. While I would agree that Gary Johnson, the Libertarian candidate, would go farther than Romney in cutting back on the size of Government, I do not consider him a viable candidate. Like it or not, either Romney or Obama will be the President next year. Frankly, at this point, I would be happy with just starting to cut back. Then we can have a wonderful discussion on how much. Still we both agree that Obama is going in the wrong direction.
While there was some agreement with Bob Cornwall we differed on some key points. I agree that “government can play a rather significant role from building/rebuilding the nation’s infrastructure to supporting education/training efforts that will enable Americans to find and retain jobs.” In fact this may very well be an area where I would agree with Cornwall against Sido.
Where I would disagree is that, while we have benefited greatly from such investment in the past, and would do so in the future, the benefits are long term not immediate. In fact this is a great example of a short term loss, for long term gain. While building a road or a bridge does employ people, Sido is correct that the “Money that is spent by the government is either a) taken from the private sector so it can’t be used to invest in actual jobs or b) borrowed against future revenue that further sinks this country into debt.”
Either way this government spending is a net drag on the economy. When times are good, it can be worth the investment, but it just does not make sense during a recession to make things worse now for some distant future benefit.
As I pointed out in my reply to this question, economic studies indicate that unemployment would have to be near 12% to just break even. While real unemployment (i.e., if you include those who are not counted in the official rate because they have given up) is close to that, such spending at the present would have a negative effect not a positive one.
However there is an additional problem. Government agencies not only block the private sector, they block the public as well. Thus even though they are broke, CA just decided to spend $8 billion on a high speed rail to build their infrastructure. The problem is that it will be a very long time, possibly decades and very likely never, before the train could actually be built. This is because the route would pass through the area of several endangered species. Thus they have, in reality, chosen to burden their already struggling economy with $8 billion dollars of debt today (even if they do not borrow it today, it will still loom over them as a future debt obligation) for a train that might never even get built. This is hardly rational.
When it comes to investing in unproven areas such as new sources of energy the situation is even worse. This is because such projects ignore a key aspect of economics: efficiency. To see this just consider your own budget. If you can find a cheaper cell phone plan that meets your needs than the one you currently have, switching will free up money you can use elsewhere. In short, the more efficiently you use your money the more you will have to spend in other areas. This is why the profit motive is so important, for it strongly encourages people to constantly seek more efficient ways to run their business.
Viewed in this light, spending on alternative energies, however valuable they might or might not be from a long term energy perspective are horrible when it comes to short term economic stimulus. This is because again government must tax or borrow, which by itself is at least a short term economic negative, for use on subsidizing inefficient sources of energy that could not otherwise compete in the market. They are, in a very real sense, wasting money in the short term for a theoretical benefit in the future. At least when Government builds a road or a bridge, they will have a real benefit in the future. Subsidizing things like wind power has no such guarantee.
Cornwall says that “Government can also provide incentives, subsidies, and loans to entrepreneurs and other forms of business – large and small – so they can create jobs.” There is some truth here, and this is in fact an argument in favor of tax cuts particularly for those who invest, i.e., leave the money with the people in the first place. However as government tries to direct and control this money any benefit is rapidly eliminated.
There are two factors that work against government in this area. The first is that however noble the intension might be, the ideal that government could keep political considerations out of such decisions so that they could be made only for economic reasons is a fantasy, and this will introduce yet more inefficiency into the process.
The second is that, even if politics could somehow be kept out, government would still suffer because it is, for the most part, a single source. When considering private investment, the real advantage is not that people in the private sector are somehow smarter or better. That they are not constrained by political considerations is a plus, but in the big picture it is only a small advantage. The biggest advantage is in their numbers. The private sector, with its thousands if not millions of investors, from big institutions all the way down to friends and family, can look at and fund a far larger number of projects that government could ever being to consider.
In short, government can bet inefficiently on a few, or the private sector can bet much more efficiently on a very large number. It is a numbers game. While most will fail, those that succeed reap benefits not only for their investors but the economy as a whole. Thus with the private sector, there is so much investment, that it is, on the whole, like betting on a sure thing. With government, it is much closer to playing Russian roulette with the economy.
After all, we have been trying the government approach for nearly 4 years, and just look at where it has gotten us. Do we really want four more years of the same, with a major fiscal cliff coming ever closer, or isn’t it about time to try something that we know works?
Energion Roundtable Week 7 Jobs
This week’s Energion Roundtable question with Bob Cornwall, Arthur Sido, Allan R. Bevere, Joel Watts, and myself is:
What are the key policies that should be implemented in order to [create / facilitate the creation of / not impede the creation of] jobs? As always, feel free to compare your ideas to those of the candidates.
In my answer to week two’s question, I pointed out that of the three main issues in this election, “First and foremost has to be the economy” and the key aspect of the economy has to be jobs. This is also one of the biggest failures of the Obama administration. Obama promised that if we passed his stimulus, unemployment would not go above 8 percent. But it has not been below 8 percent since.
As with most of his problems, Obama blames this, not on any failure of his policies, but on Bush. There are a number of problems with this, not the least of which is that the recession ended in the June of 2009. A year later was hailed as “Recovery Summer”. Now as the summer of 2012 fades into memory, one has to ask just how many summers of recovery must we have before we can conclude that Obama’s policies are just not working? Even worse, it is becoming increasingly clear that the economy is slowing and problems are growing.
The real problem, as I detailed elsewhere, is that Obama’s analysis of the problem is just plain wrong. Since he does not understand the causes, it is no surprise that his fixes do not work. In fact, they are actually making things worse. If you get past the politics and look at this from an economic point of view, the current high unemployment is pretty easy to understand.
Economists know that there is a clear correlation between risk taking, innovation, growth and employment. For decades the United States has encouraged risk taking, which has funded innovation, spurred growth and thereby increased employment. As Edward Conard summarizes this in his book “Unintended Consequences,” for decades the US “poured more investment into innovation than the rest of the world” and as a result “productivity soared … while Europe and Japan stagnated.”
Our current high rates of unemployment are the result to too much investment money sitting on the sidelines. This is normal in a recession. As the economy slows, risk rises, and correspondingly investment drops. As confidence returns, so does investment so that businesses can expand and unemployment drop. What is different about this recession is that investment dollars continue to remain in safer less risky investments, and the big question is: if the recession ended in the spring of 2009, why is so much capital still on the sidelines?
The reason is quite simple: at virtually every turn the Obama administration has either increased risk or sought to reduce returns, and sometime both. While the government threw trillions at the economy, little if any actually funded any innovation that would have generated a high multiplier effect thereby spurring the economy. In fact studies show that for economies like ours, unemployment would have to exceed 12% before the multiplier effect of such spending would even reach 1x, and thus break even. In fact little that government does breaks even, much less comes close to the average return of 7.5% annual return of private investment; that is when investors are investing.
Critics will claim that encouraging investment only helps “the rich,” but that is simply false. Studies show that workers capture 70% of investment dollars. For example, my business has been struggling to develop and launch a new product for years. If I had an investor, I would use the money to immediately hire people. Multiply that by businesses across the county seeking to innovate or even expand. Some will fail and the investors will lose their money. Some will do ok, and others will grow to become household names, as Google, Apple, Microsoft, McDonald, Staples, Home Depot, and countless others did. In the process, they will be providing jobs directly and indirectly for millions.
Potential investors tend to be generally in one of two modes, either they are seeking to grow their wealth by taking risks with great benefits for the economy as a whole, or they are seeking to preserve their wealth as is typical during a recession. Rather than encouraging businesses and investors to take risks, the Obama administration has attacked them as the villains behind the recession (falsely I might add); threatened them with higher taxes (reducing both their ability to invest and reducing any potential return); passed huge pieces of legislation (ObamaCare and Dodd/Frank) with unclear implications (driving up both costs and risks); increased regulation (both increasing risks and driving up costs), and directly blocked businesses (permitorium, Keystone pipeline, Boeing. etc.).
In short, at virtually every turn Obama and the Democrats have taken almost the exact opposite action than that needed to grow the economy. In the process they have exploded the debt adding even more uncertainty and threatening fiscal collapse. Add to this the Feds’ QE1, QE2, and now QE3 which raises the specter of inflation. (Frankly, the Fed has printed so much money that I do not see how we can realistically avoid being hit by significant, and possibly even runaway, inflation at this point, regardless of who wins the election.) Finally add to this the uncertainty surrounding the coming fiscal cliff and it is no wonder investors are reluctant to invest.
What should be done? Actually it is pretty easy in principle. Stop attacking business; stop increasing the burden on businesses; seek to reduce uncertainty; and encourage growth oriented investment, the type of investment has been largely non-existence since the start of the recession, and which is needed if we are ever going to get out of it. Romney clearly understands this, while Obama’s policies demonstrate that he does not.
Energion Roundtable Week 6 Responses
This week’s Energion Roundtable question it seems that one thing Arthur Sido, Bob Cornwall,, Allan R. Bevere, Joel Watts and myself all agree on is that this is a real problem and that none of the candidates have a completely satisfactory plan. As Bevere put it, “This is truly a complex and serious problem involving a complex and serious answer.” This is not the sort of thing that can be fully worked out in a campaign.
One question I would have for Watts, Bevere and Cornwall, is just what is Obama’s plan? The coming collapse in either 2024, (or without the double counting 2016) is based on Obamacare being in place. Obama may not be proposing to destroy Medicare, but just what is his plan to avoid the coming bankruptcy?
Cornwall writes of the Republican plan that it would turn Medicare, “into a voucher system, that most experts believe won’t keep up with inflation.” Watts also questions this saying that it “will sooner than later destroy the safety net for the elderly.” Setting aside Cornwall’s “most experts” comment, that still leaves a question for them: If you do not believe that the government can be trusted to spend the money needed to pay for the “voucher,” what make you think they will spend the money to pay for the coverage? Medicare already denies coverage at a higher rate than private insurance, and pays far less,such that doctors are ceasing to accept new Medicare patients. If you cannot find a doctor who will take you as a patient, or if you can, they deny your claim, what good is the current system?
If Government is in complete control, the only way to limit costs is some form of rationing, either though reducing payments, or denying claims. I know that supporters claim efficacy of a single payer system, but I just do not believe that is actually possible. After all, if government was so good at running health care, Medicare would not be in the mess it is. And somehow the argument that they made such a mess of things with Medicare, so we should give them all of health care just does not work for me.
Sido rejects both plans, preferring that we block grant Medicare to the states. Romney supports block granting Medicaid, but not Medicare. (“Why” would make a great question for the debates.) While that has some appeal, I prefer the premium support model, as that gives more choice to the individual, and after all this is essentially the same model that Congress has.
Premium support is only a first step. There must be additional steps to ensure that people have a real choice and that there is real competition, such as the ability to purchase insurance across state lines, which Romney and Republicans support. (This was a particular problem for our small company when we had employees in both California and Wisconsin.) If people are given real choice; if there is real competition; and if the health care system is allowed to explore innovative ways of delivering quality health care services at lower costs, the system will move into balance and inefficiency will be driven out, just like in all the other areas where market forces are allowed to operat. With prices under control, the necessary task of dealing with those in need would be far easier.
Energion Roundtable Week 6 Medicare
This week’s Energion Roundtable question with Bob Cornwall, Arthur Sido, Allan R. Bevere, Joel Watts, and myself is:
How would you evaluate the plans that each presidential candidate has for Medicare? Should senior citizens be concerned?
Let me take the last part first: Should seniors be concerned. The simple answer is yes. Quite simply Medicare is going broke. Unless fixed, it will cease to exist in its current form. According to the last report of the trustees, it will go broke in 2024, but that is if you accept the Obama administration’s double counting in ObamaCare. If you don’t, then it will go broke in 2016, and “if you listen to Medicare’s own actuary, Richard Foster, the program’s bankruptcy could come even sooner than that.” But regardless of the date, it is going broke. The bottom line is that Government has shown itself totally incompetent when it comes to managing this program.
Obama’s plan for Medicare is unclear to me. His web site promises more coverage for less cost with many services for free. But it was not at all clear how you can take a program going bankrupt, promise many more benefits, and make it fiscally sound. In addition with a growing number of doctors refusing to even take new Medicare patients, it raises the question of what good is the promise of a free visit, if one cannot find a doctor to accept them as a patient. In short it sounds like a lot of empty promises.
Romney has a plan that at least attempts to address the structural problems. One may not like the plan. But at least it is a plan and a plan is better than no plan. Romney’s plan is a mixture of premium supports and means testing, with “Lower income seniors will receive more generous support to ensure that they can afford coverage; wealthier seniors will receive less support.” A key element of the plan is to introduce competition into the program in an effort to drive down costs.
Herein is the really big difference between the two approaches. Democrats trust government, Republicans do not. Sometimes this is distorted into Republicans trust big business, but that is not the case. In an abstract sense I do not trust business, big or otherwise any more than I trust government, but I do see a huge difference between them. In a well-run market economy, businesses must compete for my business, thus while they ‘exist to make money’ as l teach in my classes on business, this is the paradox of business for a business that is only interested in money will go out of business very quickly. To actually make money, or even just to survive, a business must provide a service that customers value and do it better than the competition. It is the paradox of business that drives innovation to give the customer the best value.
Government does not compete; it mandates. It does not innovate; it regulates. Rather than a bottom up approach of millions of consumers voting with their individual choices, it is a top down approach where standards of care will be determined by the 15 bureaucrats of the IPAB, whose mandates can only be overridden by a majority of the house, 3/5 vote of the Senate, and then signed by the President.
Supporters of government run health care point how insurance companies deny coverage, but so does government. In fact Medicare’s rate of denied claims is “more than double any private insurer’s average.” But this takes us back to the big difference. It is not that conservatives trust business or in this case insurance companies, but they do trust consumers who are given a real choice; an approach that has repeatedly been demonstrated to work in many areas.
This is not a call to return to the system prior to Obamacare, for it was NOT based on choice and competition and in fact it severely restricted both. There are over 1300 companies providing health insurance in the U.S., many not for profit. Yet, no one has this many choices. For most, their choices are limited to the few offered by their employer. In addition there was significant government involvement in health care, through Medicare and other programs and regulations which are negatively impacting the system and driving up costs.
Real positive reform for both health care in general and Medicare in particular would increase choice and competition, and this is the direction in which Romney’ plan moves. It is simply a matter of numbers and freedom. If 1300+ companies are actively seeking better ways to provide health care, and customers are free to choose those who do the best job, than we are much more likely to see better health care at a lower cost, than by waiting for one entity, the government, with a proven track record of inefficiency and mismanagement, to come up with an improved system.
After all, with choice and competition if you don’t like your current provider you can change to some else. With single payer, if you don’t like your current provider, well there is a reason it is called single payer…
Energion Roundtable Week 5 Responses
In their answers to this week’s Energion Roundtable question, Joel Watts and Bob Cornwall, both thought that Romney made a big error and Obama generally did ok, but neither were completely happy his actions. Arthur Sido thought both were “off-base.”
Concerning Romney, Sido wrote, “the entire thing smacked of political opportunism.” Supposedly Romney’s big error was that he criticized the administration for the statement of the embassy. While Watts calls this “error-filled” and questions Romney’s character, Sido shares my view that “Romney was correct in his substance about the initial response from the State Department.”
Frankly what I find somewhat strange, (but not surprising) is how Romney is criticized for doing what the administration itself did just a short time later; how Romney is criticized for politicizing this when Obama also has used the opportunity to criticize Romney. Let me be clear, I am not critical of them for going after Romney, this is what is done in campaigns. Rather it is the double standard that I am criticizing, a double standard that seems to surround Obama, (for example going back to 2008 Sarah Palin was attacked as unqualified, but in fact had more experience than Obama). To me, the main difference has been that while both were critical of the statements of the embassy, the administration has tried to lay the blame for protests on the video, as if the video was the core problem, something that becomes increasingly doubtful as time goes on and we learn more.
Given this, I have to wonder how much of Sido’s view was due to Romney’s statement itself, and how much was in the coordinated efforts of nearly all the press to shape the story into just this direction. Herein lies a major problem that has plagued the right for decades, and which, so far, they have not been able to effectively address. It is also a major difference between the left and right.
Let me say up front that these are generalizations, i.e., things that are generally true, but not absolutely true and there will be exceptions on both sides. But exceptions to a general rule does not disprove the rule, they only demonstrate that the rule is a general one, and not absolute.
With that caveat, the general rule is that while the right tends to demonize policies, the left tends to demonize persons. For, example, while there are fringe elements of the right that question Obama’s place of birth, or try to claim that he is a secret Muslim, or other such silliness, the mainstream conservative view is that while Obama is a nice guy, he is implementing very bad policies. Thus the main objections surround things like his passage of the Affordable Care Act, aka, ObamaCare; the rapid growth of Government, the exploding deficit, mismanagement of the economy, etc..
The left, on the other hand, tend to directly attack the person. Ford was a klutz; Reagan a dumb actor; Bush 41 was elite and out of touch, etc. Their favorite attacks have been to call those on the right some combination of stupid, greedy, selfish, and uncaring. For example, Reagan, Quayle, Bush 43, and Palin were all labeled dumb. To support this we are told about the dumb statements they make, some of which come from SNL, rather than the candidate themselves, but such details really do not matter. Nor does evidence to the contrary. Nor is similar evidence ever applied to Democrats. Obama for example, said he had been in 57 states, and Biden… well there is a very long list of such statements, my favorite being a three letter word J-0-B-S. While humorous, I do not take these as indications of intelligence, but the simple mistakes anyone is bound to make. But for some reasons when Republicans do this, it is somehow much more significant.
When all else fails, the left goes to the big seven and conservatives are labeled with some combination of sexist, intolerant, xenophobic, homophobic, islamophobic, bigoted, and of course the ever popular racist. When clear evidence of any of this is lacking, which it is because it is not true, this is all justified with talk of code words, and hidden agendas as if the right is some sort of secret society.
In short those on the right tend to see those on the left as people with good intentions, but with bad policies that don’t work and are often harmful. Those on the left tend to see those on the right and just bad people. Look at the number one charge against Romney: he only cares about the rich. This, when combined with the media bias, is why polls consistently show this is a center-right country, but votes for farther to the left than would be expected based on this.
Returning to Romney’s comments I do not believe that it was what Romney objectively said, but how it was subjectively viewed, particularly in the press. Thus Cornwall spoke of Romney’s “instincts” and what he “seems to have thought.” This was despite the fact that Romney objectively expressed much the same view as the White House later took, resulting in a charge of dishonestly from Watts. Cornwall said “Romney showed himself to be ignorant” and “puffs out his chest.” I am sorry, but while this maybe the coordinated view of the majority of the press coverage, I just do not see any of this in Romney’s actual statement.
I had some agreement and disagreement with a supplement posted by Cornwall. I believe on the major points we agree; that we are a major power in the world and that isolationism is no longer a viable option and that the resulting decisions we face are very difficult. While we disagree with many of the details, on the broader question of should we be involved we seem to agree.
One area where I did question Cornwall’s view was with the statement,
“I think that in some ways that innocency has worn off in the intervening years, but there is at least some sense amongst us that we are an innocent nation. That we’re different and special — exceptional — and this leads us at times, as a nation, to fail at self-criticism. We begin to see ourselves as the arm of God. And this poses problems.”
While undoubtedly true at some level, after all no one and no nation is perfect, I would argue that almost the opposite is true, that rather than failing at self-criticism, that we are instead hyper-critical to the point that at times we fail to see the good that we have done, and could do. As Bill Bennett put it in his history of America, we should view our history warts and all, and not just the warts.
