Thursday, June 28, 2012

More on Obamacare

After the disastrous and somewhat bizarre Supreme Court ruling today, the president took to the airways to laud the decision and remind us of the law’s great benefits.  He spoke of expanded access to insurance to the currently uninsured, the (now) unlawful practice of charging some customers more in premiums than others (isn’t this fundamental to insurance?), the phasing out of lifetime caps, and other supposed benefits.  And while these may in fact come to pass, surely there are unintended consequences to this 2,000+ page monstrosity known as Obamacare.  This is a classic case of the seen and unseen.  The president was quick to highlight the popular seen benefits, but he failed to even admit that swift and potentially harmful unseen effects will be unleashed by this law.
Here are but a few of the unseen effects, as outlined by the Cato Institute (I think that number 4 is the biggie): 

  • While the new law will increase the number of Americans with insurance coverage, it falls significantly short of universal coverage. By 2019, roughly 21 million Americans will still be uninsured.
  • The legislation will cost far more than advertised, more than $2.7 trillion over 10 years of full implementation, and will add more than $823 billion to the national debt over the program's first 10 years.
  • Most American workers and businesses will see little or no change in their skyrocketing insurance costs, while millions of others, including younger and healthier workers and those who buy insurance on their own through the nongroup market will actually see their premiums go up faster as a result of this legislation.
  • The new law will increase taxes by more than $569 billion between now and 2019, and the burdens it places on business will significantly reduce economic growth and employment.
  • While the law contains few direct provisions for rationing care, it nonetheless sets the stage for government rationing and interference with how doctors practice medicine.
  • Millions of Americans who are happy with their current health insurance will not be able to keep it.

Individual Mandate Constitutional

The Supreme Court decided the individual mandate in Obamacare, that everyone must have medical insurance by 2014, is constitutional. Presumably the constitutional clause that allows this is Section 8 - Powers of Congress, where one sentence is: To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

So obviously the contentious work is "regulate." It can be taken many ways, and obviously the Supreme Court has decided to take it as "the Federal government can force citizens to purchase products from private corporations." Quite the precedent! I wonder when we'll be forced to purchase cars from GM?

Do you know why the health care issue has become so contentious? Because the government got involved a long time ago and started committing public funds to it. As soon as people are forced into transactions (through taxation, at the very least) you get fierce divisions among the people. Statists' solution to the problems created by the state is more state intervention. Ideologically, statists can't see that going towards less intervention and more freedom will reduce the problems, not exacerbate them.

And don't tell me that Obamacare must be good because healthcare companies favor it. Of course they do! This is guaranteed revenue! Well, don't expect the economy to recover anytime soon.

Friday, June 22, 2012

Where Has All the Inflation Gone?

Price inflation that is. Inspired by Robert Murphy's post here, I decided to discuss why CPI hasn't picked up that much even though money supply is through the roof.

First, how does inflation in consumer prices occur? Well, it is because the purchasing power of money has decreased, which is a result of an increase in the supply of money. So far, this is not controversial. But there is an element missing, and that is the demand for money. Money may not have a unique price but it does have supply and demand functions. The purchasing power of money will not change if the supply and demand for money change in parallel. In other words, if the supply goes up to meet a higher demand to hold money, then we should not observe a change, or much change, in the purchasing power of money.

The problem is that there is no objective measure of the demand for money. It must be estimated. One proxy for demand is excess banking reserves. Normally this wouldn't tell us anything, because it normally is zero. But recently it has gone up quite high (see graph below).

The blue line is Money of Zero Maturity (MZM). The green line is CPI (on the right axis), and the red line is excess reserves. Note the CPI going up every year as money supply increases every year. As excess reserves pick up, CPI drops down and rises more slowly. Excess reserves have increased to nearly $2 trillion since mid-2009, and MZM has increased by roughly $1 trillion. So under these circumstances, I would not expect much price inflation.

Note, however, that these excess reserves are induced money demand, because the Fed is paying 0.75% interest on excess reserves. Normally the interest on excess reserves is zero. So if a loan was going to return 5% interest before, now it has to return 5.75% interest. I don't know how much of the excess reserves is due to only this factor, however. The demand for loans might be low too (meaning demand for money is high).

To highlight another point, I do want to mention that even though CPI is low relative to zero, that doesn't mean it's low relative to what it would be on the free market. Suppose that, without changing money supply, prices would have decreased by 2% (change in CPI = -2%). Then, with an observed CPI of +2%, the actual price inflation is 4% (2% - -2%). But we have no idea what prices would actually do on the free market, except that they have a tendency to decrease (look at computers and televisions, for example).

Finally, an increase in money supply, even to match an increase in money demand, has pernicious effects on the economy that may not show up as price inflation. That is because the new money travels through the economy in a certain way that likely doesn't match the increase in money demand. To increase money supply, the Federal Reserve Bank of NY credits the accounts of its primary Treasury-security dealers with money in exchange for the securities which are sold to FRBNY. Then the money is lent out or traded by the primary dealers (which are primarily investment banks, but also commercial banks) with its trading partners or commercial clients. Then the money slowly moves through the economy as businesses make investments, or more trading occurs, or what have you. It's impossible to know what the reordering will be, and how large it will be. If the increase in money supply is small, the reordering is likely to be negligible. But if it is sustained for a long time, the reordering will be vast. But we may not recognize that the economy is structured counter to the wishes of consumers until the bust actually arrives, and then it's too late. But if you want to read more about that, check out Austrian Business Cycle Theory at

Wednesday, June 6, 2012

Legal Plunder

Scenario 1.
I walk up to Prof J and demand $20 at gunpoint.  At this, he would have me thrown in jail.  And rightfully so.  I have zero claim on the fruits of his labor.  What’s his is his and not mine.  I would hope that most clear thinking folks would agree with me.  However, let’s change up the scenario just a little.

Scenario 2.
I run for office and pass a law that confiscates some of Prof J’s money.  I take that money and give it government workers, such as TSA agents.  TSA agents, in turn, form a public sector union and require its members to contribute dues.  Part of these dues, which were once Prof J’s money, is used to help elect more folks like me.  I’ve now essentially laundered Prof J’s hard earned money into campaign donations for myself.  This is the workings of a public sector union.

Is this “legal plunder” in scenario 2 substantially different than armed robbery in scenario 1?

More Worthless TSA Security

I’ve traveled to eight states over the past two weeks, and I’ve done most of my traveling by airplane.  And, like most of the flying public, I loathe the TSA.  As if going through their molestation procedures at the checkpoint weren’t enough, they’ve dreamt up new “security” procedures, hassling already-screened-passengers just before boarding the plane.

The past two times I’ve flown (both on Southwest), TSA agents have shown up at the boarding gate, randomly selecting passengers for additional aggravation, er, I mean screening.  As my wife and I were about to enter the tunnel, TSA agents stopped us and asked to peek inside my wife’s purse – as I followed behind her with carry-on luggage.  Only divine intervention kept my mouth closed. 

These “new procedures” masquerading as additional security precautions are nothing more than meaningless tasks designed to provide even more employment opportunities for an agency known as Thousands Standing Around.  It’s time to return airline security to its rightful and inherently interested owner – the airlines themselves.

Tuesday, June 5, 2012

None of Your Business!

While at work today, I completed an employee survey put out by OPM.  It was the kind of survey that asks about the effectiveness of management, how important you feel your work is, and other similar type questions.  However, under the demographic section, I saw a new question – sexual orientation.  The options were straight, homosexual, lesbian, transgender or don’t wish to disclose. 

This line of questioning didn’t sit well with me.  Whose damn business is it what my sexual orientation happens to be?  The survey is (supposedly) anonymous, but I still don’t consider this question appropriate.  And why is the gub-mint keeping statistics like this in the first place?  They didn’t ask about my preferences for wine, motorcycles, or shotguns.  Is there something special about my sexual orientation that deserves a proper accounting?  Doubtful.  

I’d be interested to know if any other folks out there have been asked this line of questioning.  Seems to me it’s none of their damn business!