The Stimulus Bill Hasn't Done ANYTHING - As We Knew It Wouldn't

The following WSJ opinion piece shows the evidence for what we predicted when it was enacted: The stimulus bill hasn't - and won't - have any positive effect on the economy. It can claim no credit for any signs of recovery now showing up in the economy. To the contrary, it will have negative effects as the capital taken from the private sector is no longer available to get invested in productive activities.

The Stimulus Didn't Work

The data show government transfers and rebates have not increased consumption at all.

By JOHN F. COGAN, JOHN B. TAYLOR AND VOLKER WIELAND

Is the American Recovery and Reinvestment Act of 2009 working? At the time of the act's passage last February, this question was hotly debated. Administration economists cited Keynesian models that predicted that the $787 billion stimulus package would increase GDP by enough to create 3.6 million jobs. Our own research showed that more modern macroeconomic models predicted only one-sixth of that GDP impact. Estimates by economist Robert Barro of Harvard predicted the impact would not be significantly different from zero.

Now, six months after the act's passage, we no longer have to rely solely on the predictions of models. We can look and see what actually happened.

Consider first the part of the package that consists of government transfers and rebates. These include one-time payments of $250 to eligible individuals receiving Social Security, Supplemental Security Income, veterans benefits or railroad retirement benefits--and temporary reductions in income-tax withholding for a refundable tax credit of up to $400 for individuals and $800 for families with incomes below certain thresholds. These payments, which began in March of this year, were intended to increase consumption that would help jump-start the economy. Now that a good fraction of these actions have taken place, we can assess their impact.

The nearby chart reviews income and consumption through July, the latest month this data is available for the U.S. economy as a whole.

Consider first the part of the chart pertaining to the spring of this year and observe that disposable personal income (DPI)--the total amount of income people have left to spend after they pay taxes and receive transfers from the government--jumped. The increase is due to the transfer and rebate payments in the 2009 stimulus package. However, as the chart also shows, there was no noticeable impact on personal consumption expenditures. Because the boost to income is temporary, at best only a very small fraction was consumed.

This is exactly what one would expect from "permanent income" or "life-cycle" theories of consumption, which argue that temporary changes in income have little effect on consumption. These theories were developed by Milton Friedman and Franco Modigliani 50 years ago, and have been empirically tested many times. They are much more accurate than simple Keynesian theories of consumption, so the lack of an impact should not be surprising.

Indeed, one need not have looked any further than the Bush administration's Economic Stimulus Act of 2008 to find plenty of evidence that temporary payments of this kind would not jump-start consumption. That package made one-time payments and rebates to people in the spring of 2008, but, as the chart shows, failed to stimulate consumption as had been hoped. Some argued that other factors such as high oil and gasoline prices caused consumption to fall during this period and that consumption would have been even lower without the stimulus, but no significant impact of these rebates is found even after controlling for oil prices.

Consider next the government-spending part of the stimulus package. The Obama administration points to the sharp reduction in the decline in real GDP from the first to the second quarter of 2009 as evidence that the package is working. Economic growth was minus 6.4% in the first quarter and minus 1% in the second quarter, so the implied improvement of 5.4 percentage points is indeed big. But how much of that improved growth rate can be attributed to higher government spending due to the stimulus? If we rely on predictions of models, again we see disagreement and debate. According to our research with modern macroeconomic models, the increase in government spending would add less than a percentage point, a relatively small portion. The model predictions cited by the administration's economists suggest a much larger portion: two to three percentage points. Prof. Barro's model predicts zero.

So let's look at the data on the contributions of government spending and other components of GDP to the 5.4 percentage-point improvement. By far the largest positive contributor to the improvement was investment--which went from minus 9% to minus 3.2%, an improvement of 5.8% and more than enough to explain the improved GDP growth. Investment by private business firms in plant, equipment and inventories, rather than residential investment, were the major contributors to the investment improvement. In contrast, consumption was a negative contributor to the change in GDP growth, because consumption growth declined following the passage of the stimulus package.

One is hard put to see what specific items in the stimulus act could have arrested the decline in business investment by such a magnitude. When one looks at monthly investment indicators--such as new orders for nondefense capital goods--one sees a flattening out starting early in the first quarter of 2009, well before the package went into operation. The free fall of investment orders caused by the financial panic last fall stabilized substantially by January, and investment has remained relatively stable since then. This created the residue of a very large negative growth rate from the fourth quarter of 2008 to the first quarter of 2009, and then moderation from the first quarter to the second of 2009. There is no plausible role for the fiscal stimulus here.

View Full Image

Associated Press

Direct evidence of an impact by government spending can be found in 1.8 of the 5.4 percentage-point improvement from the first to second quarter of this year. However, more than half of this contribution was due to defense spending that was not part of the stimulus package. Of the entire $787 billion stimulus package, only $4.5 billion went to federal purchases and $17.7 billion to state and local purchases in the second quarter. The growth improvement in the second quarter must have been largely due to factors other than the stimulus package.

Incoming data will reveal more in coming months, but the data available so far tell us that the government transfers and rebates have not stimulated consumption at all, and that the resilience of the private sector following the fall 2008 panic--not the fiscal stimulus program--deserves the lion's share of the credit for the impressive growth improvement from the first to the second quarter. As the economic recovery takes hold, it is important to continue assessing the role played by the stimulus package and other factors. These assessments can be a valuable guide to future policy makers in designing effective policy responses to economic downturns.

Mr. Cogan, a senior fellow at the Hoover Institution, was deputy director of the Office of Management and Budget under President Ronald Reagan. Mr. Taylor, an economics professor at Stanford and a Hoover senior fellow, is the author of "Getting Off Track: How Government Actions and Interventions Caused, Prolonged and Worsened the Financial Crisis" (Hoover Press, 2009). Mr. Wieland is a professor of monetary theory at Goethe University in Frankfurt, Germany.

Health Care and a Cup of Coffee: A Tale of Two Marxists

Need a cup of Joe? Need some health care? They both get scarcer when Government steps in to "help" the market and stop evil capitalists from making profits. Read the tale of Venezuela and how its coffee bean production was virtually stopped after government intervention.

It was the worst of times......

---

A Tale of Two Shortages

Mises Daily by Doug French | Posted on 9/15/2009

Coffee beans can't be grown just anywhere. Most of the year must provide moderate sunshine and rainfall. Thus virtually all coffee in the world is produced within the coffee belt that lies between the Tropic of Cancer to the north and the Tropic of Capricorn to the south. Coffee's monetary value is said to be second only to oil among natural commodities. And for those who fuel up on Starbucks caffeine or the like, the price per gallon paid far exceeds what is spent filling your car's gas tank.
For generations of Americans, Columbia's Juan Valdez symbolized coffee production and Columbia is still the number two producer in the world behind Brazil. Located right next door to these coffee producing giants is Venezuela, a country that at one time rivaled Columbia in coffee production. And although blessed with the required porous soil and perfect climate, Venezuela now produces less than one percent of the world's coffee ˜ not even enough to satisfy its own population.
After being one of the top coffee exporters early in the 20th century, Venezuela began importing java from Brazil last month, even though, as Benedict Mander reports for theFinancial Times, "locals say it is no match for the local quality Arabica beans."
So despite having the best beans and the perfect conditions to grow them, Venezuela is almost out of the coffee business. One of the stock answers given is that after oil was discovered in 1960s and '70s coffee growing withered because the nation became South America's richest by pumping crude.
But coffee growing in Venezuela has always been dominated by family farms. It's not as if coffee farmers dug up their coffee plants and started drilling for oil.
Instead, the power of the Venezuelan government did the digging in the name of land reform ˜ supposedly for the betterment of working people. "Land reform is a weapon aimed at the heart of the oligarchy," The Marxist wrote in 2006, "and from the inception of the new land programme, land owners, capitalists and their supporters in the national and international media have organised against the threat of agrarian change."
But change came when the Land Act was passed in December 2001, and since then the National Land Institute has distributed millions of acres of lands to peasant-owned cooperatives in the "war against the latifundia." The Venezuelan government's redistribution of land has, in the FT's words, "generated a climate of uncertainty that has damped investment."
So instead of planting beans, the land is left fallow or turned into pasture, reducing the supply and pushing up the price of coffee, right? Well no, because the government has imposed price ceilings at the retail level. So there is no incentive for farmers to grow beans and many roasters just closed up shop. What few coffee farms and roasters are left smuggle their product across the border to Columbia where the prices aren't controlled by President Hugo Chavez and are twice as high.
And while coffee prices are capped, the growers' costs are rising. Labor is hard to find at a reasonable wage, because "too many labourers live off government handouts and don't even bother working," one farm owner told the FT.
With his people clamoring for their caffeine fixes, Chavez has expropriated his country's two largest coffee roasters, Fama de América and Café Madrid, blaming these companies for the scarcity, claiming that the roasters were hoarding, speculating, and smuggling. "We've had enough of this. We must do the same with all companies that behave this way," says Chavez. "We are going to continue nationalizing monopolies to turn them into productive businesses in the hands of the workers, the people, the revolution."

Ludwig von Mises, however, points out in Human Action that

the effect of [the state's] interference is that people are prevented from using their knowledge and abilities, their labor and their material means of production in the way in which they would earn the highest returns and satisfy their needs as much as possible.

"Such interference," he adds, "makes people poorer and less satisfied."
Meanwhile, here in America, President Obama insists that all people need access to medical care, believing that healthcare "should be a right for every American."

There was a time not too long ago when America's healthcare was considered the best in the world and it was affordable to all. "Instead," as Gabriel E. Vidal wrote recently on Mises.org, "health costs reflect the distortions that government regulators have introduced through reimbursement mechanisms created by command-and-control bureaucracies at federal and state levels."

In a 2007 Democratic debate, Obama said, "My emphasis is on driving down the costs, taking on the insurance companies, making sure that they are limited in the ability to extract profits and deny coverage, and the drug companies have to do what's right by their patients instead of simply hoarding their profits."
"[The hills in Venezuela] used to be carpeted with coffee plants," a sad Don Luis Paparoni told the FT. "Now you'll scarcely find any." It will indeed be sad when quality healthcare becomes just as scarce in America.

Presidential Health Care Assertions vs. Facts

In Obama's speech on Wednesday he made - as usual - grand claims about what his health care bill would accomplish. He asserted it would:
1. not add “one dime” to the federal budget deficit, now or at any time in the future.
2. lower costs for families, businesses, and government. and
3. would pay for most of the cost of the plan by eliminating waste and inefficiency in Medicare and Medicaid.


All three are unsubstantiated claims that are in fact contradicted by - gasp! - the facts, history and common sense. The following link to the article by James Capretta details the outright lies behind these claims

The New Atlantis » Diagnosis » Presidential Assertions vs. Facts

The Coming Life Bubble: Wall Street Bets on Future "Death Panels" Effectiveness

As Obama Care continues to be debated, Wall Street has already devised a way to take advantage of "cost cutting" measures in the bill - End of Life Counseling, aka Death Panels. As pressure mounts to contain health care costs and the elderly are encouraged to "do the right thing" by not using expensive life extending procedures, buyers of securitized life insurance policies will benefit as those insured (sort an organic financial CD or Corpse Deposit) come due "early".

"Since it worked so well the first time around, Wall Street has spawned a new age of securitization – instead of mortgages, this time it’s life insurance policies. Before we spit on this one, here’s how it works:

• A senior with a high-premium life insurance policy, for one reason or another, chooses to cash out.
• Instead of taking a “cash surrender” directly from the insurance company, the old fella sells his policy to a “life settlement company.”
• That company pays him a larger amount than the “cash surrender” would pay, but not nearly the totality of the policy’s value.
• The company keeps paying the premiums. When he kicks the bucket, the company collects the insurance policy.

That’s where the story would normally be over. But now, just like pools of subprime, Alt-A and prime mortgages, investment bankers are crafting securitized pools of these insurance polices. Basically, they pool together a bunch of beneficiaries that will likely die around the same time, buy up their policies from life settlement companies, package them into securities and sell them to investors around the world.
Heh. Really, could the idea of “Wall Street” be any more evil right now? Not only are they rehashing the same schemes that triggered the credit crisis in the first place, but think about it… they will make more money the sooner you die! If policyholders die sooner than expected, there will be no monthly premiums left to pay and the investors get a bigger share of the insurance payout. (And if people like our tech analyst Patrick Cox are right, a sudden surge in life expectancies could blow up these new funds… another crisis! Hooray!)


by Ian Mathias

Liberty Protesters in Washington Drown Out CNN Reporter

Tit For Tat - Let Doctors Oversee The Legal Profession

Here's a very clever idea from a doctor about leveling the playing field by having doctors oversee and "improve" the rising costs and service of the legal profession.

Sauce for the goose, sauce for the gander … A Doctor’s Plan for Legal Industry Reform

* * * * *
WSJ, A Doctor’s Plan for Legal Industry Reform, Sept. 3, 2009
Since committees of lawyers are deciding what doctors should and should not do, perhaps physician committees can decide whether lawyers are necessary in any given situation.  Doctors sholuld take on the important duty of controlling and regulating lawyers.
Since most of what lawyers do is repetitive boilerplate or pushing paper, physicians would have no problem dictating what is appropriate for attorneys.
After all, we physicians know much more about legal practice than lawyers do about medicine.
Following are highlights of a proposed bill authorizing the dismantling of the current framework of law practice, i.e. “reforming” it:
• Contingency fees will be  … eventually outlawed. This will put legal rewards back into the pockets of the deserving—the public and the aggrieved parties. Slick lawyers taking their “cut” smacks of a bookie operation. Attorneys will be permitted to keep up to 3% in contingency cases, the remainder going into a pool for poor people.
•  Each potential legal situation will be assigned a relative value, and charges limited to this amount. Program participation and acceptance of this amount is mandatory, regardless of the number of hours spent on the matter. Government schedules of flat fees for each service, analogous to medicine’s Diagnosis Related Groups (DRGs), will be issued. For example, any divorce will have a set fee of, say, $1,000, regardless of its simplicity or complexity. This will eliminate shady hourly billing. Niggling fees such as $2 per page photocopied or faxed would disappear. Who else nickels-and-dimes you while at the same time charging hundreds of dollars per hour? I’m surprised lawyers don’t tack shipping and handling onto their bills.
• Legal “death panels.“ Over 75? You will not be entitled to legal care for any matter. Why waste money on those who are only going to die soon? We can decrease utilization, save money and unclog the courts simultaneously. Grandma, you’re on your own.
• Ration legal care. One may need to wait months to consult an attorney. Despite a perceived legal need, physician review panels or government bureaucrats may deem advice unnecessary. Possibly one may not get representation before court dates or deadlines. But that’ s tough: What do you want for “free”?
• Physician controlled legal review. This is potentially the most exciting reform, with doctors leading committees for determining the necessity of all legal procedures and the fairness of attorney fees. What a wonderful way for doctors to get even with the sharks attempting to eviscerate the practice of medicine.
• Discourage/eliminate specialization. Legal specialists with extra training and experience charge more money, contributing to increased costs of legal care, making it unaffordable for many. This reform willguarantee a selection of mediocre, unmotivated attorneys but should help slow rising legal costs. Big shot under indictment? Too bad. Under reform you too may have to go to the government legal shop for advice.
• Electronic legal records. We should enter the digital age and computerize and centralize legal records nationwide. All files must be in a standard, preferably inconvenient, format and must be available to government agencies. A single database of judgments, court records, client files, etc. will decrease legal expenses. Anyone with Internet access will be able to search the database, eliminating unjustifiable fees charged by law firms for supposedly proprietary information, while fostering transparency. It will enable consumers to dump their clunker attorneys and transfer records easily.
• Ban legal advertisements. Catchy phone numbers such as 1-800-LAWYERS would be seized by the government and repurposed for reporting unscrupulous attorneys.
• New government oversight. Government overhead to manage the legal system will include a cabinet secretary, commissioners, ombudsmen, auditors, assistants, czars and departments.
• Collect data about the supply of and demand for attorneys.Create a commission to study the diversity and geographic distribution of attorneys, with power to stipulate and enforce corrective actions to right imbalances. The more bureaucracy the better. One can never have too many eyes watching these sleazy sneaks.
• Lawyer Reduction Act. A self-explanatory bill that not only decreases the number of law students, but also arbitrarily removes 3,200 attorneys from practice each year. Textbook addition by subtraction.
Enthusiastically embracing the above legal changes can serve as a “teachable moment” and will go a long way toward giving the lawyers who run Congress a taste of their own medicine.
Full article:
http://online.wsj.com/article/SB10001424052970204731804574387021307651050.html?mod=djemEditorialPage

Market Based Health Care Solutions - Cost and Pre-Existing Conditions

What to Do About Pre-existing Conditions

Most Americans worry about health coverage if they lose their job and get sick. There is a market solution.

By JOHN H. COCHRANE

Even if you don't like the massive health-care package being considered in Congress, you have to admit that health insurance and health care in this country are not working well. There are two basic problems:

First, if you get sick and then lose your job or get divorced, you lose your health insurance. With a pre-existing condition, new insurance will be ruinously expensive, if you can get it at all. This, the central defect of American health insurance, explains why most Americans are happy with their current coverage yet also support reform.

Second, health care costs too much. Yes, we get better treatment, but the cost-cutting revolution that has swept through manufacturing, retail, telecommunications and airlines has not touched health care.

The problems are real, but the proposed remedy—even more government intervention—is counterproductive. A market-based, deregulation-focused reform is possible, and it will work.

Health care and insurance are service-oriented, retail businesses. There is only one way to reduce costs in such a business: intense competition for every customer. The idea that the federal government can reduce costs by negotiating harder or telling businesses what to do is a triumph of hope over centuries of experience.

View Full Image

Associated Press

Take the claim that centralized record-keeping can cut costs. In his July 22 press conference, President Barack Obama noted that a new doctor today might run a test again rather than ask for records of a previous result. That seems silly. But maybe it isn't. Maybe the test is cheap, the condition changes, the test can fail, and the cost of setting up an integrated record system between these two doctors isn't worth two tests a year.

The cost-cutting revolutions in other industries didn't settle questions like these with acts of Congress, expert commissions, armies of regulators, or via a "public option"—while leaving in place a system in which consumers have little choice, aren't spending their own money, and suppliers are protected from lower-cost competitors. That approach has never spurred efficiency, and for good reasons. Cost-cutting is painful. Even in Mr. Obama's trivial example, lab technicians and secretaries will lose their jobs to computer programs, and they will complain. Patients might have to get tests at inconvenient times and locations. They will do this when their money is at stake—what people will put up with from airlines for a few dollars is truly amazing—but they will never accept it from the government.

But what about pre-existing conditions?

A truly effective insurance policy would combine coverage for this year's expenses with the right to buy insurance in the future at a set price. Today, employer-based group coverage provides the former but, crucially, not the latter. A "guaranteed renewable" individual insurance contract is the simplest way to deliver both. Once you sign up, you can keep insurance for life, and your premiums do not rise if you get sicker. Term life insurance, for example, is fully guaranteed renewable. Individual health insurance is mostly so. And insurers are getting more creative. UnitedHealth now lets you buy the right to future insurance—insurance against developing a pre-existing condition.

These market solutions can be refined. Insurance policies could separate current insurance and the right to buy future insurance. Then, if you are temporarily covered by an employer, you could keep the pre-existing-condition protection.

Some insurers avoid their guaranteed-renewable obligations by assigning people to pools and raising rates as healthy people leave the pools. Health insurers, like life insurers, could write contracts that treat all of their customers equally.

The right to future insurance could be transferrable to another company, for example, if you move. You could have the right that your company will pay a lump sum, so that a new insurer will take you, with no change in your premiums. Better, this sum could be occasionally placed in a custodial account. If you got sick but had something like a health-savings account to pay high premiums, you could always get new insurance. Insurers would then compete for sick people too.

Innovations like these would catch on quickly in a vibrant, deregulated individual insurance market.

How do we know insurers will honor such contracts? What about the stories of insurers who drop customers when they get sick? A competitive market is the best consumer protection. A car insurer that doesn't pay claims quickly loses customers and goes out of business. And courts do still enforce contracts.

How do we get to a competitive market? The tax deduction for employer-provided group insurance, which has nearly destroyed the individual insurance market, is a central culprit. If we don't have the will to remove it, the deduction could be structured to enhance competition and the right to future insurance. We could restrict the tax deduction to individual, portable, long-term insurance and to the high-deductible plans that people choose with their own money.

More importantly, health care and insurance are overly protected and regulated businesses. We need to allow the same innovation, entry, and competition that has slashed costs elsewhere in our economy. For example, we need to remove regulations such as the ban on cross-state insurance. Think about it. What else aren't we allowed to purchase in another state?

The bills being considered in Congress address the pre-existing condition problem by forcing insurers to take everybody at the same price. It won't work. Insurers will still avoid sick people and treat them poorly once they come. Regulators will then detail exactly how every disease must be treated. Healthy people will pay too much, so we will need a stern mandate to keep them insured. And this step further reduces competition.

Private, competitive insurance markets are a superior way to solve the pre-existing-conditions problem, and the only hope to lower costs.

Mr. Cochrane is professor of finance at the University of Chicago Booth School of Business, and author of "Health Status Insurance" (Cato, 2009).

On Liberty and Justice

Here are some wise words from economist and author Thomas Sowell. The horrible proactice of political correctness and the need for liberals to feel good about themselves by extending "rights" and the "law" to terrorists outside the law puts all of us at risk.

LIBERTY

"Adam Smith [once] said, 'Mercy to the guilty is cruelty to the innocent.' That lesson seems to have been forgotten in America ... where so many people seem to have been far more concerned about whether we have been nice enough to the mass-murdering terrorists in our custody than those critics have ever been about the innocent people beheaded or blown up by the terrorists themselves. ... Those who are pushing for legal action against CIA agents may talk about 'upholding the law' but they are doing no such thing. Neither the Constitution of the United States nor the Geneva Convention gives rights to terrorists who operate outside the law. ... So many 'rights' have been conjured up out of thin air that many people seem unaware that rights and obligations derive from explicit laws, not from politically correct pieties. If you don't meet the terms of the Geneva Convention, then the Geneva Convention doesn't protect you. If you are not an American citizen, then the rights guaranteed to American citizens do not apply to you. That should be especially obvious if you are part of an international network bent on killing Americans. But bending over backward to be nice to our enemies is one of the many self-indulgences of those who engage in moral preening. But getting other people killed so that you can feel puffed up about yourself is profoundly immoral. So is betraying the country you took an oath to protect." --economist Thomas Sowell

Obama Care Will Only Cost........Not!

As the debate over Obama Care continues, and the issue of its cost is examined, the following thoughts from economist Walter Williams should be kept in mind:

"President Obama and congressional supporters estimate that his health care plan will cost between $50 and $65 billion a year. Such cost estimates are lies whether they come from a Democratic president and Congress, or a Republican president and Congress. ... At its start, in 1966, Medicare cost $3 billion. The House Ways and Means Committee, along with President Johnson, estimated that Medicare would cost an inflation-adjusted $12 billion by 1990. In 1990, Medicare topped $107 billion. That's nine times Congress' prediction. Today's Medicare tab comes to $420 billion with no signs of leveling off. How much confidence can we have in any cost estimates by the White House or Congress? Another part of the Medicare lie is found in Section 1801 of the 1965 Medicare Act that reads: 'Nothing in this title shall be construed to authorize any federal officer or employee to exercise any supervision or control over the practice of medicine, or the manner in which medical services are provided, or over the selection, tenure, or compensation of any officer, or employee, or any institution, agency or person providing health care services.' Ask your doctor or hospital whether this is true." --economist Walter E. Williams

Glenn Beck on Van Jones - Green or "Red" Czar?

Here Glenn Beck plays and analyzes a recording of Obama's new "Green Czar", Van Jones. Tell me he isn't scary and sounds like a died in the wool communist. 

Glenn Beck: More Van Jones lunacy

http://www.glennbeck.com/content/articles/article/198/30037/