In Defense Of Price Gougers

They pop up in almost every crisis. During hurricanes, they sell boards for windows and bottled water at inflated prices. After a flood, they always seem to have a stockpile of bleach to kill mold in water-damaged houses. During the current crisis, these keyboard capitalists have snapped up supplies of antiviral masks and hand sanitizer and are attempting to profit by reselling them online.

A report by USA Today found that prices of about one in six products sold online had spiked to levels that were 50 percent above the 90-day average. This included a 10-pack of N95 medical masks which normally retailed for $18.20 selling at $199.99 and a 12-pack of 8-ounce bottles of Purell hand sanitizer that had increased from $30 to $159.99.

While some state and local governments, as well as online retailers themselves, are attempting to crack down on price gouging, the reality is that price gougers are performing an important service for the public. By allowing prices to rise in tandem with demand, price gougers help to ensure that items remain available to those who need them when panic buying takes hold.

We have seen examples of this mob mentality in recent weeks. About three weeks ago, when the Coronavirus first started to spread in the US, I was one of the people who decided to buy a few masks as a precaution. Unfortunately, I made this decision a few days too late. When I went around town and looked on the internet, buyers had picked stores clean of every N95 mask, with the exception of a couple of $50 respirators that I found at a nearby Home Depot.

Price sensitivity kicked in and I left these on the shelf. I knew enough about the virus to know that my family was not in a high-risk category so I rejected the idea of spending $200 to outfit my family with something that we would probably never use, but, as I walked away, an older lady was putting one of the respirators into her cart.

As it turns out, the CDC now says that masks don’t do much to protect you from COVID-19. Instead, masks should be worn by those who are already infected to prevent them from spreading the virus when they cough or sneeze. An exception to that is people who are caregivers for Coronavirus patients.

The problem is that retailers did not adjust their prices to match the sudden increase in demand for masks. If you didn’t get a mask before they sold out, you probably can’t find one now. As soon as a new shipment comes in, they sell out because the price is not allowed to rise.

That’s where price gougers come in. When they take some of the available supply of masks and raise the price, it discourages people who don’t need them from buying them just in case. These days, if you see a pack of masks for $20, you’ll grab it. If you see a pack of masks for $200, you’ll think twice and not buy unless you really need it.

The run on toilet paper is another case of panic buying that could be averted by raising prices. My wife recently ran into a woman who had an entire shopping cart loaded with toilet paper. She was stocking up because she believed that “the ships were stuck in the middle of the ocean” and couldn’t deliver their cargo of precious booty paper to American stores. Because the TP was available at regular price, the woman took all she could carry, leaving little or nothing for the next customer who may be down to his last roll at home. If the store had increased its price by five or ten times, the hoarder would not have bought a veritable cartload of TP and would have left some for other shoppers who might need it more.

So when well-meaning people crack down on price gougers, they are effectively helping to create shortages. This was the case with Matt and Noah Colvin of Chattanooga, Tenn. The brothers bought $17,000 worth of hand sanitizer and were reselling it on Amazon along with wipes, masks, and other supplies. Amazon delisted their items and now the Colvins are stuck with a garage full of medical supplies that they aren’t allowed to sell. Many people around the country would be willing to pay inflated prices for the items, but instead, they are gathering dust.

While high prices anger people, the reality is that buyers have a choice of whether to enter into the transaction. If you don’t need to pay $70 for the Colvin’s hand sanitizer, then you won’t. If you are willing to accept their price, you probably really need it.

Price gouging is essentially a free market activity. Eliminating price gouging requires price controls, and, as conservatives have pointed out for decades with respect to health care, price controls invariably lead to shortages and rationing in periods of high demand.

While price gougers won’t win many friends, they do form an important part of the balance between supply and demand. If you need a medical mask or hand sanitizer these days, the odds are good that you’ll have to get it from a price gouger who kept people like the hoarder lady from locking it in their own closets.

Originally published on The Resurgent

Trump Tariffs Are Making Canada Great Again

My family and I took a vacation to visit friends in the Canadian province of New Brunswick recently. New Brunswick, which is located to the northeast of Maine, is a long drive from Georgia so we took the opportunity to explore the area while we there. While we shopped at a lobster and seafood shop in the seaside village of Alma, I had an interesting conversation with the proprietor.

As we browsed, the owner asked me what I thought of Donald Trump. As I usually do, I replied noncommittally that I wasn’t a huge fan of the president.

“Well, he’s been good for us,” the Canadian shop owner replied.

He went on to explain how President Trump’s trade war had helped Canadian lobstermen. Like many farmers and fishermen, the lobstermen of Maine exported much of their catch to other countries, including China.

At least they did before the trade war. Seafood Source reported that 2018 had started as a bumper year for Maine lobster, but the implementation of tariffs quickly changed that. After China raised retaliatory tariffs on American imports, lobster shipments declined by 84 percent.

Canadian lobster exporters, unaffected by the US-China trade war, have picked up the slack. The shop owner explained that many importers who had previously bought US lobster were turning to Canada. The Canadian fishermen were benefitting both from increased volume demand for their product as well as higher prices.

While we were in Canada, the going rate for local lobster was CAD $12.99 per pound. Lobster meat was CAD $38.99 per pound. An internet price search of Maine lobster found whole lobster prices slightly lower at about $8.99 per pound (about CAD $11.80)  but lobster meat more expensive at $50-60. The higher price for US lobster meat may be due to the difficulty in finding immigrant labor. (I discussed the shortage of immigrant work visas in an article last year.)

American buyers benefitted from a favorable exchange rate in which one Canadian dollar was equal to about 75 US cents. Customers from China and other countries also benefit from the softer Canadian dollar when they buy lobster from Canadian companies. Taxes on American imports and the better exchange rate have combined to sharply boost Canadian exports.

“Our sales to China have increased dramatically this year – around 30 to 40 percent – compared to last year,” David Xu, China representative for lobster exporter ZF Max International, told Seafood Source.

Canada has also benefitted from a new free trade agreement with Europe. In 2017, Canada and the EU signed the Comprehensive Economic and Trade Agreement. One of the provisions of this treaty is that Canadian lobsters can be imported to Europe without a tariff. In contrast, European buyers must pay an eight percent tax on American lobster. US lobster shipments to Europe fell 47 percent as a result of the deal reported the Portland Press Herald. To protect themselves, many American companies are moving at least part of their operation to Canada.

Adding insult to injury for American lobstermen, Canadian lobster is often shipped through the United States to buyers in China and elsewhere. There are far more flights out of Boston and Maine than Canada’s maritime provinces so lobster that is landed and sold in Canada is often trucked to US airports where it is then flown around the world. Because the lobster came from Canada and was not sold in the US, it isn’t subject to Mr. Trump’s (or Mr. Xi’s) tariffs.

The plight of Maine’s lobstermen may not concern President Trump because most of them didn’t vote for him. In 2016, the coastal districts where the fishermen live voted for Hillary Clinton, giving her three of the state’s four electoral votes. However, the same story is being played out in American agriculture around the country, including in many red states. American farmers are losing export opportunities while foreign competitors such as Australia, Brazil, Canada, Chile, and New Zealand take over markets that were formerly dominated by the US.

Maybe those exports from the US will resume after the trade war is resolved, but maybe they won’t. Business relationships are being forged between America’s competitors and our former customers. If President Trump is re-elected then foreign customers will be leery of doing business with American companies due to the president’s habit of implementing new tariffs on short notice.

A major complaint of businesses during the Obama Administration was the unstable regulatory environment in which it was difficult to make long-term plans. That problem is worse for many businesses under President Trump. As a businessman, Donald Trump should know that business partners value reliability.

At the same time that I was on my trip, China reduced its tariffs, not on US imports but on those from competing countries. In a move calculated to further reduce American exports, China eased the import tax burden on products from countries that compete directly with American goods.

The trade war goes on and American lobstermen and farmers and manufacturers wait to see if they will be able to sell what they produce while they operate at a disadvantage in one of the world’s largest markets. In the meantime, our neighbor to the north is among the countries reaping the benefits of Donald Trump’s tariff policy.

So, if you happen to be in Canada’s maritime provinces, you can enjoy a good deal on some very fresh lobster. While you’re there, take in the beautiful scenery along the Bay of Fundy, benefit from a favorable exchange rate, and enjoy Canadian hospitality, which is a lot like Southern hospitality without the 90-degree temperatures and oppressive humidity.

And while you’re there, take just a minute to think about President Trump’s gross misunderstanding of international trade, eh?

Originally published on The Resurgent

Bernie And AOC Team Up To Attack Credit Cards

An epidemic of economic illiteracy seems to have inflicted both parties. While Republicans suffer from President Trump’s fixation on taxing imports to make America great again, Democrats, eager to prove that they also fail to understand basic economic principles, have unveiled a proposal for price controls on credit cards.

The proposal is the brainchild of the Democratic Party’s two leading democratic socialists, Sen. Bernie Sanders (D-Vt.) and Rep. Alexandria Ocasio-Cortez (D-N.Y.) and is targeted at what the pair call “exorbitant credit-card interest rates” in a statement. Their “Loan Shark Prevention Act” would a 15-percent federal cap on interest rates and empower individual states to establish lower limits.

Channeling Ron Paul’s references to “banksters,” Sanders said, “The reality is that today’s modern-day loan sharks are no longer lurking on street corners breaking kneecaps to collect their payments. They wear three-piece suits and work on Wall Street, where they make hundreds of millions in total compensation and head financial institutions like JPMorgan Chase, Citigroup, Bank of America and American Express.”

Per the statement, the pair claims that the median credit card interest rate is currently 21 percent and argues that there is no reason for banks to charge such a high interest rate.

“There is no justifiable reason that a person—no matter their background—should be charged an interest rate higher than 15 percent,” Ocasio-Cortez said. “Rates higher than 15 percent are predatory debt traps, designed to keep working families underwater and allow predatory companies to enrich themselves off the misfortune of others.”

Like many bad ideas, this one sounds good on the surface. Bankers make an easy target for populists and everyone hates paying credit card bills.

In reality, however, high interest rates on credit cards do serve important purposes. One of the most important purposes is to discourage consumers from carrying even larger amounts of revolving debt. By March 2018, Americans carried $1.027 trillion in debt on their credit cards. Without high interest rates, the amount of indebtedness would be even higher.

By making revolving credit expensive, banks encourage consumers to only charge to their cards what they can pay off at the end of the month. If you pay off your balance every month, you don’t pay any interest at all.

High interest rates also signal the risky nature of credit card loans. Credit card default rates are down from a high of 6.7 percent during the Great Recession, but credit card payments are often one of the first things to stop when times get hard. With an average balance of $6,354, banks can be left on the hook for many thousands of dollars when credit card holders default.

Even though credit card debt can be hazardous to your financial health, credit cards are a near-necessity of modern life. The availability of high interest rate cards allows many people who are considered credit risks to get a card that would not be available to them otherwise. If the Sanders-Ocasio-Cortez bill becomes law, the effect would be a shortage of credit for many Americans. It is axiomatic that price controls, such as an interest rate cap, lead to market shortages.

In the early days of credit cards, the now-ubiquitous plastic payment devices were used almost exclusively by the wealthy. It has only been in recent decades that credit cards became commonplace among the middle- and lower-income groups. Under the Democratic proposal, it’s likely that the trend of easily available credit for the common man would be reversed.

Some would argue that reducing credit card use would be a good thing. I have sympathy for this argument as a guy who has paid off thousands of dollars in credit balances more than once. Credit cards are a financial tool that can be very destructive if used improperly.

The problem with the Bernie-AOC solution is that government intervention in the markets would inhibit people who need access to credit from getting it. Rather than reducing credit card use overall or capping interest rates, a better solution would be to teach consumers to use credit responsibly.

Until then, I'm sure that Bernie and AOC would give voters the guarantee, "If you like your credit card, you can keep your credit card."

Originally published on The Resurgent

Finland’s Universal Basic Income Yields Disappointing Returns

In what must be one of the most unsurprising stories of the day, researchers said that Finland’s trial universal basic income program did not lead to higher employment. Although the program did not lead more people to productive work than traditional social entitlements, participants did report that they were happier and less stressed.

In recent years, the concept of universal basic income (UBI) has become popular among some economists as an alternative to means-tested welfare programs and social safety nets. The idea is that a country would guarantee every citizen a minimum income level without meeting qualifying factors such as age, income, or dependents.

In theory, this strategy would encourage upward mobility and decrease self-defeating behaviors that are often associated with government entitlement programs. For instance, some entitlement programs have income caps that discourage recipients from getting jobs. Programs that are based around payments to support dependent children encourage recipients to have more out-of-wedlock children. By eliminating these requirements, it was hoped that the UBI would encourage people to make good decisions and improve their lives. Because the UBI also has no time limit, proponents argued that it would help people survive while they retrained for new jobs in industries that were not affected by automation.

Although first proposed in 1516 by Sir Thomas More, the UBI faced its first real test in Finland. Under a pilot program that ran from January 2017 through December 2018, the Finnish government gave 2,000 unemployed Finns a flat monthly payment of 560 Euros ($634) through the Social Insurance Institution (Kela). The trial was watched with interest by economists around the world and now that the results are in, they are disappointing. Per the BBC, Miska Simanainen, one of the Kela researchers behind the Finnish study, said that participants in the study were no more likely to find work than those in a control group that was given traditional unemployment benefits.

If this result was not surprising, neither is the fact that participants who received the free money with no strings attached liked the program because it made their lives less stressful. Tuomas, an out-of-work newspaper editor, said, “I am still without a job. I can't say that the basic income has changed a lot in my life. Okay, psychologically yes, but financially - not so much.”

Mr. Simanainen stopped short of calling the experiment a failure, saying, “This is not a failure or success - it is a fact, and [gives us] new information that we did not have before this experiment.”

It isn’t clear whether the UBI payments would save Finnish taxpayers money over the cost of traditional entitlement programs. It is possible that unconditional payments could reduce the bureaucracy associated with registering and following up with recipients of entitlement programs.

It does appear, however, that UBI, like other government programs, removes the incentive of recipients to find work. By funding a minimal income level that makes unemployed Finns more comfortable in their unemployment, the government makes it easier for them to remain unemployed.

UBI payments also promote a culture of getting paid for doing nothing. As Ulrich Spiesshofera Finnish business executive, told the Financial Times prior to the trial in 2016, “economic rewards should be based on actually creating economic value.” UBI payments are merely one more way of transferring wealth from those Finns who work to those who do not.

It is not clear what the next step is for UBI advocates. There are smaller scale trials being conducted in a Kenyan village and the city of Utrecht in the Netherlands. However, these programs are on a smaller scale than the Finnish study and the results will not be known for several years. The Kenyan study lasts until 2028. A Swiss referendum on UBI in 2016 was opposed by 77 percent of voters.

In the United States, a Gallup poll conducted in 2018 found that 48 percent of Americans support the idea of a universal basic income. Support was strongest among Democrats (65 percent) and 18-35-year-olds (54 percent). The cost of providing all working-age Americans with a $10,000 salary would be more than $3 trillion annually.

Unless and until more encouraging results come out of future trials, it will be difficult for UBI advocates to persuade policymakers and voters that the universal basic income is an idea whose time has come. That is unlikely to stop them from trying, however.

Originally published on The Resurgent

Why Price Gouging Can Be A Good Thing

In the wake of storms like Hurricane Michael, there are often stories of people who flock into the area carrying loads of supplies such as food, clothes, bleach, generators, fuel and batteries. Often these people are on missions of charity, but others are entrepreneurs who truck in provisions to make a quick buck. Although these profiteers are easy targets for scorn, they do serve a useful purpose for the storm-ravaged communities.

When Hurricane Harvey hit Houston last year, I lived in a small town on the outskirts of the city. While my house was spared serious storm and flood damage, many others in my community were not so lucky. Flooding was extensive and many homes were damaged or destroyed. Even for those who didn’t lose their homes, there were widespread power outages as well as shortages of gasoline and other supplies. When nearly every road is closed, it can be difficult or impossible for stores to get new stocks of food and fuel.

In the wake of the 2016 storm, my family and I volunteered at a FEMA shelter operated by several local churches. We received some supplies from FEMA and the Red Cross, but the majority of the relief items that we received were from individuals and groups around the country. In particular, churches provided truckload after truckload of food and clothes for our local storm victims.

The way the shelter operated was that we would take relief supplies in through the back door and give them away through the front. Donations were unloaded and sorted into categories. We would then use the items to make up donation boxes that were given away. At our shelter, we gave away most supplies to anyone who wanted them, no questions asked.

While this was altruistic and a service to the community, it also made abuse easy. Many locals brought donations to the shelter, but we also noticed some people who would show up every day to pick up food and other items. In some cases, we suspected that they were “shopping” rather than picking up what they needed to survive.

The problem was that when items are given away free, it creates an abnormally high demand. People who might not really need the food would be tempted to get some just because it was free for the taking.

This problem is illustrated by the need for bleach after the hurricane-related floods. In a hot, humid climate like Houston, mold grows quickly. If you have a house that is wet from floodwaters, you need bleach to kill mold in the wet areas before it spreads to other parts of the house. Bleach was in high demand after Harvey.

When shipments of bleach arrived at the shelter, they went quickly. We limited the distribution of bleach, as well as other hard to find items like tarps, to one per family, but there is the possibility that some of these items went to people who didn’t really need them. While charging storm victims for bleach would have seemed cruel, it would also have helped to ensure that the supplies went to the people who needed them most.

In the aftermath of Hurricane Michael, Duracell and other companies have joined relief organizations in shipping truckloads of supplies into affected regions, but with hundreds of thousands of people in storm-damaged areas, how can they make sure that the supplies get to the people who need them? When Duracell gives away batteries, they might well be handing them out to people who have a stockpile of batteries at home. Some might have generators or still have electric service at their home.

There is definitely a place for charity, but there is also a place for the entrepreneurs that people call price gougers. If storm victims can’t find bleach or batteries at a shelter or if the local stores are out of generators, they might be able to get these items from the entrepreneurs who drive in motivated by profits.

Supply and demand are elastic in the wake of a natural disaster. The demand for generators and batteries increases dramatically when the power goes out, especially when it may be out for weeks as one of my friends in Florida expects. If the price doesn’t go up, people will stock up on supplies on the chance that they may need them. In a post-hurricane situation, who knows when the supplies will be available again?

The flip side is that if the price is bid up, buyers who don’t really need the items won’t buy them. If a pack of batteries that generally costs $5 is selling for $20 after a storm, speculators will exit the market and only people that really need batteries will purchase them. There is also an incentive not to waste batteries if you just paid $20 for them.

Natural disasters introduce scarcity and the way that markets deal with scarcity is to adjust prices. Allowing prices to rise after storms seems cruel and selfish, but it helps to ensure that the people who really need supplies are the ones who get them. When prices are not allowed to adjust, shortages often result. Low prices are worthless if there are no products to buy.

God bless the people and the companies like Duracell that are helping hurricane victims, but we should also be thankful for the price gougers. They serve an important role in distributing relief items, but they had better have a thick skin.

Originally published on The Resurgent

President Trump: 'Without Trade, We'd Save A Hell Of A Lot Of Money'

“Our trade deficit ballooned to $817 billion,” Donald Trump told steelworkers in Granite City, Illinois, this week. “Think of that. We lost $817 billion a year over the last number of years in trade. In other words, if we didn't trade, we'd save a hell of a lot of money.”

When I heard the clip from the president, the first response that came to mind was that of the high school principal played by James Downey in Billy Madison:

What you've just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul.

Downey’s comment may be extreme, but President Trump’s soundbite is one of the most astonishingly ignorant things I have ever heard a sitting president utter.

Sure, sitting presidents have misspoken. Barack Obama had his “57 states” gaffe. The Bushes were no strangers to mush-mouthed soundbites either. One of my favorites was when Bush-41 tried to say, “Nitty Gritty Dirt Band” and it came out “nitty ditty nitty gritty great bird.” Even a polished actor and politician like Ronald Reagan was not immune to a slip of the tongue. The Gipper’s jokes are sometimes taken for gaffes, but when he said, “We are trying to get unemployment to go up, and I think we're going to succeed,” it probably was not intentional.

Those gaffes were good for a laugh, but no one really thought that they didn’t know the real number of states, the real name of the band or wanted unemployment to increase. In the case of President Trump, however, it seems likely that he really does believe what he says about international trade. After all, he's been saying the same things for years.

There is so much wrong with the president’s one remark, never mind the entire speech, that it is hard to address the entirety of his error within a short article. To begin, his figure on the size of the trade deficit is factually incorrect. The Bureau of Economic Analysis put the 2017 trade deficit at $568 billion. President Trump seems to have pulled the $817 billion figure from where the sun does not shine.

It is also astonishing that President Trump seems to consider money spent on trade to be “lost.” Is money lost when you spend it on groceries or when you buy a new car or house? International trade is no different. The idea that trade money is “lost” is nonsensical.

Trade is a voluntary exchange. No one has to enter into a trade deal that they don’t believe is to their benefit. If the price of milk is too high, don’t buy it. Go to a different store. It’s no different with international deals to buy Chinese steel, German cars, Mexican tequila or Saudi oil. If it’s a bad deal, go to a competitor.

The president’s statement that “if we didn't trade, we'd save a hell of a lot of money” is technically true, but also nonsensical. If we didn’t trade, we would have lots of dollars, but we can’t eat dollars or live in them or drive them to work. (Perhaps you could wear them if you stitched them together into clothes, but I digress.)

There would be pros and cons to hoarding cash and not engaging in trade. The downside to stockpiling a houseful of green paper is that you don’t have other things that you may want or need. It would be a case of “no phones, no lights, no motorcars, not a single luxury” as a famous ballad put it. On the plus side, you could use all that cold, hard cash to play Scrooge McDuck (hat tip to the Cato Institute’s Scott Lincicome) or reenact the sex scene from Indecent Proposal, but that would probably get old after a while - like when you got hungry - and I suspect that rolling around on piles of  currency really isn't as comfortable as television would have us believe.

President Trump may actually believe that not trading with foreign countries would Make America Great Again. After all, if there were no international trade, there would be no trade deficit and the trade deficit has been Mr. Trump’s bogeyman for years. With no trade, zero equals zero and we have trade equity.

Mr. Trump doesn’t address the problem of comparative advantage. Not all products are made in the United States just as any country doesn’t make every conceivable product. Some countries have a comparative advantage on low-skilled labor that makes them more efficient at building simple products. On the other hand, the US has highly skilled workers that are among the best and most efficient in the world when it comes to high tech products such as aircraft, industrial machines and pharmaceuticals. We also have an abundance of oil and farmland, resources that other countries lack, that allow us to export food and energy products.

With no trade, you’d probably pay more for many commonly imported items, from avocados which come from Mexico to mobile phones assembled in China and South Korea, if you could get them at all. For instance, the US grows avocados domestically, but not enough to meet the demand of 600 million pounds annually. If US farmers shift production to grow more avocados, they would have to stop growing other crops.

But that’s okay since US workers would have less money to spend anyway. Workers in jobs related to imports and exports would face massive layoffs. Those in other industries would also face job and wage cuts as the world slipped into a recession.

The core problem with Mr. Trump’s logic is that a trade deficit is not always bad, and a trade surplus is not necessarily good. Few conservatives would want to emulate Venezuela, but the socialist South American basket case of a country has been running trade surpluses since 1997.

What do trade surpluses and deficits really mean? The legendary economist Milton Friedman, whose humor and eloquence made economics understandable to the masses, once explained that most people, President Trump included, think about trade in a way that is exactly backwards:

When people talk about a favorable balance of trade; what does that term taken to mean? It's taken to mean that we export more than we import; but from the point of view of our well-being that's an unfavorable balance. That means we're sending out more goods and getting fewer in. Each of you and your private household would know better than that. You don't regard it as a favorable balance when you have to send out more goods to get less coming in. It's favorable when you can get more by sending out less.

In other words, the US trade deficit means that Americans are getting more “stuff” from other countries than they are sending abroad. In any other situation, getting more than you are giving in a deal would mean that you are “winning,” to use President Trump’s (and Charlie Sheen’s) phrase. But somehow, we have convinced ourselves that, when it comes to international trade, sending lots of stuff to other countries and getting very little back is a good thing.

I don’t blame the Granite City steelworkers for leaping to support Donald Trump’s protectionism of their industry. I was laid off twice and know how gut-wrenching it can be for the head of a household to suddenly lose his income, but, as Friedman explained, the big government protectionism of steel makes new victims in other industries. Most people just don’t see the jobs being lost because they are dispersed throughout the country rather than concentrated in steel mills.

The steel mill workers can’t be blamed for their self-interest in protecting their jobs, but President Trump can be blamed for a view on trade that is not grounded in reality. Any president, regardless of party, should be expected to have a basic understanding of economics. Republicans rightly criticize Bernie Sanders and Alexandria Ocasio-Cortez when they say outlandish and ignorant things. Republican leaders, especially the president’s advisors, have a duty to confront and educate the president about economics when he starts sounding more like Senator Sanders than President Reagan.

Originally published on The Resurgent

Reince Priebus says America should 'make everything'

From time to time, people in power will make a statement that is economically illiterate. Occasionally, that person will be a Republican. Reince Priebus was that person when he appeared on the Hugh Hewitt radio show earlier this week.

On Wednesday, Priebus, who is the incoming White House Chief of Staff for President-elect Donald Trump, told Hewitt, “We can make everything here, or our goal should be to try to make everything we can in the United States so that the money gets put in the pockets of Americans.”

On the surface, the statement is innocuous. It seems to be a simple statement in support of American business and manufacturing. After all, who wouldn’t want American manufacturers to produce everything domestically? It would eliminate the need for imports and erase the trade deficit.

The problem is that Priebus doesn’t understand competitive advantage. Competitive advantage allows companies or countries to produce a good or service that is preferable to that of its competitors. If a country can produce a product at a lower cost, a higher quality or both, then it will hold an advantage over its competitors. It would be impossible for a country to hold a competitive advantage on every product and service, just as it is impossible for an individual to excel at everything.

If Priebus fulfilled his dream of America producing everything, the result would be that many of these products would be inferior and/or more expensive than competing products made elsewhere. American products are often expensive for several reasons. American labor is expensive thanks to unions, regulations like the Affordable Care Act and the high American standard of living. The cost of real estate is high in many manufacturing areas of the US. The US corporate tax rate is the highest in the free world.

If every product was made in America, the economy and market would not be efficient. Some products would be more expensive or lower quality than products that could be purchased elsewhere. Either heavy restrictions would have to be placed on the free market to keep people from buying imported goods or inefficient American producers would be forced out of business. American consumers would be forced to pay more or buy shoddy products in many cases. Alternatively, the goods might be produced at lower costs by machines than by American workers.

For an example of why Priebus’s utopian dream wouldn’t work, look no further than Donald Trump’s deal with Carrier. Trump convinced the company not to move 800 jobs to Mexico, only to find that the company was planning to automate its Indiana plant and that many jobs would be lost anyway.

Mexico has a competitive advantage in building the heating and air conditioning units that Carrier produced in Indiana. The company said that it expected to save $65 million per year by moving the plant to Mexico. When a combination of political pressure and a $700,000 annual tax credit persuaded the company not to move, it didn’t change the economic advantage that Mexico held for the low-tech product. Automation and lower labor costs levelled the playing field.

In contrast, Carrier’s parent company also owns several aerospace companies, including Pratt & Whitney and Sikorsky. These are high tech manufacturing companies that are profitable and adding jobs, even with plants in Connecticut, one of the most expensive states in the union. America holds a competitive advantage in aerospace manufacturing, partly due to a highly skilled labor force.

What Priebus is actually calling for is less economic choice. To allow American companies to make everything without going broke, it would require the United States to isolate itself from competing manufacturers. That is essentially the purpose of the protective tariffs proposed by Donald Trump and Bernie Sanders.

Priebus’s comment is a disturbing confirmation that Republicans are rejecting the free market in exchange for protectionism and isolationism. After eight years of stagnant growth and wages under President Obama, the desire to revitalize the country is understandable, but shutting America off from the world is not the answer.

A better answer would be regulatory and tax reform to make American companies more competitive. The government should also allow companies to pursue niches where they have an advantage as well as to cut costs where they aren’t competitive. As the legendary economist Milton Friedman once said, “Underlying most arguments against the free market is a lack of belief in freedom itself.”

Originally published on The Resurgent

Carrier to automate and eliminate jobs

The Carrier deal in which Donald Trump negotiated with United Technologies to keep the company from moving jobs to Mexico continues to unravel. One of the terms of the deal was that Carrier would invest $16 million in its Indiana facility, but now it appears that much of that investment will involve automation that will ultimately cost many workers their jobs.

Trump had claimed that the deal would save “over 1,100” jobs in Indiana. Union leaders and Carrier had previously said that only about 730 manufacturing jobs would stay in the US as a result of the deal. Now it appears that many of those jobs have been saved only temporarily.

CNN Money reports that Greg Hayes, CEO of Carrier’s parent company, says that automating the plant is needed to keep it profitable. “We're going to...automate to drive the cost down so that we can continue to be competitive," Hayes said. "Is it as cheap as moving to Mexico with lower cost labor? No. But we will make that plant competitive just because we'll make the capital investments there. But what that ultimately means is there will be fewer jobs.”

Hayes had previously talked about the reasons for moving Carrier’s operations to Mexico on “Mad Money with Jim Cramer.” “We have a very talented workforce in Mexico,” he said. “Wages are obviously significantly lower. About 80% lower on average. But absenteeism runs about 1%. Turnover runs about 2%. Very, very dedicated workforce.” Mexican workers make about $3 per hour while Carrier’s US employees can earn more than $20 per hour.

“Automation means less people," Hayes said on CNN. "I think we'll have a reduction of workforce at some point in time once they get all the automation in and up and running." At this point, there is no indication of how many jobs will be lost when the plant automates.

Trump’s difficulties with Carrier underscore the harsh reality of the high tech economy. The biggest threat to manufacturing jobs doesn’t come from foreign workers, but from new technology and robots.

During the campaign, Trump frequently complained that “We don’t make anything anymore.” In reality, manufacturing is still the largest sector of the US economy according to Market Watch. China took the lead in manufacturing in 2010, but the US is still the second largest manufacturer in the world. US manufacturing output is near its all-time high.

The problem is that, while manufacturing remains strong, many manufacturing jobs, like those at Carrier, have disappeared. CNN reported that the US has lost 5 million manufacturing jobs since 2000. Some of these jobs were exported to other countries, but many were also lost to automation.

FiveThirtyEight described how rising wages and costs in China have inspired some companies to move their factories back to the US. The factories come back and contribute to the soaring US manufacturing output, but most of the jobs do not.

As the unemployment rate has fallen, many displaced manufacturing workers have shifted into other jobs. In the 1800s, American workers shifted from agricultural jobs to manufacturing jobs. Now another shift is underway from manufacturing to jobs in healthcare, construction and retail.  

Manufacturing jobs won’t totally disappear, but they will be focused into areas where the US has a competitive advantage. Writing in the Wall Street Journal, Greg Ip points out that it wouldn’t make financial sense to keep Carrier’s furnace production in the US. The low tech product can be made more cheaply in Mexico or by robots. If Carrier persisted in using expensive Indiana labor to make these products, the company could eventually go out of business and the factory would close completely.

In contrast, another United Technologies company, Pratt & Whitney, builds high tech jet engines. The skilled labor required in manufacturing these jet engines cannot easily be farmed out to less developed countries or automated. In fact, Pratt plans to add 8,000 jobs in Connecticut over the next few years and, even before the Trump deal, UTEC had planned to offer retraining and new jobs with its aerospace companies to displaced Carrier workers.

The economy is changing and American companies have to be willing to change with it or perish. There is no way to put the genie of automation back into the bottle.

 Originally published on The Resurgent

Venezuelan Hyperinflation Means Money No Longer Fits Wallets

David Holt/Wikimedia

The crashing Venezuelan economy has put consumers between a rock and a hard place. Shortages have caused prices to increase dramatically while, at the same time, the value of the Venezuelan currency has plummeted. The result is that wallets are no longer large enough to contain the wad of banknotes that are necessary to buy even small, everyday items.

According to the Washington Post, the exchange rate is so bad that the largest Venezuelan banknote, a 100 bolivar bill, is worth only about 5 US cents on the black market, far less than the official exchange rate of 10 bolivars to the dollar. That means that common items are increasingly out of reach for Venezuelans. A pack of cigarettes currently sells for about 2,000 bolivars, the current equivalent of $1 US.  This transaction alone would require the exchange of 20 of the 100 bolivar bills.

The large number of banknotes required for a typical shopping trip makes it difficult to carry enough money in a wallet or purse. Many Venezuelans are increasingly turning to electronic transactions to avoid carrying large amounts of cash. For others, the large quantity of paper money means using larger plastic bags or backpacks to transport their bankroll.

  

Shortages have caused the price of food to skyrocket even as the money lost its value. As food riots rocked the country in August, CNN reported that staples such as flour, milk and pasta can cost a month’s pay… if you can find them at all.

In Venezuela, there are three ways to buy products. First, there are official government stores where the price is subsidized and kept low. Economic law dictates that artificially low prices cause abnormally high demand. The result is that people flock to the government stores and rapidly clear their shelves. Products disappear quickly even with rationing. Customers at government stores can only shop on certain days of the week. There are long lines and, when you get to the front, there are no guarantees that there will be anything left to buy.

Venezuela also has private stores. Since these stores are not subsidized by the government, prices are higher. Private stores still have to contend with the shortages as well.

“I've been waiting in line since 3 a.m. and have only managed to get two tubes of toothpaste, so, I guess I'm going to have to eat toothpaste tonight,” Monica Savaleta, a 19-year-old dancer, told CNN.

There is a third option, the black market. Buying and selling on the black market is illegal and can be dangerous. It is also very expensive compared to the legal stores.

“I make between 12,000 and 15,000 bolivars a month,” Savaleta said. “If I buy from the [black market] bachaqueros, my whole salary is blown on three kilos [6.6 pounds] of rice.”

Business Insider listed several black market prices for common grocery items. Fresh milk is impossible to find, so many used powdered milk which costs $700 US for a 2.2-pound box. A dozen eggs fetch $150 US. A box of pasta costs more than $300 US. Watermelons are $40 US each. A one-pound bag of coffee is $200 US. To put this in perspective, the Venezuelan minimum wage is about 15,000 bolivars per month, about $1,500 US. More than three-quarters of Venezuelans live in poverty according to the Wall Street Journal.

Venezuela’s situation is known as “hyperinflation,” a condition typically defined by economists as monthly inflation of greater than 50 percent. At that level, an item that costs $1 on January 1 would cost $130 a year later. The Venezuelan inflation rate has been estimated at between 720 percent and 2,200 percent.

There have been 55 other cases of hyperinflation, all of them since the onset of the 20^th century. The most famous was in the German Weimar Republic in the 1920s that eventually led to the rise of Adolf Hitler. As with many cases of hyperinflation, war and financial mismanagement led to the onset of the Weimar crisis. Germany had financed its war effort with debt, which was compounded after the war with reparations payments to the Allies. The Reichsbank began monetizing the debt, a process by which the central bank issued bonds to cover its debt which were then purchased by the same central bank. Using this process, the government could borrow money without having to repay it. The German government also began printing more marks to finance domestic spending.

In Venezuela, the economic crisis is primarily due to government policy and the oil slump. Former president, Hugo Chavez, a protégé of Fidel Castro, nationalized large swaths of Venezuela’s economy and funded much of the country’s consumption with foreign debt according to The Guardian. When the price of oil crashed, so did Venezuela’s revenues. As a result, Nicolas Maduro, Chavez’s successor, was forced to use the country’s gold reserves to service the national debt.

The Maduro government also printed more money, which contributed to the devaluation of the currency. Another basic economic law says that when there is more of something, it is valued less. More bolivars on the market made each individual bolivar less valuable.

Also contributing to the problem is corruption. Transparency International rates Venezuela as the ninth most corrupt country in the world. While ordinary Venezuelans suffer, Maduro and his cronies are doing well. The NY Post noted last spring that an estimated $2 billion has been exported from the country to private banks. The Maduro government is accused of bribery, money laundering, siphoning funds from the state-owned oil company and even drug smuggling.

In 1923, the Weimar hyperinflation ended when the German Reichsbank stopped monetizing the national debt and stopped printing new money. The Reichsbank pegged the value of the Papermark at 4.2 trillion to $1 US according to the Mises Institute. A new currency, the Rentenmark, was introduced with a value of 1 trillion Papermarks to 1 Rentenmark.

At this point, there is no end in sight to the Venezuelan crisis. A resolution will require a change in government policy and may require a change in the government itself. Dissatisfaction and food riots may eventually turn into a revolution or coup against the country’s ruling class. Until reforms are made, the best the government can do to deal with the crisis is to print money in ever larger denominations. 

Originally published on The Resurgent

Unemployment extension may hurt long-term unemployed

Democrats and Republicans are currently locked in a battle over how to pay for a reauthorization of the extension for long term unemployment benefits. For the most part, the debate is only over how the extension of unemployment benefits should be paid. As PBS reported, most Republicans don’t oppose the unemployment extension, but favor offsetting the increased spending with cuts in other budget areas. Little, if any, attention has been given to whether the unemployment benefits should be extended at all however. The Senate passed its version of the plan on January 7, but the bill faces an uncertain future in the House. Politically the extension is popular, but many economists are not sold on the benefits of the extension.

According to the Center for Budget and Policy Priorities, unemployment insurance typically lasts for 26 weeks. The Emergency Unemployment Compensation program extended benefits for an additional 14 to 47 weeks. The number of additional weeks varied by state and was based on state unemployment rates.

In December 2013, New York Times columnist Paul Krugman attacked the idea that extending unemployment payments may be harmful to the unemployed. Krugman claims that much of the research on the effects of unemployment insurance is decades old and that ending unemployment insurance would not create more jobs. In Krugman’s view, the economy is limited by demand, not supply, “and slashing unemployment benefits — which would have the side effect of reducing incomes and hence consumer spending — would just make the situation worse.”

There are some problems with Krugman’s analysis. As Krugman himself notes, unemployment insurance typically pays between 40 and 50 percent of the worker’s previous pay. This hardly seems enough to stimulate significant demand. In fact, such benefits are more accurately described as subsistence payments that merely help the unemployed to survive. About.com compiled a list of maximum unemployment benefits by state. The highest was Massachusetts at $653 per week. The lowest was Mississippi at $235. Georgia’s maximum weekly benefit is $330.

Krugman may also be off base about the number of available jobs. In October 2013, the National Federation of Independent Businesses reported that 20 percent of business owners had job openings that they could not fill. This begs the question of why business owners cannot fill jobs in an economy with unemployment rate that has been chronically above seven percent for the past five years. In reality, the employment situation is even worse than reflected in the unemployment rate. As previously reported by Examiner, the civilian labor force participation rate has continued to fall even as the unemployment rate declined. This indicates that much of the decline in the unemployment rate is due to people leaving the work force.

In contrast to Krugman’s claim that more demand is needed to stimulate the economy, the NFIB survey found that poor sales ranked third when business owners were asked what the most important problem facing small business. Government requirements and red tape was the selected as the worst problem. Taxes was rated a close second.

Part of the answer to the business staffing problem probably lies in the number of long-term unemployed. According to the November 2013 employment report from the Bureau of Labor Statistics, the most recent available, more than 53 percent of the unemployed have been out of work for more than 15 weeks (almost four months). Thirty-seven percent have been out of work for more than 27 weeks (almost eight months).

A January 8, 2014 report in CNN Money cited a report by the Council of Economic Advisors that found that workers who had been unemployed for less than five weeks had a 31 percent chance of finding a new job or returning to their old one. At 27 weeks, the odds of becoming employed again drop to 12 percent. For those who have been unemployed for more than a year, the chances of finding a job are only nine percent. In the current economy, it takes about four weeks for most workers to either find a new job or give up their search.

When workers are unemployed for more than a year, it becomes very difficult to find a job. A worker’s skills deteriorate, professional licenses and certifications may lapse, and prospective employers begin to question their work ethic, health, or otherwise try to determine why they haven’t worked in so long. After more than a year of unemployment, many workers move from being unemployed to being unemployable.

It might seem counterintuitive that the unemployed would reject a job to maintain a meager unemployment payment, but Pete, a union electrician, explained the thinking in a piece he wrote for an About.com series of stories of the unemployed. Pete writes, “I'm used to bringing home $1,500 gross a week and now with unemployment I bring home $425 a week…. I keep looking for work outside of my trade, but all there is are 10 dollar an hour job[s] or less or part time. Now why would I get a $10 an hour job working 40 hours a week without insurance and benefits when I make that being unemployed?”

In 2010, the Wall Street Journal quoted an economics textbook written by Lawrence Summers, at the time President Obama’s chief economic advisor. In 1999, Summers had written, “The second way government assistance programs contribute to long-term unemployment is by providing an incentive, and the means, not to work. Each unemployed person has a 'reservation wage'—the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase [the] reservation wage, causing an unemployed person to remain unemployed longer.” Pete’s $425 weekly unemployment payment has obviously increased his reservation wage above $10 per hour.

Other government benefits that workers might receive in addition to unemployment payments also drive up the reservation wage. Last September, Examiner reported on a Cato Institute study that found that welfare payments in 12 states were worth more than a minimum wage job. The Affordable Care Act’s Medicaid expansion extends government health insurance to the poor in states that chose to enact the expansion. Other types of government assistance include food stamps and disability payments, both of which reached record highs in 2013.

In contrast to Krugman’s claim that studies critical of the Obama Administration’s claims about the stimulative characteristics of unemployment payments are “decades old,” the New York Fed published a detailed paper on the subject in October 2013. This study looked at bordering counties in different states and used data from the Great Recession’s high levels of unemployment and the Obama extension of emergency unemployment payments. Since the adjoining cross-border counties were part of the same labor market, a major difference in unemployment rates was traced to state unemployment insurance laws.

The study’s authors found that “having access to longer spells of benefits improves the outside option of workers and leads to an increase in the equilibrium wage. This lowers the accounting profits of firms and reduces vacancy posting to restore the equilibrium relationship between the cost of firm entry and the expected profits.” In layman’s terms, extending unemployment benefits for longer periods causes wages to rise, which in turn causes fewer new jobs to be created.

The study shows that “unemployment benefit extensions can account for most of the persistently high unemployment after the Great Recession.” The data showed that “border counties with longer benefit durations have much higher unemployment, despite the potential benefits of spending” money received from unemployment payments. The negative effects of higher unemployment outweighed any increase in demand.

In the end, extending unemployment payments allows workers like Pete to maintain a high reservation wage which keeps them unemployed longer, possibly to the point that they are no longer employable. If Pete took a lower paying job than his old one, he might lose money initially, but he would begin rebuilding his resume with recent job experience. He could use a low-paying entry level job to restart his career and work his back up the career ladder. By staying on unemployment, Pete goes nowhere. He is trapped at $425 per week.

Several years ago I was laid off when my company lost its main customer. I was unemployed for five weeks before I started work with another company. My pay at the new company was significantly less than I had been receiving in unemployment compensation, especially after insurance costs were deducted. For a time, I worked a second job to supplement my primary paycheck. Even then, we had to use credit cards to make ends meet. Before too long, however, I received a pay raise. Things got even better when my experience led to another job offer with even better pay.

While not everyone who is unemployed chooses to keep receiving benefits over taking a lower paying job, the expiration of unemployment benefits may well have the effect of lowering the reservation wage for many of the long-term unemployed. This would be an incentive for people like Pete to restart their lives and careers.

Originally published on Atlanta Conservative Examiner

Obama and income inequality

Source:  http://elsa.berkeley.edu/~saez/saez-UStopincomes-2012.pdf

Plain English analysis:  http://money.cnn.com/2013/09/15/news/economy/income-inequality-obama/index.html

Unemployed Americans increase by 4 million under Obama

Behind the math:

The population of the United States in July 2009 was 306.77 million according to

http://www.multpl.com/united-states-population/table.  The current US population is estimated at 311.6 million.  Multiplying the population by each year’s respective labor rate yields approximately four million people.

Gun shortage shows future of Obamacare

The news that the threat of new restrictions on the Second Amendment has spurred a sharp increase in the number of Americans seeking to buy guns should not come as a surprise to people who consider the incentives created by the actions of government. In many ways, the run on guns reported last week by Examiner can shed light on what can be expected as the reforms of the Affordable Care Act go into effect.

In economic terms, the run on guns is the result of an artificial increase in demand. This is driven by the threat of interrupting the supply of guns, particularly assault weapons like the AR-15. People who think that they might want to own an assault rifle are buying one now, while they are still legal, rather than waiting.

The effect of this increased demand is two-fold. Some retailers, like the pawn shop in Cartersville, increase the price of their AR-15s to react to the increased demand. As the price of the guns increased, more and more buyers found themselves priced out of the market. Eventually the price and level of demand would find equilibrium, where the number of guns and the number of buyers would be equal.

Other stores, like Atlanta’s Bass Pro Shop and the Barnes Store in Carrollton, that did not increase their prices to reflect the new levels of demand, found that their stock of the guns was quickly depleted, leading to a shortage. The price that they charged was based on the old, lower level of demand so there were too many buyers for the supply of guns.

The lessons on supply and demand learned from the increased demand for guns apply directly to the changes that are forthcoming in the market for healthcare. When the Affordable Care Act goes into full effect next year, the Congressional Budget Office estimates that there will be an additional 14 million Americans who become covered by health insurance. This represents a massive increase in the demand for health care services. This will be a permanent increase in demand rather than a temporary one as with the gun buyers.

The assumption made by the architects of the Affordable Care Act was that most of America’s uninsured were young people who chose not to purchase insurance because they were healthy. It was believed that these young people would purchase health insurance policies to comply with the law, but then not use them. In effect, the young and healthy were being forced to purchase insurance to subsidize the older and sicker people.

The assumption that new insureds will not use their insurance is probably not a good one. The Kaiser Foundation estimates that by 2016 the average annual premium for an individual health insurance policy would be approximately $5,000. For a family, the average premium would be $12,500. The national average salary is $42,979 according to the Social Security Administration. This means that 11 percent of the average individual’s salary will go to pay for health insurance. If the worker is the single breadwinner supporting a family, health insurance costs will eat up nearly 30 percent of his income. (In some cases, these insurance premiums will be paid in part by government subsidies. The Kaiser Foundation offers a calculator to estimate premiums and subsidies here.) It seems likely that if a person is forced to spend thousands of dollars each year for insurance, they will use it as much as possible. They will avail themselves of the preventive care services in their plans and go to the doctor for each sniffle, cough, sneeze and stubbed toe. This will translate into almost immediate shortage of doctors.

The dramatic increase in demand for health care services will disturb the equilibrium in the market. In a free market, the increase in demand would lead to an increase in prices. In the real world, health care is not a free market. Prices are already somewhat controlled by the government, through reimbursements for Medicare, Medicaid and Social Security, and by insurance companies with negotiated rates.

There are several possible responses to the increased demand. The most obvious would be to increase the number of doctors to match the new demand. The problem is that doctors take years to train. Medical school takes four years after obtaining an undergraduate degree. After medical school, new doctors do a one year internship, followed by four to six years of residency, depending on their area of specialization. Essentially, it takes a decade to fully train a doctor, not counting the undergraduate degree. Even if we start training multitudes of new doctors now, they will not fully enter the system for another ten years. To cut the training time short would sacrifice the quality of the education and the depth of experience.

A second possibility would be to allow doctors to raise their prices. As with the AR-15s in the pawn shop, when prices rise, more buyers find that they don’t really need that product after all and demand falls. To some extent, insurance companies are trying to control the cost of health care by using increased cost sharing already. Many health policies are moving away from flat copayments to a model where the insured pays a percentage of the cost of their care. In theory, this means that the insured will shop for better prices and use less care. In reality, few people know how much their care will cost until they have already received it.

The problem with letting prices increase is that one of the stated goals of the Affordable Care Act was to reduce the cost of health care (or to at least slow its rate of increase). Higher prices are certain to be unpopular with voters as well as politicians. Prices are already starting to rise because of new coverage mandates and community rating according to a study by the American Academy of Actuaries detailed in Forbes.

The other alternative is for the government to impose price controls. The effect of price controls can be seen in the gun retailers who maintained the price of their AR-15s below the actual market rate. High demand means that there are not enough guns, or health care, to go around. Doctors will not accept new patients. Existing patients may not be able to get an appointment when they need one. Waiting rooms will overflow and wait times will be long. Patients who are truly sick might not be able to see a doctor when they really need one.

Think this can’t happen? It already has.

Because government reimbursement rates for Medicare patients are below market rates, there is already a shortage of doctors for Medicare patients. The Atlanta Journal reported last year that many Georgia retirees are unable to find a doctor who will accept Medicare. The problem is not limited to Georgia, however. According to the New York Times, many doctors around the country no longer accept Medicare. The Times notes that there are already thousands fewer doctors than needed and that the problem will be compounded by the new health law and retiring Baby Boomers.

Massachusetts, where Romneycare served as the prototype for Obamacare, is also suffering a severe shortage of many types of doctors. The Associated Press reports that seven of 18 medical specialties were in critical or severe shortages in 2012. These include shortages of basic specialties such as family medicine, internal medicine and general surgery. Predictably, this means that patients in Massachusetts have long wait times. According to Boston.com, only half of Massachusetts primary care physicians are accepting new patients. Once a patient finally locates a doctor who will see them, the average wait is 45 days for an appointment. In spite of the subsidies in place under the law, half of the respondents still say that affordability is still the most important health care issue.

The problems with government controlled health care are not limited to Medicare and Romneycare. As Examiner reported last year, shortages of health care are common in countries where health care is run by the government. In Canada, the Montreal Gazette reported in 2012 that wait times for cervical, breast and ovarian cancer surgery is three times longer than government bench marks. This is a death sentence for many cancer patients. In England, the Independent reported in 2011 that the National Health Service is openly rationing many types of health care. In 2008, the Daily Mail described how patients were left in ambulances for up to five hours so that hospitals could meet government targets for timely care. One of the most horrifying examples of government health care run amok comes from the Netherlands where CNN reported in 2004 that health officials were working with doctors to create guidelines to kill people with “no free will” including children, the mentally retarded and people in comas. In 2012, Wesley Smith, senior fellow of the Discovery Institute, estimated in the Daily Caller that as many as six percent of Dutch deaths involving end of life career involved doctors intentionally killing their patients.

Around the world, government control of health care costs lives when people are unable to get the medical care that they need in a timely manner. It seems that no government and no commodity, whether it is health care or guns, is immune to the economic laws of supply and demand.

Originally published on Examiner:
http://www.examiner.com/article/gun-shortage-shows-future-of-health-care-under-obamacare?cid=db_articles

Obama vs. Bush

In the campaign for his re-election, President Obama often points to the fact that the country was in a deep recession when he took office. Obama’s reasoning is that the country was in such a dreadful state in 2008 that it is taking much longer than he originally thought to restore it to prosperity.

It can be instructive to look at the results of the policies of both President Bush and President Obama and compare them side by side. One common criticism of President Obama is his administration’s spending habits. When he recently claimed that “Federal spending since I took office has risen at the slowest pace of any president in almost 60 years,” CNS News and many other outlets fact checked the claim and found it to be untrue. In fact, a chart from USgovernmentspending.com shows that, as a percentage of GDP, President Obama’s spending is at a higher level than at any other time in our history except World War II. While spending did increase slowly under most of George W. Bush’s tenure, it was only in 2008, when TARP was enacted, that it jumped sharply.

A closer look shows that, according to figures from the Tax Policy Center, President Bush ran a deficit for all but the first year of his administration. As a percentage of GDP, Bush’s average deficit was about 2 percent. In dollars, Bush averaged deficits of about $251 billion per year. In contrast, in President Obama’s three years, he has averaged deficits of more than nine percent. In each year of his administration, the federal deficit has been more than $1 trillion. Obama’s average deficit in dollars was $1.33 trillion.

When viewing the data from the Tax Policy Center, it is easy to see why deficits increased so rapidly under President Obama. Even as President Obama was increasing federal spending with his various attempts at stimulus, tax revenues were falling due to the recession. Since spending increased at the same time that the government was taking in less money, the difference had to be made up in borrowing.

Borrowing leads to an increasing federal debt. It is true that the debt increased dramatically under George W. Bush. On January 1, 2001, just before President Bush took office, the federal debt stood at $5.6 trillion according to U.S. Treasury figures. When he left office on January 20, 2009, the debt stood at $10.6 trillion, an increase of almost five trillion dollars. As of June 1, 2012, the federal debt was at $15.7 trillion, an increase of $5.1 trillion. The federal debt has increased by as much under President Obama in three years as it did under Bush in eight. CNS News noted in October 2011 that President Obama had added more debt than all other presidents from George Washington to George Herbert Walker Bush.

The difference is even more stark if the election of 2006 is considered to be the dividing line. In 2006, Democrats took control of both houses of Congress. At the beginning of 2007, as the new Democrats took office, the debt was at $8.6 trillion, which means that three trillion dollars was amassed by President Bush and congressional Republicans. It also means that a staggering $7.1 trillion was borrowed by the Democrats from 2007 through 2012. A chart from USgovernmentspending.com illustrates how radically government spending increased after 2006, when Senator Harry Reid and Rep. Nancy Pelosi assumed control of Congress.

Democrats argue that deficit spending was needed to combat the 2008 recession, but what did taxpayers get for their money? According to the Bureau of Labor Statistics, unemployment averaged 5.26 percent during the Bush years. The average during the Obama years was 9.26 percent.

Even more telling is the fact that the Civilian Labor Force Participation Rate, the percentage of Americans working, has declined from 67.2 percent in January 2001 to 65.7 in January 2009 and to 63.8 percent in May 2012. According to Multpl.com, the U.S. population increased in each of those years, from 285 million in 2001 to 306 million in 2009. The U.S. population now stands at 313 million according to the U.S. Census. This means that fewer total Americans are working now than when President Obama took office even though the population has increased by 7 million. When President Bush left office 20.1 million Americans were working. Today only 19.9 million are in spite of a population growth of seven million.

Even though the Great Recession officially ended in June 2009, five months into Obama’s presidency and three years ago, the economy and the job markets have not recovered. By many measures, the economy is worse today than it was three years ago. The Federal Reserve announced last week that American wealth had decreased by 40 percent between 2007 and 2011. Home prices, which crashed in 2008, have not recovered and continue to decline in many markets. The Wall St. Journal reports that economists are “increasingly pessimistic” and more are predicting that the stagnant recovery will turn into another recession.

Foreign policy was an area where President Bush faced intense criticism. The 9/11 attacks, along with the wars in Iraq and Afghanistan, were the defining events of his time in office. President Obama campaigned against the wars and Bush policies such as the detention of terrorists at Guantanamo Bay. Three years later, the prison there remains open. Many leftists decried Bush’s “illegal wars” in Iraq and Afghanistan even though he sought and obtained congressional approval. President Obama did not notify Congress or seek approval before intervening in Libya.

In fact, Obama has quietly adopted a defense policy that is similar to that of President Bush. Perhaps the biggest difference is George W. Bush’s policy of capturing and interrogating terrorists where Obama primarily targets them from afar with drones. Obama’s personal involvement in targeting terrorists is reminiscent of President Lyndon Johnson’s personal involvement in selecting targets – and placing others off limits - during the Vietnam War. Obama did remove all but a token force of U.S. troops from Iraq, but American forces remain in Afghanistan. Perhaps this, along with his reluctance to embrace uprisings in Muslim countries, is why many Arab countries have an even more negative view of the United States under Obama than they did under President Bush according to Pew Global.

With respect to Iran, President Obama’s record is mixed. Obama resisted toughening sanctions on Iran until he was mandated by Congress. Obama also continued Bush’s program of cyber attacks against the Iranian nuclear program, but leaks from his administration detailing these and other intelligence matters have hurt U.S. interests. Breaches of security from the administration may have led to the life sentence for treason of Shakil Afridi, a doctor in Pakistan who helped the CIA determine bin Laden’s location.

Perhaps the greatest missed opportunity of the Obama era was the president’s failure to capitalize on the 2009 Green Revolution uprising in Iran. A secret memo obtained by the Washington Examiner reveals that leaders of the dissidents had requested American help in toppling the regime. President Obama failed to act and, as a result, the Iranian government is growing ever closer to becoming a nuclear power.

President Obama’s greatest triumph, foreign policy or domestic, was undoubtedly the killing of Osama bin Laden, yet if Obama had his way the programs that generated much of the intelligence that led to bin Laden’s whereabouts would have been closed down years ago. As Real Clear Politics explains, the enhanced interrogation techniques used during the Bush Administration uncovered much of the intelligence that led to bin Laden. Obama should get credit for issuing the order to attack, but President Bush should also get credit for making the attack possible.

Liberals charge that Bush’s defense and war spending is what led to the massive federal debt. A chart from USgovernmentspending.com does show that defense spending in total dollars increased under President Bush, but it has also continued to increase under President Obama. However, between 2002 and 2008, defense spending as a percentage of GDP remained between four and five percent under President Bush. Total defense dollars and defense spending as a percentage of GDP both increased under President Obama. According to the Center on Budget and Policy Priorities, defense spending makes up 20 percent of the federal budget and is dwarfed by Social Security, Medicare, other safety net programs and interest on the federal debt, which together account for 60 percent of the budget.

As Americans head to the polls this November, President Obama is unlikely to ask, “Are you better off now than you were four years ago?” as President Reagan famously did in 1984. Three years after the official end of the Great Recession, President Obama and his policies deserve the blame for the lack of recovery. Obama has yet to offer any new tactic that has not been tried previously without success. On foreign policy, Obama’s position has evolved, but he has displayed little desire to take strong and decisive action, resulting in many missed opportunities.

Read this article on Examiner.com: