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Chronicle of the Conspiracy
Join us as we discover, document, expose and challenge the bad people, the bad institutions and the bad ideas that stand in the way of wealth creation -- and show you how to fight back!

Friday, August 14, 2009

MORTGAGE SCAMDOWN   See? Capitalism will always find a way! From Time:
Brooke Boemio, a bouncy, sweet, recently remarried 31-year-old mom... is doing great during this recession. In fact, she's never had a job that paid as well: she made more than $100,000 last year. Even better, she's willing to show me how messed up the real estate scene is.

Boemio specializes in short selling, in a particularly Vegas way. Basically, she finds clients who owe more on their house than the house is worth (and that's about 60% of homeowners in Las Vegas) and sells them a new house similar to the one they've been living in at half the price they paid for their old house. Then she tells them to stop paying the mortgage on their old place until the bank becomes so fed up that it's willing to let the owner sell the house at a huge loss rather than dragging everyone through foreclosure. Since that takes about nine months, many of the owners even rent out their old house in the interim, pocketing a profit.

Thanks to Brian McCarthy.

Posted by Donald L. Luskin at 10:06 AM | link  


Thursday, August 13, 2009

CAMILLE PAGLIA NAILS IT   From Salon, her critique makes me see that the incompetence of our amateurish president is what's saving the nation from socialist horrors. Maybe the electorate was wise to empower someone so incapable.
...who would have thought that the sober, deliberative Barack Obama would have nothing to propose but vague and slippery promises -- or that he would so easily cede the leadership clout of the executive branch to a chaotic, rapacious, solipsistic Congress? House Speaker Nancy Pelosi, whom I used to admire for her smooth aplomb under pressure, has clearly gone off the deep end with her bizarre rants about legitimate town-hall protests by American citizens. She is doing grievous damage to the party and should immediately step down.

There is plenty of blame to go around. Obama's aggressive endorsement of a healthcare plan that does not even exist yet, except in five competing, fluctuating drafts, makes Washington seem like Cloud Cuckoo Land. The president is promoting the most colossal, brazen bait-and-switch operation since the Bush administration snookered the country into invading Iraq with apocalyptic visions of mushroom clouds over American cities.

You can keep your doctor; you can keep your insurance, if you're happy with it, Obama keeps assuring us in soothing, lullaby tones. Oh, really? And what if my doctor is not the one appointed by the new government medical boards for ruling on my access to tests and specialists? And what if my insurance company goes belly up because of undercutting by its government-bankrolled competitor? Face it: Virtually all nationalized health systems, neither nourished nor updated by profit-driven private investment, eventually lead to rationing.

I just don't get it. Why the insane rush to pass a bill, any bill, in three weeks? And why such an abject failure by the Obama administration to present the issues to the public in a rational, detailed, informational way? The U.S. is gigantic; many of our states are bigger than whole European nations. The bureaucracy required to institute and manage a nationalized health system here would be Byzantine beyond belief and would vampirically absorb whatever savings Obama thinks could be made. And the transition period would be a nightmare of red tape and mammoth screw-ups, which we can ill afford with a faltering economy.

Thanks to several readers who sent links to this.

Posted by Donald L. Luskin at 8:23 AM | link  


Wednesday, August 12, 2009

STATISLEXIA AT THE WALL STREET JOURNAL   This morning:
...the majority of the economists The Wall Street Journal surveyed during the past few days said the recession that began in December 2007 is now over.
But here's what their survey really said. What exactly constitutes a "majority"?

Update... reader John Kranz wants to know "What about the majority that elected President John McCain? Let’s put the WSJ in charge of the FEC!"

Posted by Donald L. Luskin at 9:02 AM | link  

BACK TO PRINCIPLES ON OBAMACARE   Here's John Mackey, the Ayn Rand-inspired CEO of Whole Foods, discussing government health care in this morning's Wall Street Journal.
Many promoters of health-care reform believe that people have an intrinsic ethical right to health care—to equal access to doctors, medicines and hospitals. While all of us empathize with those who are sick, how can we say that all people have more of an intrinsic right to health care than they have to food or shelter?

Health care is a service that we all need, but just like food and shelter it is best provided through voluntary and mutually beneficial market exchanges. A careful reading of both the Declaration of Independence and the Constitution will not reveal any intrinsic right to health care, food or shelter. That's because there isn't any. This "right" has never existed in America.

Even in countries like Canada and the U.K., there is no intrinsic right to health care. Rather, citizens in these countries are told by government bureaucrats what health-care treatments they are eligible to receive and when they can receive them. All countries with socialized medicine ration health care by forcing their citizens to wait in lines to receive scarce treatments.

Although Canada has a population smaller than California, 830,000 Canadians are currently waiting to be admitted to a hospital or to get treatment, according to a report last month in Investor's Business Daily. In England, the waiting list is 1.8 million.


Posted by Donald L. Luskin at 8:18 AM | link  


Tuesday, August 11, 2009

OBAMA ADMITS GOVERNMENT IS INCOMPETENT   So why should it be responsible for your health care? Here's an AP report:
He...disputed the notion that adding a government-run insurance plan into a menu of options from which people could pick would drive private insurers out of business, in effect making the system single-payer by default.

As long as they have a good product and the government plan has to sustain itself through premiums and other non-tax revenue, private insurers should be able to compete with the government plan, Obama said.

"They do it all the time," he said. "UPS and FedEx are doing just fine. ... It's the Post Office that's always having problems."

Thanks to Kate Campaigne Piercy for the link.

Posted by Donald L. Luskin at 5:16 PM | link  


Monday, August 10, 2009

KUDLOW REPLAY   Here's the YouTube video of today's hit. Should I be worried that we're discussing the upside of the stock market with a guy named Kleintop? Now if his name was Kleinbottom, I'd feel better about it.


Posted by Donald L. Luskin at 9:11 PM | link  


Sunday, August 09, 2009

THERE'S JUST THIS ONE LITTLE PROBLEM WITH OBAMACARE...   It's going to hammer labor wages. Here's a technical paper by two scholars from pay and benefits consultant Watson Wyatt [you can download it, but first there's a simple and free registration procedure]. A very well-informed reader who asked for anonymity sums it up nicely:
A lengthy study co-authored by Steven Nyce and Syl Schieber was released today that could well have devastating implications for the health care reform debate if it’s widely disseminated and properly understood. (Syl Schieber is a noted pension/benefits expert with Watson Wyatt. He’s currently chairman of the Social Security Advisory Board, and served on the Clinton Administration’s Social Security Advisory Council of 1994-96.)

In a nutshell, the study models the costs to worker wages of expanding health care coverage, under various health care cost inflation scenarios.

The piece starts by explaining the established linkage between wages and the cost of employer-provided benefits:

But most of the ongoing discussions about who should pay for health care legislation have proposed employer coverage mandates, limitations on health benefit tax preferences, taxation of health insurers and “play-or-pay” provisions, all of which would distribute the costs of expanded coverage among employers and, through them, to their workers in the form of slower wage growth.

(...)

Compensation includes wages, employer contributions to Social Security and Medicare, the cost of any health insurance coverage for workers and their dependents, and contributions to any pension plans, 401(k) plans and other capital accumulation programs. While many of the proposals for health reform are looking to employers to fund much of the cost, there has been little focus on the links among wages, compensation and the cost of employer-sponsored health and retirement benefits. No one has talked much about how higher health benefit costs to employers would affect the paychecks workers bring home.

Health benefit cost inflation has been outpacing inflation and wage growth for some time now. There was a brief respite during the 1990s, when health benefit cost inflation was only 1.5 percentage points more per year than average wage growth for the bottom two-thirds of the earnings distribution. And since that decade, wage growth has fallen to roughly half what it was during the 1990s. Yet there was no comparable drop in compensation over the period. What happened? The health and pension cost share of compensation rose, which drove down cash wages.

After the introductory explanation, the summary cuts to the bottom lines. Bolding as we go:
If we expanded health insurance coverage but our current health cost inflation rate continued unabated, the higher overall costs would result in falling wages at the bottom of the earnings spectrum and very slow wage growth on up the earnings distribution. These dismal wage outcomes would persist over at least the next couple of decades, possibly longer.
Worse yet, Nyce-Schieber note that the creation of Medicare caused health care inflation to rise. If this scenario is repeated, the outlook for wages under proposed health reforms is even worse:
The next scenario considers the real possibility that health inflation increases as a result of expanded insurance coverage offered under reform. Looking back at the implementation of Medicare, this is exactly what happened. This scenario combines expanded health care coverage with accelerated health inflation rates. In this case, the higher costs would drive disposable wages downward across most of the earnings spectrum, although the declines would be steepest for lower-earning workers.
Those are spooky projections, so they are worth examining in some detail. Zipping ahead in the paper and again bolding:
It is natural to assume away potentially adverse results when proposing solutions to broad policy problems. The Medicare story told above offers a good case study of a likely reality if we expand health insurance without controlling health cost inflation. In fact, there is no good reason to assume that expanding health insurance coverage will moderate health costs. Virtually all studies of the relationship between health insurance coverage and consumption have found that coverage generally stimulates consumption. In alternative scenario 2, we assume that cost trend rates from 2000 through 2007 persist until 2030 (see Table 6).

Table 6: Scenario 2, Annual Wage Growth Rate Projections Across Earnings Deciles Assuming Health Insurance Reform Is Adopted Where Such Insurance Is Provided and Financed Through Employers, and Health Cost Inflation Rates Persist

In this case, the financial shock of expanded coverage would be much larger and would drive wages down for nearly the bottom 40 percent of the earnings distribution. The higher health cost inflation rates in scenario 2 suggest that workers at the bottom of the earnings distribution might not recover from the implementation shock of mandated insurance. The base cost would be so high that the higher inflation rate would consume the benefits of any productivity improvements and then some over the next 20 years. Some might be tempted to dismiss this projection as making overly pessimistic assumptions about health inflation in coming years. But readers should keep in mind that the assumptions in scenario 2 are milder than the actual experience reflected in Table 3, in which health cost growth exceeded the assumptions used to develop this projection in 35 of the 45 years for which we have historical data.

Then the authors move to the scenario based on historical experience, in which expanded coverage stimulated additional health care cost inflation:
Health Costs With Increased Inflation Rates and Expanded Coverage

When the Medicare program was started during the 1960s, real wages grew at a compound annual rate of 2.8 percent, while employer-sponsored health benefits costs grew by 8.9 percent per year, after adjusting for inflation. During the 1970s, when demand for services under Medicare intensified, real wages grew by 0.8 percent per year, while employers’ health benefit costs grew by 8.1 percent per year, after adjusting for inflation.[1] Given that the legislation now being proposed to expand health insurance coverage includes no particularly effective mechanisms for controlling the pressures of new demand for health goods and services, it seems prudent to at least consider a scenario where expanded coverage accelerates health inflation. In alternative scenario 3, our high-cost scenario, employers’ health costs increase by 6 percentage points per year more than compensation. The results of this “adding fuel to the fire” scenario appear in Table 7.

In alternative scenario 3, health cost growth would swamp the productivity rewards of all but the very highest earners. By the end of the projection period, workers at the lowest earnings levels would have no wage income — all remuneration rewards would be spent on health care and retirement obligations. Of course, before reaching this point, policymakers would have to find another way to finance benefits for the most vulnerable. But assuming that expanding health insurance coverage will somehow moderate service pricing would be risky policy. The real experience of the 1960s and 1970s proves that health costs can greatly exceed the growth in the productivity capacity of workers for protracted periods. The cost basis of these benefits is so much higher now than it was in the 1960s and 1970s that we cannot safely ignore the cost inflation potential of reforms. Under alternative scenarios 1 and 2, the two lower-inflation scenarios, one might argue that having higher earners finance some of the benefits for lower earners could enable all workers to realize some reward from their added productivity. But in scenario 3, the negative effects are pronounced relatively high up the earnings distribution, closing off any readily apparent escape valve.

Table 7: Scenario 3, Annual Wage Growth Rate Projections Across Earnings Deciles Assuming Health Insurance Reform Is Adopted Where Such Insurance Is Provided and Financed Through Employers, and Health Cost Inflation Rates Increase to Wage Growth Plus 6 Percentage Points per Year

The authors then note that workers will still need to pay for Social Security and Medicare from their wages, and which are underfunded under current law. If the programs are “fixed” by raising taxes rather than by slowing cost growth, then this would embody a still further hit on wages, even if health care cost inflation remains constant. Again, bolded text below:
To show the potential claim that entitlement programs could make on workers, alternative scenario 4 assumes the cost increases projected under current law for Social Security retirement and disability programs and the Medicare HI program come to pass. We developed these projections in conjunction with the expanded health insurance scenario developed under our middle range of health cost inflation assumptions. For entitlement program costs, we used the pay-as-you-go cost rates for the Old-Age, Survivors and Disability Insurance and HI programs from the most recent Trustees Reports. The results of our projections are presented in Table 8. In alternative scenario 4, the combination of entitlement reform that raises taxes to projected cost rates along with health care reform could reduce wage income for the bottom 40 percent of the earnings distribution over the entire projection period. It would significantly erode the productivity reward to most higher-earning workers as well.

The longer we wait to address entitlement financing, the more likely policymakers are to raise taxes rather than adjust benefits or enact some combination of the two.

Table 8: Scenario 4, Annual Wage Growth Rate Projections Across Earnings Deciles Assuming Health Insurance Reform Is Adopted Where Such Insurance Is Provided and Financed Through Employers, Recent Health Cost Inflation Rates Persist, and Social Security and Medicare HI Payroll Tax Rates Increase to Finance Current Law Benefits


Posted by Donald L. Luskin at 11:15 PM | link