Obama's Redistribution of Wealth Debacle

I get routine comments from my children that my blog posts are "just too long."  I know I violate all the nebulous "blog standards" and all the conventional wisdom that posts should be 250 - 500 words.  So here's some relief. . .  This won't take long.

Test question for today:  What's the best way to create more jobs?

This administration has a signature legislative achievement -- the healthcare reform bill, dubbed "Obamacare." The intent was to subsidize health insurance for low- and middle-income groups by taxing high-income earners.  Big problem -- it might level material wealth but it sure dampens economic growth.  Where's the incentive to work harder?  Instead, the message sent was don't work so hard, you'll just pay more taxes.

It also kills incentive among the low- and moderate-income earners.  They can maintain the same standard of living with even less effort.  This is all strangely familiar to me.  I witnessed it in the late sixties as a missionary in England.

Do high tax rates really harm the economy? The liberal progressives (such a strange term -- they're really throwing us backward into the dark ages it seems to me) will tell you "No."  However, the countries of the European Union since the end of the World War II have tried this experiment before.  Their attempts to "carve equal slices from the economic pie" have included offering their citizens generous social benefits such as government-provided health care and mandated lengthy vacations.  France is rioting today because the government, faced with entitlements they can no longer afford, dared to raise the minimum qualification for their retirement stipend age to 62 from 60 just to keep more worker bees in the hive.  The result?  Per capita purchasing power in the EU is two-thirds of what it is in the U.S.  The slices of the economic pie may be more equal, but they are doled out from a much smaller pie.

This accompanying projection shows what happens if we don't put a swift and effective end to government entitlement programs.  They are increasingly disastrous and the increasing payments from the government to citizens are unsustainable, just as they are today in France and elsewhere in Europe.

So what does President Obama do to fend off criticism that his policies are doing harm?  He just keeps talking and talking and talking.  In his mystical never-never land, he would have us believe expanding health care coverage is going to somehow lower costs.  He gives handouts to state and local governments and calls that "stimulus spending."  Climate change legislation became a “green jobs” bill, and the list goes on and on.  If my calculations are correct (and they are), voters on November 2nd will reject him the only way they can this year -- in a tsunami wave of anger about to be unleashed on both houses of Congress.

It could have all been avoided.  Obama could have done what he said he would do -- find unanimity on policies where more could have agreed instead of being so divisive.

A glaring omission was failing to stop the massive federal subsidies to Fannie Mae and Freddie Mac.  If he had really been interested in attacking the economic collapse root causes, that would have been an obvious place to start where bi-partisan support could have been achieved.  Instead, the disastrous Dodd-Frank regulatory reform bill did neither -- it didn't regulate and it didn't reform either agency.  The ridiculously reckless low credit standards continue, and so do the taxpayer-funded subsidies.

During the boom, realtors, homebuilders, developers, mortgage lenders, securities traders, and others reaped enormous profits, then they sold short knowing the paper was bogus, and dumped their losses on taxpayers during the bust.  Private fraudulent gains resulted for which no one yet has been prosecuted.  Oh, we all took great delight in watching token figureheads like Lehman Brothers and its CEO, Richard Fuld, take it on the chin, but all that translated into was socialized losses absorbed by American citizens.  Eliminating all federal support for Fannie and Freddie would have immediately redirected equity where it could have helped most like building newer, more-efficient manufacturing facilities, creating jobs and stimulating economic growth.  As it is we're in a quadmire with foreclosures that still cannot be properly valued because of the federal government's attempts to "fix" it.

Maybe, just maybe, someone among "the smartest economists on earth" in the Obama administration could have taken a closer look at the idiocy we call the IRC, the Internal Revenue Code.  Currently, because of the permissible carve-outs, only 40 percent of personal income is taxed, pushing rates to more than twice what they need to be.  If you're going to tax the rich to provide for the poor, wouldn't it have been logical to close the holes in the sieve first to capture the income?  As it is now, everyone who can afford a smart CPA is free to game the system to lower their tax rate while others with similar income pay more.  That's inequity in its highest expression.  Companies who can afford the expensive lobbyists tend to do better than those who can't.  It's corrupt.  And the gaming continues.  If the adminstration were really interested in anything more than an audacious grab for gold, it would have considered true reform.

Close loopholes, broaden the tax base.  Simple right?  Obama and his advisors could have slashed rates, enhanced equity, and provided a huge stimulus to the economy.  Even if Congress had just written a personal check out to every American for $40,000, no strings attached, we'd be better off.  Instead, we got just the opposite -- even more loopholes and a promise to raise tax rates on the "wealthiest Americans."

I was accused last week by my good friend Marv of being too optimistic and idealistic about what might come out of the election results next Tuesday.  In his words, "You need to hear what my father once told me -- 'I'm a lot happier now that I've given up hope.'"

The problems in the economy might indeed prove to be too big to fix, but I'm still happier thinking we can make another new start.  Renewal is inspiring. 

It gives me hope, and we all need that right now.

More analysis of Dodd-Frank

The negative reactions to Dodd-Frank continue to surface, this analysis from Gary Becker and Richard Posner.  These are smart guys, in whom I have much more confidence than the members of Congress.  I continue searching for some independent voice out there who has a positive view of this pending legislation, but beyond the Senators and Congressmen who are touting it I find few who recommend it.

Like most titles of legislation Washington produces, this title is once again misleading. The so-called “Financial Services Reform” bill is anything but reform. The AP, reports that “Sens. Olympia Snowe and Scott Brown pushed sweeping financial legislation to the edge of final passage Monday, both announcing they intend to support the regulatory overhaul despite initial misgivings.” Gary Becker and Richard Posner write on The Becker-Posner Blog the following 5 faults with this legislation:

1.  “The bill adds regulations and rules about many activities that had little or nothing to do with the crisis.” - This bill is over 2,000 pages in length like Obamacare and is a complete mess of new regulations and the establishment of multiple (not just one) new administrative agencies. Extraneous measures were added to this bill not even related to the systemic causes of the 2008 financial crisis, and that is an outrage. Becker-Posner write that “the bill gives the Fed authority to limit interchange or ’swipe’ fees that merchants pay for each debit-card transaction.” This is nothing more than voodoo politics -- save the masses from a minor fee that touches their lives every day, then allow them to pass it along in some other fee down the road.  It is not beyond the realm of possibility this bill could also trigger more financial crises than it cures.

2.  “The Dodd-Frank bill gives several government agencies considerable additional discretion to try to forestall another crisis, even though they already had the authority to take many actions.” Does anyone you know think that giving the federal government more expansive power is a good idea?  Now is the time to LIMIT government, not expand it.  Who wants to give Treasury and the Fed vast new powers to address a crisis when they already have authority to address whatever they need to with existing powers?  Honestly, Congress is either brain dead or they think we're just stupid lemmings.

3.  “Insufficient capital relative to bank assets was an important cause of the financial.” The bill has a complicated means to require more capital, yet Becker-Posner argue that a simple requirement would have been a better means to require more capital reserves in banks.

4.  “One of the most serious omissions is that the bill essentially says nothing about Freddie Mac or Fannie Mae.” This bill does nothing to reform or abolish Freddie and Fannie. The Foundry argued that, “supporters of Sen. Chris Dodd’s financial regulation bill say it will end financial bailouts. In fact, the Senate — anxious to reassure Americans on that fact — even added an amendment last week with a stated purpose ‘[t]o prohibit taxpayers from ever having to bail out the financial sector.’ But someone forgot to tell the folks across town at Freddie Mac and Fannie Mae. Freddie last week announced it had lost $8 billion in the first quarter of the year, and would be asking for another $10.6 in taxpayer help. And today, its twin Fannie announced a $11.5 billion loss, and asked for a further $8.4 billion in aid from taxpayers. That’s in addition to the nearly $145 billion in aid to Fannie and Freddie have already received.” And Dodd and Frank continue to tell the bald-faced lie this bill is “reform” when nothing is being done to abolish an organization that has wasted over hundreds of billions of your tax dollars? They were the chairmen of the respective committees that caused the crisis, and now they would have you believe they are the problem solvers through regulation?  This bill is not reform. Any legislation that purports to conduct reform and does nothing about Fannie and Freddie is not reform. Don’t be fooled by this legislation, because the elites in Washington will do anything to protect friends who have worked at Fannie and Freddie.

5.  “Many proposals in the bill will have highly uncertain impacts on the economy.” Becker-Posner point to new mortgage regulations, hedge fund regulations and consumer “protections” as three examples of new red tape that may slow and already slow economy. Yet again, the elites in Washington think they know better than the experts on Wall Street and have chosen to empower bureaucrats.

This bill is terrible policy, omits real reform and it may harm the economy. Despite fears and warnings, however, once again this legislation is one Senate vote away from a Presidential signing ceremony.

Senator Scott Brown's (R-MA) supporters need to rethink whether he's a real conservative if he ends up voting for this trash.

"Like pouring molasses on an ant hill"

This letter to the editor on July 7th at USA Today caught my eye:

The financial overhaul bill being considered by Congress is laughable. Like pouring molasses on an ant hill, this bill is certain to slow the nation's economic recovery ("7 things that helped break the economy ... and how Congress aims to fix them," Cover story, Money, June 28).

With government regulations handcuffing the banks and making them set aside more capital to cover potential losses, consumers will see an increase in the cost of capital. How is the housing market going to recover if we deter lending?

Government regulation got us into this mess by forcing irresponsible loans on the banks then bailing them out with taxpayer dollars when they failed. Do we really expect government regulation to be the saving grace this time around?

Lastly, the bill inexplicably ignores Fannie Mae and Freddie Mac. These institutions will continue to bleed taxpayer money with their blank checks from the government.

Hopefully, the damage to our nation will be limited until we can elect some economically competent and market-oriented representatives in November, if they exist.

Mark King; Atlanta

Thanks, Mark King -- couldn't have said it better myself. . .