MaxedOutMama
Monday, January 31, 2011
Vinson on The Individual Mandate
Vinson's decision is available at ScribD.
On the individual mandate, Vinson rules that individuals who would be forced to buy insurance have standing, and also that states have standing if they have legislation to forbid forced individual mandates. He also decided that NFIB has standing because some of its members have standing.
(The most offensive thing about this ruling to those who are deeply invested in the constitutionality of the individual mandate will be the evident enjoyment of the writer. Like the Puritans, they object less to the suffering of the bear than the enjoyment of the spectators.)
Correctly noting that the argument for constitutionality under the Commerce Clause falls under the "substantially affects" category (page 20), the happy parrot settles down to a quotefest.
If you are at all interested in Commerce Clause cases, reading this decision isn't a bad way to learn. Admittedly, Vinson is something of an originalist, but he's a fair originalist and declares himself at the beginning. By page 30, Vinson has worked his way up to Wickard and the aggregation principle.
By page 32, Vinson has arrived at the 1995 Lopez case, in which the SC woke up and decided that damn it all, there must be some limitations to the Commerce Clause power. In Lopez the three broad categories were described:
By page 38 Vinson comes out swinging, having noted that both sides in this case have two strong precedents - the antis cite Lopez and Morrison, and the pros rely on Wickard and Raich. Having therefore indicated that SC precedent in these cases is muddled, to say the least, Vinson comes out swinging. The cheerfully clucking parrot mutates in the space of a paragraph into a Federalist harpy:
Mutating back into the legal parrot, Vinson now reasonably points out that although this power is unprecedented, Congress has a presumption of constitutionality. So he decides to argue purportedly from the assumption of constitutionality, and addresses two questions that he feels are basic - is activity required for comprehension under the Commerce Clause (beg page 39), and is failure to purchase insurance "activity"?(beg page 44).
Vinson answers "yes" to the first question:
The above quote may seem to be unduly contentious, but in support of the apposite nature of the above argument, Vinson refers to an interchange in oral argument during which an administration lawyer claimed that Congress might have the power to mandate that people buy cars, or a certain type of car. Vinson also wonders what the distinction might be between requiring purchase of health insurance and requiring purchase of a home under Commerce Clause power.
So maybe Vinson was provoked into this; if the defenders of the constitutionality of the act couldn't draw a meaningful distinction, it was probably unwise to assume that Vinson would, and he did not. On page 49 Vinson brings up Breyer's dissent in Lopez, and rejects it, concluding that the link to commerce claimed by the defendants (the administration) "piles inference upon inference".
The Necessary and Proper Clause is one of the more interesting "hooks" that might cause the SC justices to be less reluctant to take this case, and Vinson quotes Kennedy in what may be a strategic manner on page 62:
On page 78, he quotes Obama on the individual mandate not being necessary to health care reform. Of course that is true. By now I bet the Supreme Court is just praying that Congress will revisit this issue so that they don't have to take it up. However Obama will not turn, so the SC is stuck with it. Vinson states several times that only the Supreme Court can change the current interpretation of the Commerce Clause (under which he believes he has properly ruled). It's an effort to send on the hot potato, and it is certainly not disrespectful of the SC.
I don't know how the SC will eventually rule, but I do know that Vinson has just earned the Scarlet Progressive Legal Letter, and is a marked man. He would never be confirmed for a higher position as justice after this opinion.
Somin writing at Volokh. Kopel at Volokh.
I emphasized once before, but it bears repeating again: this case is not about whether the Act is wise or unwise legislation, or whether it will solve or exacerbate the myriad problems in our health care system. In fact, it is not really about our health care system at all. It is principally about our federalist system, and it raises very important issues regarding the Constitutional role of the federal government.The states lost on their claim that the Medicaid provisions of health care reform are unconstitutional. Vinson ruled that participation is voluntary. He concedes the state plaintiffs who are party to the suit have presented claims that trying to conform to it will destroy their ability to eventually fund Medicaid and result in being forced to exit, thus leaving millions entirely without insurance, which the states view as untenable. The states advanced the claim that the further Medicaid spending requirements under the act amounted to "coercion" and thus were unconstitutional. Vinson:
In the absence of an Eleventh Circuit case on point, the state plaintiffs’ claim was “plausible” at the motion to dismiss stage. Thus, the plaintiffs were allowed to proceed and provide evidentiary support and further legal support for a judicially manageable standard or coherent theory for determining when, in the words of the Supreme Court, a federal spending condition “pass[es] the point at which ‘pressure turns into compulsion.’” See Dole, supra, 483 U.S. at 211. The evidentiary support is substantially in dispute, as already noted, and further legal support has not been forthcoming. It is now apparent that existing case law is inadequate to support the state plaintiffs’ coercion claim.Summary ruling on this issue for the administration.
On the individual mandate, Vinson rules that individuals who would be forced to buy insurance have standing, and also that states have standing if they have legislation to forbid forced individual mandates. He also decided that NFIB has standing because some of its members have standing.
The States of Idaho and Utah, through plaintiff Attorneys General Lawrence G. Wasden and Mark L. Shurtleff, have standing to prosecute this case based on statutes duly passed by their legislatures, and signed into law by their Governors.So now we come to the fun part (constitutionality of the individual mandate). And you can tell Vinson enjoyed it. On page 20 of the 78 page ruling, he fluffs out his feathers, settles down on his perch, and starts contentedly cracking away at the sunflower seeds of precedent.
(The most offensive thing about this ruling to those who are deeply invested in the constitutionality of the individual mandate will be the evident enjoyment of the writer. Like the Puritans, they object less to the suffering of the bear than the enjoyment of the spectators.)
Correctly noting that the argument for constitutionality under the Commerce Clause falls under the "substantially affects" category (page 20), the happy parrot settles down to a quotefest.
Before attempting to navigate among these three “hazards,” a full review of the historical roots of the commerce power, and a discussion of how we got to where we are today, may be instructive.The esteemed justice starts with the Constitution, Marshall, and the first Commerce Clause decision. He isn't kidding about the "full review" bit.
If you are at all interested in Commerce Clause cases, reading this decision isn't a bad way to learn. Admittedly, Vinson is something of an originalist, but he's a fair originalist and declares himself at the beginning. By page 30, Vinson has worked his way up to Wickard and the aggregation principle.
To illustrate this principle, as applied in Wickard, even though Filburn’s 239 bushels were presumably for his own consumption and seed, and did not significantly impact interstate commerce, if every farmer in the country did the same thing, the aggregate impact on commerce would be cumulatively substantial.At this point, I began to suspect that Vinson's aim was to get the SC justices really interested in this case. He probably suspects that not one of the nine wishes to be forced to rule on health care reform, and I think he's right!
By page 32, Vinson has arrived at the 1995 Lopez case, in which the SC woke up and decided that damn it all, there must be some limitations to the Commerce Clause power. In Lopez the three broad categories were described:
Consistent with this structure, we have identified three broad categories of activity that Congress may regulate under its commerce power. Perez v. United States, supra, at 150; see also Hodel v. Virginia Surface Mining & Reclamation Assn., supra, at 276-277. First, Congress may regulate the use of the channels of interstate commerce. See, e.g., Darby, 312 U. S., at 114; Heart of Atlanta Motel, supra, at 256 (" `[T]he authority of Congress to keep the channels of interstate commerce free from immoral and injurious uses has been frequently sustained, and is no longer open to question.' " (quoting Caminetti v. United States, 242 U.S. 470, 491 (1917)). Second, Congress is empowered to regulate and protect the instrumentalities of interstate commerce, or persons or things in interstate commerce, even though the threat may come only from intrastate activities. See, e.g., Shreveport Rate Cases, 234 U.S. 342 (1914); Southern R. Co. v. United States, 222 U.S. 20 (1911) (upholding amendments to Safety Appliance Act as applied to vehicles used in intrastate commerce); Perez, supra, at 150 ("[F]or example, the destruction of an aircraft (18 U.S.C. § 32), or . . . thefts from interstate shipments (18 U.S.C. § 659)"). Finally, Congress' commerce authority includes the power to regulate those activities having a substantial relation to interstate commerce, Jones & Laughlin Steel, 301 U. S., at 37, i.e., those activities that substantially affect interstate commerce. Wirtz, supra, at 196, n. 27.Page 36 discusses Gonzales v Raich:
In light of the circumscriptial rulings in Lopez and Morrison, many were surprised by the Supreme Court’s subsequent decision in Gonzales v. Raich, 545U.S. 1, 125 S. Ct. 2195, 162 L. Ed. 2d 1 (2005), which was not only seen as a return to the more expansive Commerce Clause jurisprudence [see, e.g., Matthew Farley, Challenging Supremacy: Virginia’s Response to the Patient Protection and Affordable Care Act, 45 U. Rich. L. Rev. 37, 65 (2010)], but was, in fact, viewed by some as even going beyond and “displacing” Wickard as the most far-reaching of all Commerce Clause cases.I could not believe it myself. Note that the conservatives on the court generally advanced the idea that someone growing marijuana plants for his or her own use fell under the reach of the Commerce Clause. It's hard to see what might be excluded given that precedent.
By page 38 Vinson comes out swinging, having noted that both sides in this case have two strong precedents - the antis cite Lopez and Morrison, and the pros rely on Wickard and Raich. Having therefore indicated that SC precedent in these cases is muddled, to say the least, Vinson comes out swinging. The cheerfully clucking parrot mutates in the space of a paragraph into a Federalist harpy:
These cases (along with the others discussed above) all have something to add to the discussion. However, while they frame the analysis, and are important from a historical perspective, they do not by themselves resolve this case. That is because, as Congress’ attorneys in the Congressional Research Service (“CRS”)and Congressional Budget Office (“CBO”) advised long before the Act was passed into law, the notion of Congress having the power under the Commerce Clause to directly impose an individual mandate to purchase health care insurance is “novel”and “unprecedented.”This sort of just pure meanness is going to continue in episodes nearly through page 78. Vinson's aim during these Harpy incarnations seems to be to point out the essential bad faith of those who were claiming that there was no constitutional question. There was, and it was a topic under discussion before the legislation was framed. The question has a lot to do with language used in the bill itself.
Mutating back into the legal parrot, Vinson now reasonably points out that although this power is unprecedented, Congress has a presumption of constitutionality. So he decides to argue purportedly from the assumption of constitutionality, and addresses two questions that he feels are basic - is activity required for comprehension under the Commerce Clause (beg page 39), and is failure to purchase insurance "activity"?(beg page 44).
Vinson answers "yes" to the first question:
Without doubt, existing case law thus extends only to those “activities”that have a substantial relationship to, or substantially affect, interstate commerce. I am required to interpret this law as the Supreme Court presently defines it. Only the Supreme Court can redefine it or expand it further --- a point implicitly made by one of the defendants’ own cited authorities.On page 44 Vinson resorts to quoting the CRS again, and then launches into a somewhat interesting analysis of the "activity" question. He rebuts the administration's claim that the health care market is unique in that everyone participates by the mere fact of being alive:
For example, everyone must participate in the food market. Instead of attempting to control wheat supply by regulating the acreage and amount of wheat a farmer could grow as in Wickard, under this logic, Congress could more directly raise too-low wheat prices merely by increasing demand through mandating that every adult purchase and consume wheat bread daily, rationalized on the grounds that because everyone must participate in the market for food, non-consumers of wheat bread adversely affect prices in the wheat market. Or, as was discussed during oral argument, Congress could require that people buy and consume broccoli at regular intervals, not only because the required purchases will positively impact interstate commerce, but also because people who eat healthier tend to be healthier, and are thus more productive and put less of a strain on the health care system. Similarly, because virtually no one can be divorced from the transportation market, Congress could require that everyone above a certain income threshold buy a General Motors automobile --- now partially government-owned --- because those who do not buy GM cars (or those who buy foreign cars) are adversely impacting commerce and a taxpayer-subsidized business.This appears designed to cause Nancy Pelosi heartburn. Indeed, one might argue that making such arguments is an interference with Congressional power to regulate under the Commerce Clause free of heartburn and olive pits. But I digress.
The above quote may seem to be unduly contentious, but in support of the apposite nature of the above argument, Vinson refers to an interchange in oral argument during which an administration lawyer claimed that Congress might have the power to mandate that people buy cars, or a certain type of car. Vinson also wonders what the distinction might be between requiring purchase of health insurance and requiring purchase of a home under Commerce Clause power.
So maybe Vinson was provoked into this; if the defenders of the constitutionality of the act couldn't draw a meaningful distinction, it was probably unwise to assume that Vinson would, and he did not. On page 49 Vinson brings up Breyer's dissent in Lopez, and rejects it, concluding that the link to commerce claimed by the defendants (the administration) "piles inference upon inference".
In short, the defendants’ argument that people without health insurance are actively engaged in interstate commerce based on the purported “unique” features of the much broader health care market is neither factually convincing nor legally supportable.The rest is pretty boilerplate, except that Vinson disposes of the administration's argument that Congress can mandate the purchase of insurance under the Necessary and Proper Clause by quoting from the Federalist papers. In some legal circles, this is considered a crime. I have gathered that in progressive legal circles, even having read the Federalist papers is considered treason and the only possible viable grounds for the death penalty, i.e. impeachment.
...
Because I find both the “uniqueness” and “economic decision” arguments unpersuasive, I conclude that the individual mandate seeks to regulate economic inactivity, which is the very opposite of economic activity. And because activity is required under the Commerce Clause, the individual mandate exceeds Congress’ commerce power, as it is understood, defined, and applied in the existing Supreme Court case law.
If these advocates for ratification had any inkling that, in the early twenty-first century, government proponents of the individual health insurance mandate would attempt to justify such an assertion of power on the basis of this Clause, they probably would have been the strongest opponents of ratification. They would have recognized how such an interpretation and application of the Necessary and Proper Clause would eviscerate the bedrock enumerated powers principle upon which the Constitution rests.Beginning on page 58, there is a prolonged discussion of the Necessary and Proper clause. To my mind, this is one of the more interesting constitutional questions involved in this debate. Vinson notes that accepting the administration's argument could have very negative consequences:
Such an application of the Necessary and Proper Clause would have the perverse effect of enabling Congress to pass ill-conceived, or economically disruptive statutes, secure in the knowledge that the more dysfunctional the results of the statute are, the more essential or “necessary”the statutory fix would be. Under such a rationale, the more harm the statute does,the more power Congress could assume for itself under the Necessary and Proper Clause. This result would, of course, expand the Necessary and Proper Clause far beyond its original meaning, and allow Congress to exceed the powers specifically enumerated in Article I. Surely this is not what the Founders anticipated, nor how that Clause should operate.No one is a pure originalist; part of this argument approaches some of Breyer's arguments for his "active liberty" concept. Vinson quotes Thomas Jefferson and Marshall again.
The Necessary and Proper Clause is one of the more interesting "hooks" that might cause the SC justices to be less reluctant to take this case, and Vinson quotes Kennedy in what may be a strategic manner on page 62:
(“It is of fundamental importance to consider whether essential attributes [of federalism embodied in the Constitution] are compromised by the assertion of federal power under the Necessary and Proper Clause; if so, that is a factor suggesting that the power is not one properly within the reach of federal power.”) (Kennedy, J., concurring).Vinson then addresses severability, and concludes that the individual mandate cannot be severed. I find his argument unconvincing. However he does not grant injunctive relief, meaning that the administration can continue carrying out the act while appeals continue. ( Theoretically, anyway. Technically the theory is that this ruling prevails, but of course it only prevails in this district, and the act has a national scope. This is why this has to go all the way. For more. In banking law, we have some cases in which district judges have invalidated regulatory rulings. But those same rulings are enforced in other districts. I am sure that the administration will get a stay - there are other contradictory rulings out there. For example, another district judge nixed the individual mandate but not the rest of it. It should take about 20 minutes to get a stay. Ilya Shapiro. )
On page 78, he quotes Obama on the individual mandate not being necessary to health care reform. Of course that is true. By now I bet the Supreme Court is just praying that Congress will revisit this issue so that they don't have to take it up. However Obama will not turn, so the SC is stuck with it. Vinson states several times that only the Supreme Court can change the current interpretation of the Commerce Clause (under which he believes he has properly ruled). It's an effort to send on the hot potato, and it is certainly not disrespectful of the SC.
I don't know how the SC will eventually rule, but I do know that Vinson has just earned the Scarlet Progressive Legal Letter, and is a marked man. He would never be confirmed for a higher position as justice after this opinion.
Somin writing at Volokh. Kopel at Volokh.
On The Production Side, Nearly Optimum
Honestly, you can't get much better than this. The Fed should come off its buying program - the real threat here is inflation.
Look at Chicago PMI, and then go to the back page of this release and look at the 40 year minimums, means, medians and maximums. We are way far up on the top side of this.
The reason net growth isn't that strong is that we are working off structural problems, and there is no cure for that but to work them off. We have made progress on household debt loads. We should clear a lot of foreclosures this year, and that has to happen. The government cutbacks have to happen.
Underneath all that, we have a production rebound of the type last seen in the 1983 bump. The slow growth is just because of what went before, and no amount of jimmying with the works is going to change it. From here, meddling will just mess things up.
There is no doubt that incomes, especially in the bottom half, are a real problem. But that will gradually correct on its own. The only thing we could do to improve matters is to make it easier to declare bankruptcy which would accelerate debt writedowns.
I am preparing a data dump of why I think this. Unfortunately, it is somewhat technical and it will be long. But overall I think there are pretty positive implications.
Inflation in China, India and Europe (December 2.4) show that the constriction is going to be from inflation.
2011 marks the five-year point in the recession - and at five years, you start to see constructive recovery even in depressions. In all honesty, the underlying mechanics in this are much more like a depression than anything else. Thus time is now on our side. However inflation trends are not. If you look at the back page of the Chicago PMI report, January prices paid are at 81.7, and the maximum through 2000-2010 was 87.1. This is too close for comfort if it continues.
It's notable that buying policy for MRO (Maintenance, Repair, Operations) Supplies and Capital Equipment plummeted in January. The tax expensing provision was extended through 2011, but the extension occurred at the last minute and there may be a noticeable 2011 effect.
Employment at 64.1 is quite close to the 40 year maximum of 67.4.
Paradoxically, being this far to the high side means that an inflation/margin induced slowdown is more likely. These numbers would tend to suggest that the contractionary cycle for production is past and that ramp ups will cost increasingly more. At this stage in recoveries, many companies become quite sensitive to margin impairments, because they can get in a cash squeeze very easily. Thus, they may choose to ramp production down for the maximum margin rather than increase production if costs seem uncontrollable and variable. The first indications of that squeeze are showing up in the Manufacturing section of NACM's most recent (December 30th).
I should have the data dump up tomorrow.
Look at Chicago PMI, and then go to the back page of this release and look at the 40 year minimums, means, medians and maximums. We are way far up on the top side of this.
The reason net growth isn't that strong is that we are working off structural problems, and there is no cure for that but to work them off. We have made progress on household debt loads. We should clear a lot of foreclosures this year, and that has to happen. The government cutbacks have to happen.
Underneath all that, we have a production rebound of the type last seen in the 1983 bump. The slow growth is just because of what went before, and no amount of jimmying with the works is going to change it. From here, meddling will just mess things up.
There is no doubt that incomes, especially in the bottom half, are a real problem. But that will gradually correct on its own. The only thing we could do to improve matters is to make it easier to declare bankruptcy which would accelerate debt writedowns.
I am preparing a data dump of why I think this. Unfortunately, it is somewhat technical and it will be long. But overall I think there are pretty positive implications.
Inflation in China, India and Europe (December 2.4) show that the constriction is going to be from inflation.
2011 marks the five-year point in the recession - and at five years, you start to see constructive recovery even in depressions. In all honesty, the underlying mechanics in this are much more like a depression than anything else. Thus time is now on our side. However inflation trends are not. If you look at the back page of the Chicago PMI report, January prices paid are at 81.7, and the maximum through 2000-2010 was 87.1. This is too close for comfort if it continues.
It's notable that buying policy for MRO (Maintenance, Repair, Operations) Supplies and Capital Equipment plummeted in January. The tax expensing provision was extended through 2011, but the extension occurred at the last minute and there may be a noticeable 2011 effect.
Employment at 64.1 is quite close to the 40 year maximum of 67.4.
Paradoxically, being this far to the high side means that an inflation/margin induced slowdown is more likely. These numbers would tend to suggest that the contractionary cycle for production is past and that ramp ups will cost increasingly more. At this stage in recoveries, many companies become quite sensitive to margin impairments, because they can get in a cash squeeze very easily. Thus, they may choose to ramp production down for the maximum margin rather than increase production if costs seem uncontrollable and variable. The first indications of that squeeze are showing up in the Manufacturing section of NACM's most recent (December 30th).
I should have the data dump up tomorrow.
Saturday, January 29, 2011
What Do You Think?
For blogs, I try to find and read a set that are written by persons very different from me who have a radically different perspective. There is no doubt that as you get older your learned solutions tend to dominate your worldview. In some ways, this makes you more effective. In some ways, it can hamstring you.
One of those I read for this purpose is Althouse.
I noticed a post on Ann Althouse's blog about the recent WI debate over the constitutionality of the individual mandate in health care reform. I had first read of it on Volokh. You can see a video of the debate here.
Ann attended the debate, and wrote a post about it that surprised me:
If law doesn't matter at all, then why bother with it? And if the Constitution doesn't mean anything, what is the function of the Supreme Court anyway? And what are the long-run chances that an institution like the Supreme Court would effectively rule itself out of business? I know that Breyer's active liberty conception makes sense to him, but but if his logic were truly followed, there would either be no need of the Supreme Court or the Supreme Court would be the last arbiter of the legislative process, thus negating a representative form of government.
From the Wikipedia link above:
The second problem with Breyer's reasoning, IMO, is that there is a reality/utility test incorporated in the SC's assessment of "how well the consequences of a particular ruling will fit those purposes". This really mandates that the SC judge all sorts of things that they have no ability to judge.
For example, the health care legislation has huge fiscal flaws. The first is that many individuals and small businesses will not be able to afford insurance of the type mandated under the law. Therefore they will not buy it, no matter what the law tells them to do. This will shift far more of the cost burden onto the government than theorized. The second is that many states simply cannot afford the Medicaid spending mandated. Therefore they will not do it. No money, no coverage.
The last, and most serious flaw, is that the cost-shifting in the law is all onto individuals and small businesses. Because Medicare and Medicaid frequently do not pay enough to cover drugs and services covered, health care providers and medication providers charge more to privately insured and uninsured patients to cover the difference. A huge expansion of Medicaid combined with the very large demographically-indicated expansion of Medicare coverage will force private premiums way up, which will additionally push a lot of persons out of coverage.
The fiscal impossibility of the law is already emerging in the exemption process. The only way, under the law, to avoid the fiscal crash is to radically cut Medicare coverage. And when I write "radically", I mean as in "lethal injections". There is a special provision of the law which treats expenditures under Medicare differently than all other expenditures - there's a special panel, and it will recommend coverage changes to limit Medicare's growth. This is a huge legal change.
De facto, Medicare reimbursements are now determined by whether hospitals and doctors can afford to provide coverage. For example, special provisions were put in Medicare coverage to up stroke reimbursements because it turned out that most hospitals did not provide the new clot-busting drugs to stroke victims. Medicare payments were too low to fund it, and most stroke victims are older persons. However, effective stroke treatments have the potential to save very large amounts of money (disabled individuals receiving long term care funded by the government in nursing homes, for example). So the CDC did a study, and new codes were put in to fund stroke treatment to try to make it available.
The new health care law ignores all these facts, and just mandates that Medicare payments not be increased past a GDP limit. The only way to actually achieve that goal would be to kill expensive older patients, as far as I can see. The problem is that modern medicine works pretty well, but not treating older patients can often be far more expensive than treating them. Also, hospitals are mandated to treat them. And what about nursing home care? If you let an older person degenerate to the point to which the person can no longer live independently, they'll end up in a nursing home on Medicaid, which is going to cost us all a lot and which is not limited under the law.
But how well suited are lawyers to understand all this? I would argue not at all. This is a classic legislative and experimental problem, and the Supreme Court is hardly going to be competent to assess the consequences of the law. They, like everyone else, will have to sit and see how it works out. And once they rule, if it turns out that it does not work in practice, it is not as if they can go back and change their minds unless another case works its way up, and they essentially overrule themselves.
The comments on the post are interesting as well. Here are just two:
The final comment struck me as probably true:
There is a lot more I could write on this topic, but I will stop because I am curious as to how others see this.
I was quite amazed at the arguments being advanced by lawyers against the validity of constitutionalism. This seems to me to say a great deal about legal education.
One of those I read for this purpose is Althouse.
I noticed a post on Ann Althouse's blog about the recent WI debate over the constitutionality of the individual mandate in health care reform. I had first read of it on Volokh. You can see a video of the debate here.
Ann attended the debate, and wrote a post about it that surprised me:
One lawyer haughtily informed me that whatever law professors might think about the Constitution, it's really all politics, and this health care reform represents a big, important political effort and that's why it's going to be upheld in the courts. I said, if it's all politics, then what of all the politics pushing back against the law? What about the polls that show most people are against it and what about the last election? If you're going to say politics determines the outcome, then don't you have to take that politics into account too? The lawyer looked either alarmed or angry, because I, a law professor, didn't simply assert that the Constitution matters, which would have made it easy for him to irritatingly chuckle about naivete.Then she posts about the debate:
Richards was having none of this abstract rule-of-law business. Economic realities should trump legal jargon, he said. He portrayed constitutional law a matter of technical conceptions that shouldn't be allowed to stop government from doing the things that need to be done.I was rather stunned at the conception of the law that Ann presents as predominating in the audience and being well represented in the debate.
If law doesn't matter at all, then why bother with it? And if the Constitution doesn't mean anything, what is the function of the Supreme Court anyway? And what are the long-run chances that an institution like the Supreme Court would effectively rule itself out of business? I know that Breyer's active liberty conception makes sense to him, but but if his logic were truly followed, there would either be no need of the Supreme Court or the Supreme Court would be the last arbiter of the legislative process, thus negating a representative form of government.
From the Wikipedia link above:
In it, Breyer urges judges to interpret legal provisions (of the Constitution or of statutes) in light of the purpose of the text and how well the consequences of specific rulings will fit those purposes. The book is considered a response to the 1997 book A Matter of Interpretation, in which Antonin Scalia emphasized adherence to the original meaning of the text alone.[18][29]This is essentially the same logic used in various governments that abruptly stopped following their own law; the same logic, for example, used by the SC that permitted the internment of the Japanese in WWII.
In Active Liberty, Breyer argues that the Framers of the Constitution sought to establish a democratic government involving the maximum liberty for its citizens. Breyer refers to Isaiah Berlin’s Two Concepts of Liberty. The first Berlinian concept, being what most people understand by liberty, is "freedom from government coercion;" Berlin termed this negative liberty and warned against its diminution. Breyer terms this "modern liberty." The second Berlinian concept — to Berlin, "positive liberty" — is the "freedom to participate in the government;" In Breyer's terminology, this is the "active liberty," which the judge should champion. Having established this premise of what liberty is, and having posited the primary importance of this concept over the competing idea of "Negative Liberty" to the Framers, Breyer argues a predominantly utilitarian case for judges making rulings that give effect to the democratic intentions of the Constitution.
The second problem with Breyer's reasoning, IMO, is that there is a reality/utility test incorporated in the SC's assessment of "how well the consequences of a particular ruling will fit those purposes". This really mandates that the SC judge all sorts of things that they have no ability to judge.
For example, the health care legislation has huge fiscal flaws. The first is that many individuals and small businesses will not be able to afford insurance of the type mandated under the law. Therefore they will not buy it, no matter what the law tells them to do. This will shift far more of the cost burden onto the government than theorized. The second is that many states simply cannot afford the Medicaid spending mandated. Therefore they will not do it. No money, no coverage.
The last, and most serious flaw, is that the cost-shifting in the law is all onto individuals and small businesses. Because Medicare and Medicaid frequently do not pay enough to cover drugs and services covered, health care providers and medication providers charge more to privately insured and uninsured patients to cover the difference. A huge expansion of Medicaid combined with the very large demographically-indicated expansion of Medicare coverage will force private premiums way up, which will additionally push a lot of persons out of coverage.
The fiscal impossibility of the law is already emerging in the exemption process. The only way, under the law, to avoid the fiscal crash is to radically cut Medicare coverage. And when I write "radically", I mean as in "lethal injections". There is a special provision of the law which treats expenditures under Medicare differently than all other expenditures - there's a special panel, and it will recommend coverage changes to limit Medicare's growth. This is a huge legal change.
De facto, Medicare reimbursements are now determined by whether hospitals and doctors can afford to provide coverage. For example, special provisions were put in Medicare coverage to up stroke reimbursements because it turned out that most hospitals did not provide the new clot-busting drugs to stroke victims. Medicare payments were too low to fund it, and most stroke victims are older persons. However, effective stroke treatments have the potential to save very large amounts of money (disabled individuals receiving long term care funded by the government in nursing homes, for example). So the CDC did a study, and new codes were put in to fund stroke treatment to try to make it available.
The new health care law ignores all these facts, and just mandates that Medicare payments not be increased past a GDP limit. The only way to actually achieve that goal would be to kill expensive older patients, as far as I can see. The problem is that modern medicine works pretty well, but not treating older patients can often be far more expensive than treating them. Also, hospitals are mandated to treat them. And what about nursing home care? If you let an older person degenerate to the point to which the person can no longer live independently, they'll end up in a nursing home on Medicaid, which is going to cost us all a lot and which is not limited under the law.
But how well suited are lawyers to understand all this? I would argue not at all. This is a classic legislative and experimental problem, and the Supreme Court is hardly going to be competent to assess the consequences of the law. They, like everyone else, will have to sit and see how it works out. And once they rule, if it turns out that it does not work in practice, it is not as if they can go back and change their minds unless another case works its way up, and they essentially overrule themselves.
The comments on the post are interesting as well. Here are just two:
That's a fascinating anecdote. It seems you were talking about "politics" in the sense of majority-rule democracy, and he was talking about the new politics where the ruling class rules.Above the commenter refers to Ann's argument with the lawyer in the audience.
Yes, it's all politics. But "politics" now means continuing on with an unpopular plan toward a goal that most people don't want because the ruling class knows better. The political Establishment will pay attention to its "experts" but will ignore the opinions of the unqualified masses.
...just like the Republicans and W did when they were the top dogs of the ruling class.
The final comment struck me as probably true:
One of the benefits of the Tea Party phenom is a rekindled interest in constitutional debates among non-lawyers. A year or two ago, I attended a judicial conference featuring various historians of the early Republic (Gordon Woods, Joseph Ellis, etc.). Both talked about how, when they give talks around the country on the books, many ordinary folks come up to them and want to discuss details of early American history. The professors were duly impressed by the interest and effort that many non-academics have shown in their work. One of them (Woods, if I remember correctly) described a conversation he had had with his mailman about Woods' then-latest book -- detailed, showing a depth of knowledge that Woods wished his students at Brown might someday acquire. The point of the anecdotes was that an interest in early American history had caught on with the public.It's obvious that average citizens don't have the delusion that they or their families will somehow receive special treatment under the law. The workability of it carries a desperate interest for them.
Perhaps the unintended gift of Obamacare will be a renewed interest in the Constitution among the citizenry. It's perhaps not surprising that, from Ann's description of yesterday's health care conference, the folks least interested in the subject were a lawyer and a legislator. If he keeps it up in Wisconsin, the legislator may well be in for a surprise, like the one many of his (former) colleagues received in Nov.
There is a lot more I could write on this topic, but I will stop because I am curious as to how others see this.
I was quite amazed at the arguments being advanced by lawyers against the validity of constitutionalism. This seems to me to say a great deal about legal education.
Friday, January 28, 2011
Military In Cairo, Egypt Simmering
It's pretty hot out there. BBC. Haaretz has really good coverage. Al Jazeera says there is a column of tanks in Cairo. Egyptian government took down internet and phone service, which may be why protesters are trying to break into a TV broadcasting center. The news in Egypt is confusing, because some reports have protesters riding in military vehicles and cheering some of the military. I'm think the Mubarak family is not going back. If one takes these reports seriously, part of the army has gone over to the protest movement.
Also action in Jordan, Gaza, Kuwait announces it will deport foreigners who try to demonstrate. In Yemen part of the response was to raise military salaries. In Lebanon, the government is very concerned about a huge storm. So concerned, it alerted the military. There was a flood in Jeddah yesterday, though.
GDP comments below.
Update: The utility of private jets is shown once again.
Also action in Jordan, Gaza, Kuwait announces it will deport foreigners who try to demonstrate. In Yemen part of the response was to raise military salaries. In Lebanon, the government is very concerned about a huge storm. So concerned, it alerted the military. There was a flood in Jeddah yesterday, though.
GDP comments below.
Update: The utility of private jets is shown once again.
Our Position Does Not Improve
2010 Advance Q4 GDP was released today.
There was a huge inventory drawdown or GDP would have been far above 3.2% annualized for the quarter. Usually an inventory drawdown bodes well for the next quarter, because it means that production will have to ramp up and jobs, hours and material purchases ramp up. It is not quite clear that this will happen as fast as one would hope due to the durables report.
But fiscally speaking, this report had little but bad news for the future. PCE grew 4.4%, accounting for all the growth. Gross private domestic investment went negative, but only on the inventory draw.
Is this type of personal consumption growth even remotely sustainable?
Looking at personal incomes one would say not:
Wages are slowly clawing out of the depths, but there is trouble ahead.
Looking at ratios explains why:
Government benefits paid (current transfer receipts) are exceeding personal taxes and payroll taxes. Obviously this is not sustainable over the longer run.
While a portion of the government payments related to the recession (food stamps, unemployment insurance, medical assistance) will slowly fade presuming additional growth, it will be replaced by the ever-growing retirement expenditures.
In particular, over the next few years several million retirees will become eligible for Medicare benefits. And then it really gets bad.
So taxes must be increased, but this is why I made this time series. Note that the red line (representing payroll tax plus personal tax) does drop with the Bush tax cuts and then the Obama tax cuts (which were increased very substantially this year), but even with the Bush + Obama cuts, taxes plus payroll taxes only fell to ratios approaching the early 1980s. The reason is that although personal tax rates were dropped (most substantially for lower income earners) payroll taxes were sharply increased. Indeed, unemployment taxes went up, so once this year's payroll tax expires payroll taxes will be at their highest rates ever.
Worse yet, wages are being suppressed by supplements. Wage and salary supplements are composed of two slices. The first are payroll taxes (Medicare, Social Security and Unemployment). The second are employer payments for private insurance and retirement funds. Costs for insurance are going up so rapidly that even with cost-shifting to the employee in the form of wage deductions, the ratio of government supplements to private supplements keeps dropping.
Anyway, it is clear that personal taxes are going to be raised. Obviously this will leave less income for consumption.
If you look at Table 10 (Personal Income and its Disposition) in the GDP release, you see that Q4's annualized personal income in real dollars ex government transfers was 9.308 trillion compared to 2008's 9.638 trillion. If you look at BEA's time series, you see that 2010 Q4 is back to 2006 levels in real dollars.
Part of the problem is that income from interest and dividends is still down from its peak. Personal receipts on assets (interest and dividends) peaked at 2.1X trillion in 2007 Q4 - 2008 Q3, and in 2009 Q4 had only rebounded to 1.9 trillion. In 2008 Q1 government transfers were almost 1.8 trillion. In Q4 2010 they were 2.3 trillion.
Wage and salary disbursements (wages paid to individuals, not counting supplements) peaked at almost 6.6 trillion in Q1 2008 and had only rebounded to just under 6.5 trillion in Q4 2010. Proprietor's incomes have not rebounded yet either. The only income category up is rents, which is at a new high. Not surprising, given the fall in home ownership.
There's more going on here than meets the eye - the remarkable shift in supplement ratios indicates that insurance costs are probably suppressing private salaries quite strongly. Hence CBO's new projection for continuing Social Security deficits.
There was a huge inventory drawdown or GDP would have been far above 3.2% annualized for the quarter. Usually an inventory drawdown bodes well for the next quarter, because it means that production will have to ramp up and jobs, hours and material purchases ramp up. It is not quite clear that this will happen as fast as one would hope due to the durables report.
But fiscally speaking, this report had little but bad news for the future. PCE grew 4.4%, accounting for all the growth. Gross private domestic investment went negative, but only on the inventory draw.
Is this type of personal consumption growth even remotely sustainable?
Looking at personal incomes one would say not:
Wages are slowly clawing out of the depths, but there is trouble ahead.
Looking at ratios explains why:
Government benefits paid (current transfer receipts) are exceeding personal taxes and payroll taxes. Obviously this is not sustainable over the longer run.
While a portion of the government payments related to the recession (food stamps, unemployment insurance, medical assistance) will slowly fade presuming additional growth, it will be replaced by the ever-growing retirement expenditures.
In particular, over the next few years several million retirees will become eligible for Medicare benefits. And then it really gets bad.
So taxes must be increased, but this is why I made this time series. Note that the red line (representing payroll tax plus personal tax) does drop with the Bush tax cuts and then the Obama tax cuts (which were increased very substantially this year), but even with the Bush + Obama cuts, taxes plus payroll taxes only fell to ratios approaching the early 1980s. The reason is that although personal tax rates were dropped (most substantially for lower income earners) payroll taxes were sharply increased. Indeed, unemployment taxes went up, so once this year's payroll tax expires payroll taxes will be at their highest rates ever.
Worse yet, wages are being suppressed by supplements. Wage and salary supplements are composed of two slices. The first are payroll taxes (Medicare, Social Security and Unemployment). The second are employer payments for private insurance and retirement funds. Costs for insurance are going up so rapidly that even with cost-shifting to the employee in the form of wage deductions, the ratio of government supplements to private supplements keeps dropping.
Anyway, it is clear that personal taxes are going to be raised. Obviously this will leave less income for consumption.
If you look at Table 10 (Personal Income and its Disposition) in the GDP release, you see that Q4's annualized personal income in real dollars ex government transfers was 9.308 trillion compared to 2008's 9.638 trillion. If you look at BEA's time series, you see that 2010 Q4 is back to 2006 levels in real dollars.
Part of the problem is that income from interest and dividends is still down from its peak. Personal receipts on assets (interest and dividends) peaked at 2.1X trillion in 2007 Q4 - 2008 Q3, and in 2009 Q4 had only rebounded to 1.9 trillion. In 2008 Q1 government transfers were almost 1.8 trillion. In Q4 2010 they were 2.3 trillion.
Wage and salary disbursements (wages paid to individuals, not counting supplements) peaked at almost 6.6 trillion in Q1 2008 and had only rebounded to just under 6.5 trillion in Q4 2010. Proprietor's incomes have not rebounded yet either. The only income category up is rents, which is at a new high. Not surprising, given the fall in home ownership.
There's more going on here than meets the eye - the remarkable shift in supplement ratios indicates that insurance costs are probably suppressing private salaries quite strongly. Hence CBO's new projection for continuing Social Security deficits.
Spanish Social Security
Or is that "Social Insecurity"?
I can't find this paper in English, but if you read Spanish you might want to see this paper by the economist cited in the article (and others). It's about the regressive impact of raising the Value-Added Tax in Spain.
Díaz-Giménez is a respected economist. You might find his 2007 paper on a flat-tax system in the US interesting. The model used has dated tax rates, but the conclusions will hold.
Spain spent 95.7 billion euros on contributions-based pensions in 2010, almost 10 percent of GDP.Note the comment about 2050 debt required to fund the current system being about 190% of GDP. That's not going to happen.
I can't find this paper in English, but if you read Spanish you might want to see this paper by the economist cited in the article (and others). It's about the regressive impact of raising the Value-Added Tax in Spain.
Díaz-Giménez is a respected economist. You might find his 2007 paper on a flat-tax system in the US interesting. The model used has dated tax rates, but the conclusions will hold.
Thursday, January 27, 2011
EXPLETIVE EXPLETIVE EXPLETIVE
We got the Q4 2010 update on covered employment in today's initial claims release. 125,560,066.
I am truly surprised by this. I expected a small increase from the prior 125,845,777. Admittedly this is a small drop, but.... If you are wondering, this is quite consistent with December's employment/population ratio.
Peak in this cycle was 133,902,387 in Q4 2008. That puts us down by 8.3 million jobs. This is why I think that cutting off the 99ers is a bad idea without some sort of public works program.
Initial claims are often exceedingly volatile in January, but also surprised to the negative at 454,000. The four week moving average is a better indicator, but also rose to 428,750. This is 44K less than last year's comparable week average, but the sad part is that we were still losing net jobs at that time. BED. The unknown variable is new jobs created, and paradoxically, layoffs can increase while total employment increases if new job creation is picking up.
Again, a caveat. I do not know what initial claims currently mean. Many say they do but I don't see how they can think so; the relationship between initial claims and employment has recently broken down, apparently because many workers who lose jobs are contract or temp workers who do not qualify for unemployment benefits.
However anecdotal reports of improving job prospects have been increasing, and if the ratio between claims and employment has broken down, an increase in the four week moving average may not really be a true negative.
We are looking for a disappointing January retail sales number. It's time to watch freight tightly over the next few months. The bad winter in the NE will not help January and February. Flatness in fuel consumption hints that Q1 isn't getting off to a good start.
Monday's unnerving 5.16 coverage ratio for six month Treasuries does not indicate a strong first half for the US, but some of it may well be due to foreign unease. Going only by treasuries, one would say that first half prospects are weakening but also that the weakness is beginning to go to the second half.
Further swearing derived from durables:
Ex-defense, new durables orders were down 2.5%. That's not so good, but the thing that has me turning the air blue this morning is motor vehicles. New orders have been weak lately, and December's new orders came in only at +1.7%, following two months of small declines.
As far as I can see, hopes of riding this through without too much more agony lie in the need to replace autos in the US. Auto sales have been very strong factors in the retail reports, and that needs to continue for jobs, freight and money circulation. It is always disturbing to find yourself riding just one horse, but on the other hand, as long as that horse is autos, you are not in a bad position. However this horse may be a bit tired.
Capital goods new orders were down 6%, after dropping 6.6% in October and 5.9% in November. Both primary and fabricated metals orders were down in December. This isn't any sort of disastrous report, but it does seem to indicate that manufacturing strength, which has been a strong positive for US growth, is going to have a weakening influence over the next few months.
I am truly surprised by this. I expected a small increase from the prior 125,845,777. Admittedly this is a small drop, but.... If you are wondering, this is quite consistent with December's employment/population ratio.
Peak in this cycle was 133,902,387 in Q4 2008. That puts us down by 8.3 million jobs. This is why I think that cutting off the 99ers is a bad idea without some sort of public works program.
Initial claims are often exceedingly volatile in January, but also surprised to the negative at 454,000. The four week moving average is a better indicator, but also rose to 428,750. This is 44K less than last year's comparable week average, but the sad part is that we were still losing net jobs at that time. BED. The unknown variable is new jobs created, and paradoxically, layoffs can increase while total employment increases if new job creation is picking up.
Again, a caveat. I do not know what initial claims currently mean. Many say they do but I don't see how they can think so; the relationship between initial claims and employment has recently broken down, apparently because many workers who lose jobs are contract or temp workers who do not qualify for unemployment benefits.
However anecdotal reports of improving job prospects have been increasing, and if the ratio between claims and employment has broken down, an increase in the four week moving average may not really be a true negative.
We are looking for a disappointing January retail sales number. It's time to watch freight tightly over the next few months. The bad winter in the NE will not help January and February. Flatness in fuel consumption hints that Q1 isn't getting off to a good start.
Monday's unnerving 5.16 coverage ratio for six month Treasuries does not indicate a strong first half for the US, but some of it may well be due to foreign unease. Going only by treasuries, one would say that first half prospects are weakening but also that the weakness is beginning to go to the second half.
Further swearing derived from durables:
Ex-defense, new durables orders were down 2.5%. That's not so good, but the thing that has me turning the air blue this morning is motor vehicles. New orders have been weak lately, and December's new orders came in only at +1.7%, following two months of small declines.
As far as I can see, hopes of riding this through without too much more agony lie in the need to replace autos in the US. Auto sales have been very strong factors in the retail reports, and that needs to continue for jobs, freight and money circulation. It is always disturbing to find yourself riding just one horse, but on the other hand, as long as that horse is autos, you are not in a bad position. However this horse may be a bit tired.
Capital goods new orders were down 6%, after dropping 6.6% in October and 5.9% in November. Both primary and fabricated metals orders were down in December. This isn't any sort of disastrous report, but it does seem to indicate that manufacturing strength, which has been a strong positive for US growth, is going to have a weakening influence over the next few months.
Wednesday, January 26, 2011
Marc Faber On Bloomberg TV
See, all the fluff about Obama being so wonderful has come to this. Laughing foreigners talking about a dishonest president.
It is embarrassing. And when you embarrass the Kool Kidz in the press, they do not forgive you.
Plus, President Yoda has to present a budget in a month. What do we all think that is going to look like?
Update:
Spork commented that the budget will be ignored. But there is one group that will not ignore the budget, and that group are those who buy treasuries.
Today CBO released its 10 year projection based on current law. This was done as a result of the "compromise" worked out in the lame duck session. Text version, pdf version.
CBO's baseline, which assumes that the two-year deal will expire to current law, that the cuts to Medicare mandated in the health care reform law will be implemented at the end of 2011 (they won't), that alternative minimum taxes will not be indexed to inflation, and that funding for discretionary spending will be frozen to an inflation-adjusted steady rate (not going to happen according to the SOTU speech) is:
So you can see that my estimates earlier are not that different than CBO's. I incorporate a somewhat higher unemployment rate and a somewhat lower rate of growth.
In any case, everyone should read this and realize that our current policies are unsustainable. By 2023, we will not be able to pay Social Security as planned plus pay Medicare.
Angry Saver told me I was an idiot for saying that Social Security was in danger, because it was funded. It isn't. The "funding" is only real if we can borrow the money, and I can assure you that we won't be able to borrow the money with public debt that high.
CBO's conclusion, which looks suspiciously like Paul Ryan's conclusion last night:
Neil thought this article was overstated. Neil reasons that we still have the knowledge and desire to make things and innovate. That's true, but we won't have the capital. Federal spending at planned levels will suck all the money out of our economy and inevitably cause a decreasing private sector GDP.
All this talk about stimulus is misguided. Raising GDP one percent now only to subtract three percent in ten years is not a workable policy.
Nor is it a Democratic policy. When we reach the limits of our ability to borrow, the lower-income population will take the majority of the impact. The working/middle class will take most of the rest of the impact.
It is embarrassing. And when you embarrass the Kool Kidz in the press, they do not forgive you.
Plus, President Yoda has to present a budget in a month. What do we all think that is going to look like?
Update:
Spork commented that the budget will be ignored. But there is one group that will not ignore the budget, and that group are those who buy treasuries.
Today CBO released its 10 year projection based on current law. This was done as a result of the "compromise" worked out in the lame duck session. Text version, pdf version.
CBO's baseline, which assumes that the two-year deal will expire to current law, that the cuts to Medicare mandated in the health care reform law will be implemented at the end of 2011 (they won't), that alternative minimum taxes will not be indexed to inflation, and that funding for discretionary spending will be frozen to an inflation-adjusted steady rate (not going to happen according to the SOTU speech) is:
Just two years ago, debt held by the public was less than $6 trillion, or about 40 percent of GDP; at the end of fiscal year 2010, such debt was roughly $9 trillion, or 62 percent of GDP, and by the end of 2021, it is projected to climb to $18 trillion, or 77 percent of GDP. With such a large increase in debt, plus an expected increase in interest rates as the economic recovery strengthens, interest payments on the debt are poised to skyrocket over the next decade. CBO projects that the government's annual spending on net interest will more than double between 2011 and 2021 as a share of GDP, increasing from 1.5 percent to 3.3 percent.CBO goes on to explain what would happen if current planned policy were to be enacted, because absolutely everyone knows that the assumptions CBO used to project the above estimates are bogus:
As a result, the baseline projections understate the budget deficits that would arise if many policies currently in place were extended, rather than allowed to expire as scheduled under current law. For example, if most of the provisions in the 2010 tax act that were originally enacted in 2001, 2003, and 2009 or that modified estate and gift taxation were extended (rather than allowed to expire on December 31, 2012), and the alternative minimum tax was indexed for inflation, annual revenues would average about 18 percent of GDP through 2021 (which is equal to their 40-year average), rather than the 19.9 percent shown in CBO's baseline projections. If Medicare's payment rates for physicians' services were held constant as well, then deficits from 2012 through 2021 would average about 6 percent of GDP, compared with 3.6 percent in the baseline. By 2021, the budget deficit would be about double the baseline projection, and with cumulative deficits totaling nearly $12 trillion over the 2012–2021 period, debt held by the public would reach 97 percent of GDP, the highest level since 1946.Obviously interest payments would rise to considerably more than 3.3% of GDP. In fact, because at that point our debt would be high risk, either all our debt would be short term or interest would be more like 5% of GDP. The federal government's share of GDP as taxes has averaged around 18-19%. We don't seem to be able to get it above 20% for long, because if we hike tax rates further, people start avoiding taxation, which cuts revenue.
So you can see that my estimates earlier are not that different than CBO's. I incorporate a somewhat higher unemployment rate and a somewhat lower rate of growth.
In any case, everyone should read this and realize that our current policies are unsustainable. By 2023, we will not be able to pay Social Security as planned plus pay Medicare.
Angry Saver told me I was an idiot for saying that Social Security was in danger, because it was funded. It isn't. The "funding" is only real if we can borrow the money, and I can assure you that we won't be able to borrow the money with public debt that high.
CBO's conclusion, which looks suspiciously like Paul Ryan's conclusion last night:
Beyond the 10-year projection period, further increases in federal debt relative to the nation's output almost certainly lie ahead if current policies remain in place. The aging of the population and rising costs for health care will push federal spending as a percentage of GDP well above that in recent decades. Specifically, spending on the government's major mandatory health care programs—Medicare, Medicaid, the Children's Health Insurance Program, and health insurance subsidies to be provided through insurance exchanges—along with Social Security will increase from roughly 10 percent of GDP in 2011 to about 16 percent over the next 25 years. If revenues stay close to their average share of GDP for the past 40 years, that rise in spending will lead to rapidly growing budget deficits and surging federal debt. To prevent debt from becoming unsupportable, policymakers will have to substantially restrain the growth of spending, raise revenues significantly above their historical share of GDP, or pursue some combination of those two approaches.Add in even 3% for interest payments, and you are at 19% which is pretty much your maximum sustainable federal revenue level. That leaves nothing for defense or anything else.
Neil thought this article was overstated. Neil reasons that we still have the knowledge and desire to make things and innovate. That's true, but we won't have the capital. Federal spending at planned levels will suck all the money out of our economy and inevitably cause a decreasing private sector GDP.
All this talk about stimulus is misguided. Raising GDP one percent now only to subtract three percent in ten years is not a workable policy.
Nor is it a Democratic policy. When we reach the limits of our ability to borrow, the lower-income population will take the majority of the impact. The working/middle class will take most of the rest of the impact.
Tuesday, January 25, 2011
Our President Thinks He's George Lucas
I wish I hadn't done this to myself. The whole thing adds up to "I don't have a plan. I have a fantasy."
You know what this does? It embarrasses us on the world stage.
We got bold, we got exciting, we got a Hollywood script. That's what we got. As a comedy, it will be a blockbuster in China. At home, it will be a tragedy.
Fact Check:
All in all, this is the most ridiculous SOTU speech I ever inflicted on myself. Next year I won't even bother.
Washington Post editorial on the speech:
Chief CMS actuary testifies that the health care claims were bogus as well. This is not the first time CMS has pointed out that it won't work, but this is testimony to Congress.
A nation is going "huh?" The speech was just embarrassing, and it was aimed at stupid people who don't know what is going on. Ezra Klein, for example. But the average American isn't this stupid, and it appears that the speech was so stupid that it offended the press.
You know what this does? It embarrasses us on the world stage.
We got bold, we got exciting, we got a Hollywood script. That's what we got. As a comedy, it will be a blockbuster in China. At home, it will be a tragedy.
Fact Check:
Obama missed another chance Tuesday night to embrace the tough medicine proposed by the commission for bringing down the deficit. For example, the president said he wanted to "strengthen Social Security for future generations" -- but ruled out slashing benefits or partially privatizing the program, and made no reference to raising the retirement age. That left listeners to guess how he plans to do anything to salvage the popular retirement program whose trust funds are expected to run out of money in 2037 without changes.They didn't even call him on the jaw-droppingly inane proposal to get 80% of our electricity from "clean" sources by 2035.
All in all, this is the most ridiculous SOTU speech I ever inflicted on myself. Next year I won't even bother.
Washington Post editorial on the speech:
PRESIDENT OBAMA entered office promising to be a different kind of politician - one who would speak honestly with the American people about the hard choices they face and would help make those hard calls. Tuesday night's State of the Union Address would have been the moment to make good on that promise. He disappointed.Read the whole thing. I saw a comment in some conservative writeup that remarked that the speech seemed like a retread of Bush's 2006 speech.
...
So what happens now? Maybe some members of Congress will display the courage the president has lacked.
Chief CMS actuary testifies that the health care claims were bogus as well. This is not the first time CMS has pointed out that it won't work, but this is testimony to Congress.
A nation is going "huh?" The speech was just embarrassing, and it was aimed at stupid people who don't know what is going on. Ezra Klein, for example. But the average American isn't this stupid, and it appears that the speech was so stupid that it offended the press.
The Arab Street
Of course it's not just the Arabs. It's most of the ME.
I have been following events from the Sudanese elections through Tunisia with interest, and the sparks are flying everywhere.
The burning of the Al-Jazeera van in Lebanon may be because Al-Jazeera published some of those documents about the Palestinian peace talks. But hasn't Lebanon essentially gone over to Syria now with this PM pick?
It was very odd to look at the Egyptian coverage and see the pictures of the demonstrators all kneeling in neat rows for prayers.
A lot of this is economic. If you're unhappy about inflation, think about how it feels to be poor and facing rising prices. The rage and desperation just boils up. Things have been steadily cooking for a while in the region. Take Morocco and the protest camps last year, which did not end well. Fortunately, last year's wrath was diverted against Spain, which criticized the violent resolution. That was even more offensive. Right now Rabat is pretty quiet.
Then add in the usual heavy-handed policing and corruption, and wham! But it also seems to be lining up with other moves in the region. In Jordan, IAF and the Muslim Brotherhood are definitely pushing hard with popular support to dump the current parliament.
A quick way to get a sense of fast-moving events is the LGF page. Whatever else is true, Bouazizi's act and the success of the ensuing Tunisian protests have sparked people's imaginations. Horribly. It's been going on for weeks, but the Egyptian action today is just going to fan the flames. I think the Yemeni protesters actually got some of these people released today.
One of the reasons why this is not stopping is that in many countries, although the demonstrations have been repressed, governments have been responding in various ways with food programs and so forth. Saleh (Yemen) supposedly controlled some food prices and cut income taxes in half along with deploying the riot police.
I also liked Ezra Levant's Toronto Sun article.
It's everywhere. Iran just executed two for protests last year. From Al-Jazeera:
Yeah, yeah, I know we've got the SOTU speech tonight, but it doesn't matter. This is big news, and it does matter.
I have been following events from the Sudanese elections through Tunisia with interest, and the sparks are flying everywhere.
The burning of the Al-Jazeera van in Lebanon may be because Al-Jazeera published some of those documents about the Palestinian peace talks. But hasn't Lebanon essentially gone over to Syria now with this PM pick?
It was very odd to look at the Egyptian coverage and see the pictures of the demonstrators all kneeling in neat rows for prayers.
A lot of this is economic. If you're unhappy about inflation, think about how it feels to be poor and facing rising prices. The rage and desperation just boils up. Things have been steadily cooking for a while in the region. Take Morocco and the protest camps last year, which did not end well. Fortunately, last year's wrath was diverted against Spain, which criticized the violent resolution. That was even more offensive. Right now Rabat is pretty quiet.
Then add in the usual heavy-handed policing and corruption, and wham! But it also seems to be lining up with other moves in the region. In Jordan, IAF and the Muslim Brotherhood are definitely pushing hard with popular support to dump the current parliament.
A quick way to get a sense of fast-moving events is the LGF page. Whatever else is true, Bouazizi's act and the success of the ensuing Tunisian protests have sparked people's imaginations. Horribly. It's been going on for weeks, but the Egyptian action today is just going to fan the flames. I think the Yemeni protesters actually got some of these people released today.
One of the reasons why this is not stopping is that in many countries, although the demonstrations have been repressed, governments have been responding in various ways with food programs and so forth. Saleh (Yemen) supposedly controlled some food prices and cut income taxes in half along with deploying the riot police.
I also liked Ezra Levant's Toronto Sun article.
It's everywhere. Iran just executed two for protests last year. From Al-Jazeera:
Iran has carried out the first executions of activists detained in street protests after the disputed 2009 presidential poll, hanging two men it said were from an outlawed group.This is why I am so hard and fast on the First Amendment. In the end, all governments want to shut up their opponents and critics. There is no end to it once you accept the idea that they should be able to do it. My grandfather escaped from a despotic regime.
The executions on Monday of the two activists from the Iranian exiled opposition group, People's Mujahedeen of Iran (PMOI) came despite a plea by US Secretary of State Hillary Clinton that they be freed.
Yeah, yeah, I know we've got the SOTU speech tonight, but it doesn't matter. This is big news, and it does matter.
Monday, January 24, 2011
They Killed Rasputin, Didn't They?
I have been more than astounded by the willingness of the NPR/NY Times axis of Truthiness to ascribe the Giffords shooting to Sarah Palin.
The earnest discussions of right-wing connections still haven't died on NPR - they appear to have retained the guy from the Southern Poverty Law Center full time to talk about his Dark Suspicions. You're probably amazed to discover that grammar as a mind control mechanism is a theme in right wing organizations. So are the right wing organizations, most of whom are still trying to figure out what grammar is. These groups are not noted for their scholarship and literacy. If they ever do figure it out the definition of grammar, it is quite possible that they may find Loughner's argument on that point convincing. It is probable that the founders of such groups also encountered disparaging comments about their grammar from mind-controlling academics.
This right wing connection appears to be a truth known only to the Southern Poverty Law Center, Paranoia Division. I suspect the Paranoia Division is going to be doing very well financially; one can only hope that some of the moolah is diverted to some of the SPLC's more creditable endeavors.
From Ann Althouse, a chirpy little play that just opened in Madison, WI. It's set in Iowa City, which location is just about the funniest part of the whole thing.
The play is about a group of leftists who decide to murder people whose political opinions they don't like via dinner party invitations accompanied by Rasputin-like murders. Fortunately, the carcasses of the demised heterosexual rightists are properly used as organic fertilizer, so the play is completely environmentally responsible, and thus, per the definition of the SPLC's Paranoia Division, not extremist at all.
I gather the play's author is not in favor of this tactic, but still....
There is no question that violence is violence, and that violence is the enemy to democracy. There is no question that there are some rightist groups out there that advocate violence. But it is also true that in recent decades in our own society, it is calls for violence from the leftish wing of things that have been most predominant and treated, fundamentally, as respectable by the press and academia. You will note, for example, that the SPLC Paranoia Division is unable to conceive of a leftist extremist organization. Bill Ayers and Mark Rudd are the type of people that are given a platform in our media/academic society.
More recently, we have seen continued calls from the left for the suppression of speech on every topic from climate catastrophism to political speech (and, to our shame, our own president joined that crowd in the State of the Union speech when he denounced the Citizens United SC decision.)
Now if you try to forbid speech and succeed, you are going to generate a group of people that are predisposed to violence. The left is able to make this connection with respect to say, Muslims (who may or may not be moderate), but seems to regard scientists who are dubious about the IPCC predictions as "traitors" and persons who do not agree that the current health care reform bill is workable as Nazis.
SW commented in this post about the failure of the left:
It is true that socialism in Europe, while not dead, has mutated quite rapidly either toward outright failure or, in the case of the northern socialist countries, to something that is more akin to Reaganism than Krugman can accept. The fact that Denmark and Sweden have chopped their corporate tax rates doesn't mean that those countries have given up socialism, it is just that they have adapted their socialist ideas to reality, i.e., job formation achieved through private capital formation and deployment. They continue the socialist part by imposing high individual tax rates, which create a society in which individuals are quite secure but have little opportunity to move up the social ladder.
One can only imagine the depths of the social disaster that would ensue for a society like the US, which is composed of a huge number of recent immigrants that would be frozen into their current low status, if we were to take the same direction. Social mobility is the glue that holds our societal consensus together, combined with a pretty decent safety net for those who don't succeed. We know that it would not work by looking at the results in the "sucessful" northern socialist republics. A couple of generations ago, these societies were not racist. Today they are. Within a generation and a half, they have succeeded in creating a ghettoized population of largely Muslim immigrants, and a predominant native population that is developing racial and religious attitudes that would make someone like David Duke proud and happy. The SPLC might get quite a shock if it studied Denmark a bit.
So the group of leftists that were not in favor of violence and an anarchistic destruction of society were left without much of a grounding. Certainly they are the majority, but a majority of what? "Don't be evil" has not proven to be a very workable motto; Friedman-like, it just cuddles up with rulers who do things that those who chant the motto would claim were evil.
What has been used as a proxy for that grounding are the theoretical benefits and successes of European socialism. That is why there is so little commentary in the national press on the current European debacle. And it is a debacle. It will reshape Europe over the next two decades.
It is not just the financial stress that is impacting Europe - the same financial stresses, which are largely demographic and fiscal, are impacting the US and Canada, etc. But in Europe, their faith was put in their shared decision-making structure, and the problem is that every decision it has developed has flopped. Hard. Everyone now realizes that Greece will default on its debt. By the end of the year it will be obvious that the Irish fix will be repudiated by the Irish a la Versailles. The "green" energy thing is collapsing of its own weight, and the worst of it is that in some of these countries, the banks are going to now take a hit on their associated loans.
And so the much larger group of non-violent leftists is wandering in a daze, trying to find a beacon. They believe in their principles. They know their hearts are right. They believe their principles are important for everyone. As their principles collide with reality in this country, they have no guidance, because no experience, on how to deal with that collision. The response of a vocal minority has simply been to identify their opponents as evil, and an evil that must be silenced and purged.
I have been reading Assistant Village Idiot quite regularly for a very long time, but in the past few months I think he has posted some very profound and accurate posts about the underlying human angst in back of our current crisis of decision. One of these looks at the proposals to intercept people like Loughner, and is good at rebuffing that theory. In the process, AVI also addresses a broader problem (the conservative AND liberal disconnects):
Liberals are currently despairing because unlike conservatives and libertarians, they have no experience in discussing and evolving sustainable solutions. It is appalling how the liberal wing has devolved its dialogue to a mere characterization of their opponents as wrong and evil.
But libertarians and conservatives, although they have been disfavored by the academic/media alignment (largely composed of the coterie AVI so aptly describes of those who have abandoned action for advocacy), face a profound challenge of their own. Our society would not be workable without the basic safety net, and we are now faced by a grim necessity to expand and support the safety net. By necessity, this can only be done by cutting out large portions of it.
In the future, we will have to stop extending huge unpayable loans for college and postgraduate education if we want to keep retirees from starving. We are going to have to cut out a number of middle-class subsidies. In the process the higher education establishment will see a brutal upheaval. We are going to have to pay higher taxes for less services. That process is well underway at the states. We are going to default on a number of public pensions. We are going to have to cut out a lot of corporate subsidies.
We are in for a round of austerity which our society can only survive if we strengthen the social safety net to prevent the evolution of pockets of pure despair. The great majority of us will face a future which is economically more straitened and far less secure than we had expected only a few years ago. Neither conservatism nor libertarianism has a chance of success unless they can fashion an approach to these necessities that will offer the average person some basic level of insurance and some reason for real hope in exchange for their illusions. This will be a terribly painful transition.
As a solution generator, Obama has been a tragic, tragic failure. His current drive is essentially toward a corporate fascism, which has been separately generated in Europe and Asia by an alliance of socialism and power-seeking, and which has always failed. Today's left is accurately detecting and arguing against this turn. Here I will give Krugman a chance to show that he is not psychotic, as he skewers the new approach by pointing out that the interests of GE and the US are not well aligned. It is certainly good for GE to have a high place in the nation's decision-making, but the average person probably realizes that the solutions that GE will recommend will be solutions that in essence ask the average American to subsidize GE's products. The fallacy about green jobs is already well demonstrated.
However Obama has one great virtue which is currently underrated, and that is that he is unwilling to abandon the discussion. The left largely has. For the most part, when Obama removes his campaign hat, he simply refuses to abandon policy for name-calling. He does not appear to have the background required to recognize what will work, but he does have the fortitude to insist that we must come up with a solution. In so far as he can perceive reality, he seems to try to insist upon recognizing it and addressing it.
Whatever their drawbacks, the efforts of people like Paul Ryan and groups like the Deficit Commission are aimed at finding a way forward, and most of all, a way forward that is pretty broad-based. Obama therefore won't shut the door on them. So we'll see what happens, but the current SOTU speech is going to be a non-starter. It will have pretty rhetoric that has nothing to do with reality. Main Street knows this. The left knows this. The right knows this.
The profound failure of health care reform is already evident. The regulations have been written, and as the regulations come into effect, almost all the organizations that weren't meeting them before are opting out of them now, with regulatory approval. This is because the bill never made economic sense, and as we get closer and closer to full implementation, the economic reality/hopeful legislation gap will get larger and larger.
Meanwhile, the extremists are still trying to figure out political grammar, but since political grammar is rooted in the speech of the average citizen, and since the common principle of extremists is that the average citizen is a dolt who can contribute nothing of worth to the debate, the extremists have no chance of success.
The earnest discussions of right-wing connections still haven't died on NPR - they appear to have retained the guy from the Southern Poverty Law Center full time to talk about his Dark Suspicions. You're probably amazed to discover that grammar as a mind control mechanism is a theme in right wing organizations. So are the right wing organizations, most of whom are still trying to figure out what grammar is. These groups are not noted for their scholarship and literacy. If they ever do figure it out the definition of grammar, it is quite possible that they may find Loughner's argument on that point convincing. It is probable that the founders of such groups also encountered disparaging comments about their grammar from mind-controlling academics.
This right wing connection appears to be a truth known only to the Southern Poverty Law Center, Paranoia Division. I suspect the Paranoia Division is going to be doing very well financially; one can only hope that some of the moolah is diverted to some of the SPLC's more creditable endeavors.
From Ann Althouse, a chirpy little play that just opened in Madison, WI. It's set in Iowa City, which location is just about the funniest part of the whole thing.
The play is about a group of leftists who decide to murder people whose political opinions they don't like via dinner party invitations accompanied by Rasputin-like murders. Fortunately, the carcasses of the demised heterosexual rightists are properly used as organic fertilizer, so the play is completely environmentally responsible, and thus, per the definition of the SPLC's Paranoia Division, not extremist at all.
I gather the play's author is not in favor of this tactic, but still....
There is no question that violence is violence, and that violence is the enemy to democracy. There is no question that there are some rightist groups out there that advocate violence. But it is also true that in recent decades in our own society, it is calls for violence from the leftish wing of things that have been most predominant and treated, fundamentally, as respectable by the press and academia. You will note, for example, that the SPLC Paranoia Division is unable to conceive of a leftist extremist organization. Bill Ayers and Mark Rudd are the type of people that are given a platform in our media/academic society.
More recently, we have seen continued calls from the left for the suppression of speech on every topic from climate catastrophism to political speech (and, to our shame, our own president joined that crowd in the State of the Union speech when he denounced the Citizens United SC decision.)
Now if you try to forbid speech and succeed, you are going to generate a group of people that are predisposed to violence. The left is able to make this connection with respect to say, Muslims (who may or may not be moderate), but seems to regard scientists who are dubious about the IPCC predictions as "traitors" and persons who do not agree that the current health care reform bill is workable as Nazis.
SW commented in this post about the failure of the left:
The failures of the Left to provide for their subjects whenever they have had the opportunity means that they have lost the battle of ideas. All they have left is the struggle to hold onto their power. They now must resort to controlling what people are allowed to say in an effort to control what people are allowed to think; this is a sure sign of desperation.I don't think he's quite correct. Yes, this is a sign of desperation. But the failure to convince is really based on the contempt of the average person that is the basis of the Rudd/Ayers generation of leftists. They never tried to convince, because they moved straight to violence. Because their grounding axioms were passion regarding self-evident righteousness, they never attempted to form a political basis of action in the US; they never attempted to make a case for their ideas in the wider society. They picked up on the Marxist/Fascist idea that wider society had to be destroyed before a workable society could be created, and that is still their fundamental axiom. They are unwilling to put their ideas to the test of democracy, which is of course childish and ultimately futile.
It is true that socialism in Europe, while not dead, has mutated quite rapidly either toward outright failure or, in the case of the northern socialist countries, to something that is more akin to Reaganism than Krugman can accept. The fact that Denmark and Sweden have chopped their corporate tax rates doesn't mean that those countries have given up socialism, it is just that they have adapted their socialist ideas to reality, i.e., job formation achieved through private capital formation and deployment. They continue the socialist part by imposing high individual tax rates, which create a society in which individuals are quite secure but have little opportunity to move up the social ladder.
One can only imagine the depths of the social disaster that would ensue for a society like the US, which is composed of a huge number of recent immigrants that would be frozen into their current low status, if we were to take the same direction. Social mobility is the glue that holds our societal consensus together, combined with a pretty decent safety net for those who don't succeed. We know that it would not work by looking at the results in the "sucessful" northern socialist republics. A couple of generations ago, these societies were not racist. Today they are. Within a generation and a half, they have succeeded in creating a ghettoized population of largely Muslim immigrants, and a predominant native population that is developing racial and religious attitudes that would make someone like David Duke proud and happy. The SPLC might get quite a shock if it studied Denmark a bit.
So the group of leftists that were not in favor of violence and an anarchistic destruction of society were left without much of a grounding. Certainly they are the majority, but a majority of what? "Don't be evil" has not proven to be a very workable motto; Friedman-like, it just cuddles up with rulers who do things that those who chant the motto would claim were evil.
What has been used as a proxy for that grounding are the theoretical benefits and successes of European socialism. That is why there is so little commentary in the national press on the current European debacle. And it is a debacle. It will reshape Europe over the next two decades.
It is not just the financial stress that is impacting Europe - the same financial stresses, which are largely demographic and fiscal, are impacting the US and Canada, etc. But in Europe, their faith was put in their shared decision-making structure, and the problem is that every decision it has developed has flopped. Hard. Everyone now realizes that Greece will default on its debt. By the end of the year it will be obvious that the Irish fix will be repudiated by the Irish a la Versailles. The "green" energy thing is collapsing of its own weight, and the worst of it is that in some of these countries, the banks are going to now take a hit on their associated loans.
And so the much larger group of non-violent leftists is wandering in a daze, trying to find a beacon. They believe in their principles. They know their hearts are right. They believe their principles are important for everyone. As their principles collide with reality in this country, they have no guidance, because no experience, on how to deal with that collision. The response of a vocal minority has simply been to identify their opponents as evil, and an evil that must be silenced and purged.
I have been reading Assistant Village Idiot quite regularly for a very long time, but in the past few months I think he has posted some very profound and accurate posts about the underlying human angst in back of our current crisis of decision. One of these looks at the proposals to intercept people like Loughner, and is good at rebuffing that theory. In the process, AVI also addresses a broader problem (the conservative AND liberal disconnects):
Conservatives and liberals have their separate ways of screwing this up. Small-government types entertain the fantasy that a lot of this would work itself out if people were more self-reliant - if individuals and families stepped up and made these natural solutions happen. They have a point, of course. I am very reluctant to apply for disability benefits for young people, knowing that this dooms them to a rather meager, helpless life in many cases. A lot of people could indeed smarten up and fly right if they had to. The risk of that is, some people can't, even with significant family support, or can't quite, and pushing them out into the world is merely kicking them when they are down. And let me assure you, you don't know which one's are which.Now I am afraid that you won't read this post, so I am driven to post a huge part of it. AVI's conclusion:
Liberals feel your pain, and in their kind-heartedness think we could do what is necessary if we would just try harder. They also have no idea how extensive the problems are. But you can see how they sense it at a distance, because a lot of them move into parts of the human-services bureaucracy where they are no longer providing services. They set up information clearinghouses, in order to connect people to services that already exist. They go into advocacy, trying to get this miserly, uncaring society to see how much we need to increase our support and grow new programs. They believe that if we all just pull together, dammit, we could make this pretty good. And so human service bureaucracies, and non-profits supported by government money, become about 50% people not doing anything that actually provides services. They go to meetings a lot.
They move into these positions to avoid despair. And it keeps the fantasy alive that if we would just be a good society like oh, all of Europe, they think, that this is manageable. Yes we can.
Sooner or later liberals are going to have to face the despair, and deal with it emotionally. Their emotion drives their politics, and their hatred of people who won't do what they just know is important is a hatred of that despair. A hatred of reality.Note that AVI is referring to both liberals and conservatives in that conclusion.
...
No one wants this reality. In a fallen world, this will always be here. But facing the despair, and deciding what is my part in this, is a task of adulthood. There will be no comity until everyone faces a little more of the truth.
Liberals are currently despairing because unlike conservatives and libertarians, they have no experience in discussing and evolving sustainable solutions. It is appalling how the liberal wing has devolved its dialogue to a mere characterization of their opponents as wrong and evil.
But libertarians and conservatives, although they have been disfavored by the academic/media alignment (largely composed of the coterie AVI so aptly describes of those who have abandoned action for advocacy), face a profound challenge of their own. Our society would not be workable without the basic safety net, and we are now faced by a grim necessity to expand and support the safety net. By necessity, this can only be done by cutting out large portions of it.
In the future, we will have to stop extending huge unpayable loans for college and postgraduate education if we want to keep retirees from starving. We are going to have to cut out a number of middle-class subsidies. In the process the higher education establishment will see a brutal upheaval. We are going to have to pay higher taxes for less services. That process is well underway at the states. We are going to default on a number of public pensions. We are going to have to cut out a lot of corporate subsidies.
We are in for a round of austerity which our society can only survive if we strengthen the social safety net to prevent the evolution of pockets of pure despair. The great majority of us will face a future which is economically more straitened and far less secure than we had expected only a few years ago. Neither conservatism nor libertarianism has a chance of success unless they can fashion an approach to these necessities that will offer the average person some basic level of insurance and some reason for real hope in exchange for their illusions. This will be a terribly painful transition.
As a solution generator, Obama has been a tragic, tragic failure. His current drive is essentially toward a corporate fascism, which has been separately generated in Europe and Asia by an alliance of socialism and power-seeking, and which has always failed. Today's left is accurately detecting and arguing against this turn. Here I will give Krugman a chance to show that he is not psychotic, as he skewers the new approach by pointing out that the interests of GE and the US are not well aligned. It is certainly good for GE to have a high place in the nation's decision-making, but the average person probably realizes that the solutions that GE will recommend will be solutions that in essence ask the average American to subsidize GE's products. The fallacy about green jobs is already well demonstrated.
However Obama has one great virtue which is currently underrated, and that is that he is unwilling to abandon the discussion. The left largely has. For the most part, when Obama removes his campaign hat, he simply refuses to abandon policy for name-calling. He does not appear to have the background required to recognize what will work, but he does have the fortitude to insist that we must come up with a solution. In so far as he can perceive reality, he seems to try to insist upon recognizing it and addressing it.
Whatever their drawbacks, the efforts of people like Paul Ryan and groups like the Deficit Commission are aimed at finding a way forward, and most of all, a way forward that is pretty broad-based. Obama therefore won't shut the door on them. So we'll see what happens, but the current SOTU speech is going to be a non-starter. It will have pretty rhetoric that has nothing to do with reality. Main Street knows this. The left knows this. The right knows this.
The profound failure of health care reform is already evident. The regulations have been written, and as the regulations come into effect, almost all the organizations that weren't meeting them before are opting out of them now, with regulatory approval. This is because the bill never made economic sense, and as we get closer and closer to full implementation, the economic reality/hopeful legislation gap will get larger and larger.
Meanwhile, the extremists are still trying to figure out political grammar, but since political grammar is rooted in the speech of the average citizen, and since the common principle of extremists is that the average citizen is a dolt who can contribute nothing of worth to the debate, the extremists have no chance of success.
Labels: a
Sunday, January 23, 2011
I Bookmarked
This NY Times article to read. So far it is not encouraging.
Update:
I had another stroke last week. This article seems designed to produce yet another.
From page 6:
Geeze, it's like Groundhog Day for the economy - another six years of malaise guaranteed. I feel sick.
PS: The article in question was written by Peter Baker. One of his previous efforts was the famed "I like taupe" interview. The Chief and I had a big argument over that piece - I claimed it was a hatchet job, and the Chief claimed that it was accurate reporting.
PS: And now we're going to have a FEDERAL research center to develop medicines.
Update:
I had another stroke last week. This article seems designed to produce yet another.
From page 6:
The competitiveness theme, which will be prominent in the State of the Union address, is a convenient rubric that encompasses trade as well as other presidential priorities like more education-accountability reforms, more federal support for research and innovation, more green technology industry like the advanced battery plants Obama likes to visit and more infrastructure like high-speed trains.Apparently the idea of checking on progress has not occurred to him. It's gotta be exciting and bold. We've got themes, we've got "green", we've got the "advanced" word, we've got the "innovation" word. We've got everything but jobs.
Geeze, it's like Groundhog Day for the economy - another six years of malaise guaranteed. I feel sick.
PS: The article in question was written by Peter Baker. One of his previous efforts was the famed "I like taupe" interview. The Chief and I had a big argument over that piece - I claimed it was a hatchet job, and the Chief claimed that it was accurate reporting.
PS: And now we're going to have a FEDERAL research center to develop medicines.
Thursday, January 20, 2011
China Goes Thunk
China hit the wall, and it hit it in cartoonish fashion. It's like watching a Road Runner cartoon. Beep-Beep!
It's fascinating to watch the US coverage of the Hu visit, none of which seems to take into account the situation in which poor Hu finds himself. The Grinch has come and taken Christmas, and what is poor China Hu To Do?
I'm terribly busy, so I don't have time to write much about this. If you are interested:
Main site Chinese stats.
2009 December CPI. 1.9% YoY Dec 2009/2008, accumulated over 2009 negative. But note the negative YoY in Beijing, epicenter of the boom. Also look at Shanghai. We don't have CPI for 2010 December yet, so contrast that with November 2010 at 5.1% YoY.
The huge amounts of money dumped into the Chinese economy have done the inevitable, and of course in November 2010 China started pulling back on money. There is such a demand for money that effective interbank and bond pricing is very expensive right now.
Property is doing the inevitable. You have to look at the month by month stats to see it, but they've already gone into negative real returns over recent months sparked by rapidly falling sales. Sales are going to be hard to sustain at current levels because the incentive to buy is not there right now.
Look at commercial floor spaces:
2009 12. 42.1% in floor spaces, 75% sales volume in yuan.
2010 12. 10.1% in floor spaces, 18.3% sales volume in yuan.
Beijing 2009: +76.9% floor space, +96.6% sales volume
Beijing 2010: -30.6% floor space, -10.6% sales volume
Shanghai 2009: +44.2% floor space, +125.9% sales volume
Shanghai 2010: -39.0% floor space, -31.6% sales volume.
Some will describe this as purely the result of monetary policy, but you can run through the regions and see that it is more related to pricing. The regions are hitting their natural boundaries, and companies are switching investment to other areas.
If you go to residential, the curve is slightly different but we have the same controlling factors.
2009 12 (70 large/medium cities, 90 sq meters and below)
2010 12.
In 2009 the YoY was around 13% and the monthly was over 2.5%. By December 2010 we are not that far off on the YoY (11% & 9%), but the monthly has slowed below 0.5%.
Intermediate steps:
April 2010. August 2010.
If you go back to 2009, you can see the dip, which was counterbalanced by a flood of money.
There is a pronounced cap effect, which can be seen in December 2010's report on RE in China. Note the difference between the YoY and the Jan/Nov figures. It's a decent summary so read it if you are interested in this post.
To put this in context, use November's (the latest available) investment in Fixed Assets by Industry. You see that while manufacturing investment accounts for 31.3% of the total, up slightly from the YoY 31% of total, real estate accounts for 24.2% of the total, up from 22.2% of the total YoY.
But it is evident that RE can't keep turning in these types of increases, so that means that China's economy, which is acutely dependent on investment in fixed assets to sustain a high growth rate, has a growth curve that should be adjusted down.
Taken in conjunction with the sharp rise in short rates, this would imply a sharp downturn by 2012. Certainly the Chinese government is going to try to avert this, but it is not clear exactly how they can do it. They will not continue on with their current tight monetary policies - they'll reverse as soon as the inflation curve drops a bit and as soon as they get frantic over jobs and GDP. But they are at the danger point with inflation, and inflation itself is reaching the point at which it would naturally undercut investment.
One interesting thing about the sharp rise in short-term rates is that many of these buildings were essentially collateral, and if there is a near term shortage of money, one would expect that a secondary market would develop. Previously there has been very little of an existing-building market in China. Private property is just too new, and owners of properties would rather hold them and borrow on them (because of appreciation) than sell.
Looking at the other type of report on 70 large/medium cities, which splits new construction sales from "second-hand" sales, it appears that this secondary market might be developing right now.
2009 12
2010 12
Notably, the chain index (month over month) is now better for existing-building sales, although the YoY is much lower, and is lower than inflation (PPI). This suggests that it is cheaper for companies that need money to sell a building than borrowing with it as collateral, and cheaper for companies that want a building to buy one that's already built.
That would suggest a further weakening of sales for new buildings in many areas, though. Since investment in commercial buildings is 70% of the total, one would think the volume of new investment would have to drop over the next few years. Looking at the starts, completions and land purchases gives me a case of the economic creeps.
Using China's own just-released statistics for 2010:
the gross domestic product (GDP) for the year 2010 was 39,798.3 billion yuan
the total investment in fixed assets of the country reached 27,814.0 billion yuan (69.9% of GDP)
total investment in real estate development for the year was 4,826.7 billion yuan (12% of GDP) (17.4% of fixed assets). Note that this last is a very large discrepancy from November's Fixed Assets by Industry. If you read the tables, RE fixed assets in urban areas are 20% of the total.
Total freight volumes were up close to 15% in 2010. Building accounts for a lot of freight and a lot of basic materials production. Another way to back into relative contributions is by looking at industrial production:
I'd say the RE contribution should knock about 2-3% off 2011, but 4-5% off 2012. China won't want to let that happen. The worldwide economy just isn't so hot that exports and industrialization can compensate for what should be a significant decline in overall building.
It's fascinating to watch the US coverage of the Hu visit, none of which seems to take into account the situation in which poor Hu finds himself. The Grinch has come and taken Christmas, and what is poor China Hu To Do?
I'm terribly busy, so I don't have time to write much about this. If you are interested:
Main site Chinese stats.
2009 December CPI. 1.9% YoY Dec 2009/2008, accumulated over 2009 negative. But note the negative YoY in Beijing, epicenter of the boom. Also look at Shanghai. We don't have CPI for 2010 December yet, so contrast that with November 2010 at 5.1% YoY.
The huge amounts of money dumped into the Chinese economy have done the inevitable, and of course in November 2010 China started pulling back on money. There is such a demand for money that effective interbank and bond pricing is very expensive right now.
Property is doing the inevitable. You have to look at the month by month stats to see it, but they've already gone into negative real returns over recent months sparked by rapidly falling sales. Sales are going to be hard to sustain at current levels because the incentive to buy is not there right now.
Look at commercial floor spaces:
2009 12. 42.1% in floor spaces, 75% sales volume in yuan.
2010 12. 10.1% in floor spaces, 18.3% sales volume in yuan.
Beijing 2009: +76.9% floor space, +96.6% sales volume
Beijing 2010: -30.6% floor space, -10.6% sales volume
Shanghai 2009: +44.2% floor space, +125.9% sales volume
Shanghai 2010: -39.0% floor space, -31.6% sales volume.
Some will describe this as purely the result of monetary policy, but you can run through the regions and see that it is more related to pricing. The regions are hitting their natural boundaries, and companies are switching investment to other areas.
If you go to residential, the curve is slightly different but we have the same controlling factors.
2009 12 (70 large/medium cities, 90 sq meters and below)
2010 12.
In 2009 the YoY was around 13% and the monthly was over 2.5%. By December 2010 we are not that far off on the YoY (11% & 9%), but the monthly has slowed below 0.5%.
Intermediate steps:
April 2010. August 2010.
If you go back to 2009, you can see the dip, which was counterbalanced by a flood of money.
There is a pronounced cap effect, which can be seen in December 2010's report on RE in China. Note the difference between the YoY and the Jan/Nov figures. It's a decent summary so read it if you are interested in this post.
To put this in context, use November's (the latest available) investment in Fixed Assets by Industry. You see that while manufacturing investment accounts for 31.3% of the total, up slightly from the YoY 31% of total, real estate accounts for 24.2% of the total, up from 22.2% of the total YoY.
But it is evident that RE can't keep turning in these types of increases, so that means that China's economy, which is acutely dependent on investment in fixed assets to sustain a high growth rate, has a growth curve that should be adjusted down.
Taken in conjunction with the sharp rise in short rates, this would imply a sharp downturn by 2012. Certainly the Chinese government is going to try to avert this, but it is not clear exactly how they can do it. They will not continue on with their current tight monetary policies - they'll reverse as soon as the inflation curve drops a bit and as soon as they get frantic over jobs and GDP. But they are at the danger point with inflation, and inflation itself is reaching the point at which it would naturally undercut investment.
One interesting thing about the sharp rise in short-term rates is that many of these buildings were essentially collateral, and if there is a near term shortage of money, one would expect that a secondary market would develop. Previously there has been very little of an existing-building market in China. Private property is just too new, and owners of properties would rather hold them and borrow on them (because of appreciation) than sell.
Looking at the other type of report on 70 large/medium cities, which splits new construction sales from "second-hand" sales, it appears that this secondary market might be developing right now.
2009 12
2010 12
Notably, the chain index (month over month) is now better for existing-building sales, although the YoY is much lower, and is lower than inflation (PPI). This suggests that it is cheaper for companies that need money to sell a building than borrowing with it as collateral, and cheaper for companies that want a building to buy one that's already built.
That would suggest a further weakening of sales for new buildings in many areas, though. Since investment in commercial buildings is 70% of the total, one would think the volume of new investment would have to drop over the next few years. Looking at the starts, completions and land purchases gives me a case of the economic creeps.
Using China's own just-released statistics for 2010:
the gross domestic product (GDP) for the year 2010 was 39,798.3 billion yuan
the total investment in fixed assets of the country reached 27,814.0 billion yuan (69.9% of GDP)
total investment in real estate development for the year was 4,826.7 billion yuan (12% of GDP) (17.4% of fixed assets). Note that this last is a very large discrepancy from November's Fixed Assets by Industry. If you read the tables, RE fixed assets in urban areas are 20% of the total.
Total freight volumes were up close to 15% in 2010. Building accounts for a lot of freight and a lot of basic materials production. Another way to back into relative contributions is by looking at industrial production:
II. Industrial Production Went up Steadily with a Substantial Increase in Economic Efficiency of Enterprises. In 2010, the value added of the industrial enterprises above designated size was up by 15.7 percent, or 4.7 percentage points higher than that in 2009. Of which, the growth in the first quarter was 19.6 percent, that in the second quarter was 15.9 percent, 13.5 percent growth in the third quarter and 13.3 percent growth in the last quarter. Analysis on different types of enterprises showed that the value added of the state-owned and state holding enterprises went up by 13.7 percent; collective enterprises, up by 9.4 percent; share-holding enterprises, up by 16.8 percent; and 14.5 percent growth for the enterprises funded by foreign investors or investors from Hong Kong, Macao and Taiwan. The growth of the heavy industry was 16.5 percent and that of the light industry was 13.6 percent. Among the 39 industrial divisions, 38 of them witnessed year-on-year growth. In terms of different areas, the growth in eastern, central and western regions went up by 14.9 percent, 18.4 percent and 15.5 percent respectively. The production and sales of industrial products went on well. In 2010, the sales ratio was 97.9 percent for the industrial enterprises above designated size, or 0.2 percentage point higher than that in the previous year.A substantial portion of that 15% increase in industrial production (aligning well with freight) must be building. Probably about 5%. The quarter on quarter figures steadily dropped.
In the first eleven months of 2010, the profits made by industrial enterprises above designated size reached 3,882.8 billion yuan, up by 49.4 percent year-on-year, or 41.6 percentage points higher than that in the same period of last year. Among the 39 industrial divisions, 38 divisions registered year-on-year growth with profits.
I'd say the RE contribution should knock about 2-3% off 2011, but 4-5% off 2012. China won't want to let that happen. The worldwide economy just isn't so hot that exports and industrialization can compensate for what should be a significant decline in overall building.
