The poker game, and the cowardly tyrants: two follow-ups

I noticed a few interesting facts in yesterday's Wall Street Journal related to two topics I wrote about here, so they deserve some quick updates.

Breaking news in our poker game with China
Uncle Sam's poker game with China is progressing as I suspected it might. Remember that the flop is showing two aces. Well, now we find out that China is looking at hole cards no better than a Siegfried-and-Roy (see photo at right), and — surprise, surprise — that seems to be wiping that stern look off China's face.

Here's what the WSJ said yesterday about China's bluff suggestion that the world should switch to a non-dollar reserve currency:

Unseating the U.S. dollar as the world's dominant medium of exchange would be no small feat... [it would be] a process that even ardent proponents say could take decades... China acknowledged that it could take "a long time" for an alternative reserve currency to become "widely accepted."

As I said, Uncle Sam's hole cards are pocket rockets. Turns out it doesn't even matter that we've been acting like wimps; China can read their cards, even though we can't seem to read ours.

Breaking news regarding our "outraged" politicians
Last week, I wrote about the tyranny of the majority. This week, there's a new wrinkle or two regarding the AIG bonus story, according to the Wall Street Journal and the Washington Post. Turns out, I didn't have all the facts last week; I wish I had known it wasn't the bad guys who got the bonuses — it was the good guys, those who had agreed to come and help us out by cleaning up the AIG mess the bad guys left us with. 

[The AIG] people receiving retention bonuses were not the same people who launched AIG's unhedged housing bets that brought the company down. Those people were gone. Their pay is already being clawed back... The retention plan... had been disclosed over and over in public filings. As far back as October, New York Attorney General Andrew Cuomo had summoned the Treasury-appointed Mr. Liddy to hammer out a deal on AIG's pay practices. Said Mr. Cuomo afterward: "These actions are not intended to jeopardize the hard-earned compensation of the vast majority of AIG's employees, including retention and severance arrangements, who are essential  to rebuilding AIG and the economy of New York."

These days, however, Cuomo's office "has been implicitly threatening to publish names of AIG employees who don't relinquish pay they were contractually entitled to." Barney Frank wants them outed, too; he promised to get the Federal Bureau of Investigation to obtain the names. Charles Grassley suggested that the bonus recipients commit suicide.

Turns out that politicians' brains, courage, integrity, and leadership ability are in even shorter supply than I had suspected.

Frankly, this whole situation is highly embarrassing for me; I've been trying and trying for many years to correct one of my personal flaws, but I just keep overestimating our politicians — time after time after time.

=============
End note:

Not sure why, but looking at those three faces reminded me of something Ralph Waldo Emerson said:

"The louder he talked of his honor, the faster we counted our spoons."

Comments

[beancounter]

Zimbabwe adopts US dollar, immediate improvement:

http://tinyurl.com/ct6t55

Of course fearmongerers will claim that this proves nothing, that the US dollar is still absolutely worthless and the only reason Zimbabwe's economy is stabilizing is inflation is under control. But these same fearmongerers use Zimbabwe as an example why the US printing money can never work. It's a strange sort of double think: to those sorts of people the evidence only goes one way: empirical, verifiable, testable hypothesis such as the inflated US dollar bringing a spark of life back into Harare proves nothing about the worth of the US dollar yet the outrageous inflation of the Zimbabwe dollar somehow proves something about the US dollar.

Here's what I would think if I truly believed money was solely a medium of exchange as some "libertarians" claim to believe. As long as the total amount of money was known and as long as markets could react quickly enough, it would not matter how much M0 was in the market because prices and wages would adjust instantaneously. Then I would conclude that at worst, printing money would waste the miniscule amount of labor it would take to actually physically make the money. Correlation is not causation I would conclude, for example the Weimar Republic's economic failure was due to WWI, not due to its printing of money. Certainly in the information age everyone could know how much money was in the system, the same way they would know in any private "libertarian" banking system that a bank was not inflating its gold reserve (how they would know don't ask me that's as far as my imitation of "libertarians" goes).

Of course I do not believe the above, because I happen to think that human psychology requires increasing wages which requires slowly increasing prices in a modern, educated economy. But gold yokels do not believe this. One wonders why they are angry at inflation at all. They deny it is near impossible to know exactly how much M0 there is in a sophisticated economy and believe lack of knowledge is due to corruption rather than any intrinsic difficulty in assembling and disseminating chaotic information.

[Bob]

I'm embarrassed, too. Embarrassed that these pitiful people are on display for the world to see.

We're the problem, though. We keep returning these folks to office. Yeah, we may gripe and write letters or leave on comments on blogs but we're really passively complacent when it comes to our representation.

Last fall O'Reilly took Frank to the woodshed on his show. I mean he laid him out big time calling him a coward. Some thought O'Reilly crossed a line. Even I thought he was a bit over the top. Turns out he was spot on.

I'm beginning to get quite despondent over all this. Haven't felt this way since Nixon was in office.

[Bret]

Steve Conover wrote: "I just keep overestimating our politicians — time after time after time."

I think you also overestimate other government bureaucrats and civil servants. That's why I cringe every time you talk about the government borrow to make "sound investments". Do you think their handling of AIG should give us confidence that they can identify sound investments and follow through on managing them?

[Optimist123]

Bret:

I have never thought government could invest and manage anywhere near as effectively as a properly-motivated private sector. So the answer is, no, I don't.

The problem is this: public goods. They will only be delivered by government, however efficient or inefficient that government is. One such public good is a stable currency; another is national security (diplomacy + intelligence + military capability). Both of those are less efficiently managed than they could be -- largely because (1) the political games take place on a vastly larger scale versus those in the private sector, and (2) there is no competition, and therefore no punishment for inefficiency or incompetent management.

Complaints against government waste and inefficiency are common. Solutions to the problem of inefficient delivery of public goods are uncommon to nonexistent. Adam Smith defined the short list of government's responsibilities, but we're still waiting for effective ideas for delivering them anywhere near as efficiently as the private sector delivers its goods and services.

[goy]

Hi Steve,

"... I just keep overestimating our politicians ..."

Because we admire and respect you, some of us will keep trying to point that out:

http://tinyurl.com/cu4gl3

Cuomo and Frank are two of the culprits at the very center of what caused the credit meltdown. It's no wonder they want to keep distracting the public with this bogus bonus nonsense - to draw attention away from their own culpability. Their hysterical push for "affordable mortgages" - aimed purely at the demographic responsible for the bulk of their political support - had more far-reaching effects than they might have expected.

No trader worth a dime expected housing values to increase indefinitely. They were responding to a completely different dynamic: the declaration by Raines, et al., that the GSEs' securities were, quote, "riskless". When the government indicates it'll support the basis of a security/derivative no matter what, why would a trader have any fear of default even if the housing market DID finally recede - or even crash? Answer: s/he wouldn't. Congress gave its blessing that FM & FM should go on purchasing MBSes ad infinitum - especially the risky ones - a tacit promise that they'd be safe no matter what.

So CRA and the Financial Services / GSE gang had a huge hand in facilitating the CDSes and other mortgage-backed-security-derivative torpedoes that almost sank this ship last year. AIG, et al., were acting on Congress' clear signals. Cuomo and Frank (in particular... note his recent spat with Scalia - another attempt at misdirection) are desperately trying to keep Toto from pulling back the curtain - behind which they're frantically yanking at the levers of public opinion.

On China's overtures, I wonder if they're trying to send the American People a signal. They know if our economy tanks, theirs will suffer in a big way. They're not stupid, and they know how dangerous our Congress' spending spree is.

By 'threatening' the value of our currency - more a publicity stunt than an actual threat, given the facts you've outlined and of which they're no doubt cognizant - perhaps they're simply adding their voice to the chorus trying to speak out against our new government's suicidal economic policies. As an ostensibly communist regime, they can't decry Obama's overtly socialist policies outright. But they can express their lack of confidence using the bluff.

Bluffs often work pretty well.

[Rich Johnson]

I think Bob is right. We keep returning some of these idiots back term after term. Barney Frank has a scandalous past. Jim Murtha has a scandalous past. He attacked his constituents this past election and they returned him to office. Two problems I see: 1) Too much advantage for the incumbent during an election cycle and 2) the citizenry is utterly uninformed. They are informed at a cursory level but most do not look at issues in enough depth to have a useful opinion and the voting reflects that. I am for term limits. In a nation of 300 million no one can tell me that these guys (Republican or Democrat) are the best we have to offer.

Interesting reference to diplomacy, intelligence and military Steve. In Army classes these are called the elements of national power -- Diplomacy, Information (of which intelligence plays a part), military and economic or DIME.

Whether the government should be involved in stabilizing the currency (vis a vis a national bank) is one of the oldest debates in this country.

[beancounter]

You do not need a university degree, experience or even a brain to become elected a politician (though many do have, consider that *every* class has graduates at the bottom.)

Sometimes I wonder if ideology hasn't blinded people to the obvious solution. Politicians pander to the public because they need to get reelected, but civil servants and bureaucrats need not fear reelection, only performance reports. Perhaps civil service needs to be expanded. This has a whole host of problems on its own but at least these problems have semi-effective solutions: banning/weakening the powers of collective barganing agreements and infusing fresh blood every year from colleges/universities into the civil service (ideally the situation is new graduates begin their careers in the public sector then move into more lucrative private employment). Tyranny of the majority has no solution.

Of course, those who hate "big government" will absolutely hate expanding State, the Fed, and any and every Federal department under the sun, but big government clearly refers to a powerful government and not the size of government payroll. Expanding the powers and influence of trained career bureaucrats is a distasteful yet possible *only* solution to the problem of checking political power. Politicians could grow less powerful if expanded arms-length civil servants had massive whistleblower protection laws and could regularly issue statements critiquing public policy.

[Jim Glass]

"I've been trying and trying for many years to correct one of my personal flaws, but I just keep overestimating our politicians — time after time after time. "

It's really, really difficult to underestimate them, so don't be too hard on yourself.

[Bob]

Goy,

At one time I attempted to lay blame for all of this on the CRA. Since then I learned more and have agree that it was a series of missteps that caused this mess:

Repeal of Glass-Steagal

Commodity Modernization Act

Fed Fund rate too low for too long after 911 and then ratcheted up too quickly after Bernanke took over

Complete lack of effective oversight based on laissez-faire taken to an irrational extreme.

I may be missing other blunders but the message is clear to me. There is no silver bullet that, if we could go back and omit it, would have prevented this disaster. And I'm not sure that the current remedies will work.

[Jerry McInvale]

Steve,

In the context of poker, the game is won based on the hand one has NOW and the way it is played. Clearly, the U.S. has a stronger hand now, although we are not playing it very well. The strength of the hand will most likely be sufficient - particularly since China has no good alternatives. However, consider the longer term. Ten years ago, China was much weaker that it is now, and we were relatively stronger than we are now. Based on the current condition and the projections for the next decade implicit in the proposed budget, how likely is it that the balance of power will continue to change? If you were playing China's hand and you believed that the U.S. will carry out the plans implicit in the Administration's proposed budget - what would you do? I suspect you would work with other countries for alternatives to the dollar for your reserves and redouble your efforts to increase your military and technological strength. Just as one example, China already has a small working pebble bed nuclear reactor and is busily scaling it up into modular 250 MW power plant units that do not require water cooling, expensive containment vessels, etc. The heat transfer medium is helium. I suspect that is far more likely to be a safe, economical and environmentally friendly alternative to fossil fuels for electricity generation than windmills or solar arrays. I have nothing against wind and solar alternatives except that they are intermittent and costly supply alternatives.

I hope that I am wrong about the shifting balance of power, but the current generation of political leadership is not encouraging.

As to overestimating our politicians, perhaps the issue is that they have entirely different objectives than yours. In the pursuit and maintenance of power, politicians learn to say whatever keeps them in favor with the electorate, while doing whatever is in their own interest. Therefore it is to their advantage to encourage populist anger that conceals their own culpability for problems or demonizes their adversaries. That is neither courageous, nor ethical - but unfortunately, it works. In my opinion, it is not lack of intelligence, but lack of integrity that is the main issue.

Jerry McInvale

[Optimist123]

Jerry:

If chess is a better metaphor, then we have unchallenged control of the center. If played from there with no blunders, that advantage invariably lasts the whole game. But your point is well taken: if we are dumb enough to squander the advantage, we will deserve what our opponent is sure to dish out. So much for win-lose games. (I prefer a win-win game, with both economies growing cooperatively and peacefully.)

The dollar became the world's reserve currency for two fundamental reasons: (1) the size, momentum, and growth of our economy made us the world's consumers of last resort; and (2) our trade deficit has placed US dollars in the world's hands, which in turn has given us a capital surplus resulting from the flow of dollars back to us (minus the dollars simply hoarded by those who don't trust their own currency as much). The emerging economies' preference for trade surpluses, and their resulting buildup of US dollar reserves, isn't likely to change soon. I highly recommend the following article from The Economist, which said it better than I can: http://tinyurl.com/bowo3q

In any case, our future prospects all keep coming back to the same exact thing: the size, momentum, and growth of *our economy*. That is what underlies the sustainability of military power, diplomatic clout, internal political stability, etc, etc. It is a necessary (but not sufficient) condition for all of those.

Will Obamanomics deliver? I have some hopes and some doubts. I hear its defenders use the word "investment" at least twice in every three sentences. But will they be good investments, or bad ones? What are the success criteria, what are the time horizons, and how will we measure the results?

Once every so often, government can make a good investment. The GI Bill was one of its most successful education investments, for example. Will Obama's boosted education budget deliver GI-Bill-like results -- or will it just expand and perpetuate today's jobs program for inner-city teachers unions, thererby keeping the kids in question locked in poverty? Obama talks as if that must change -- but that's talk, not results. Good results require more than talk, no matter how good the talker is at talking.

The dilemma: the private sector is much better at sorting out the good investments from the bad ones -- but public goods like education and infrastructure are the government's responsibility. I heard the promises: the "stimulus" is "temporary"; the extra spending is "investment"; real economic growth will be "4.2%" as of year 5.

I hope those promises come true, but I have doubts. Politicians are good at promising, not so good at managing for results, good at deflecting blame, good at demonizing scapegoats for bad results. Future generations are in deep, deep trouble if the "temporary stimulus" turns out to be a permanent morphine drip; if the "investments" turn out to be bad ones; and if the resulting growth turns out to be less than 3%. If that happens, there will be little hope of escaping from stagnation, largely because we have become a nation of "representation without taxation" (less than half of voters pay income taxes).

[Rich Johnson]

Steve,

Why is government responsible for education and infrastructure? That is not delineated in the Constitution (except maybe the 10th admendment where it is not omitted). One can argue that certain government investments in infrastructure and education have been good things from time to time, however, that is arguable now. Are we getting better results now that the federal government contributes heavily to education? The idea of stimulus building new schools is interesting in light of what politicians in the past have said. Interestingly, in the Nixon-Kennedy debates, Nixon talked about the federal contribution to the building of schools and Kennedy replied that was not a proper function of the federal government -- one would have thought their respective positions would have been the opposite. Until the birth of the interstate highway system, roads were mostly a state function and before that certain infrastructure (for transportation) was a commercial function -- such as river ferries, in lieu of bridges, canals, toll roads, rail, ship, etc.

As states give up their responsibilities to the federal government over time, these "government" functions seem to be less responsive and less functional.

In response to Beancounter's comments that what's wrong with more public sector employees I say how much is enough? Certainly we need civil servants but government entities are not the most efficient deliverers of service. In my experience, big business can be as ineffective as government in providing services -- to a point. Eventually the failure of business to do it right leads to loss of business and a self correction or destruction. Government does not have that mechanism unless politicians kill a program and that is akin to killing a vampire with no wooden stakes in sight.

Steve I think many of your proposed solutions make sense. However, the agents to implement those solutions (federal government) are so far from effective that the ideas are not practical (TARP funds used to bail out GM as an example). Government is necessary but it needs to be heavily constrained to stay in its lane to be effective. The way to constrain government that is the most effective is to restrict its revenue, thus its spending. And to be concerned with the size of deficits since revenues alone are not sufficient to constrain.

[Optimist123]

Rich:

Education and infrastructure are necessary public goods; Adam Smith explains them in Book V of The Wealth of Nations. If the word "education" is not spelled out in our constitution, then we can safely assume it is a necessary part of the general welfare -- just as we can assume that having an Air Force is permissible, even though the constitution mentions only the Army and Navy.

How far the government should go is debatable. My take is that this is supposedly the land of equal opportunity (not the land of equal outcomes), but we are about as far from that goal as we can get when it comes to the opportunity for an equal K-12 education. Further, it's not government's duty to simply throw money at education, its duty is to produce results. Throwing money at it doesn't work when there are corrupt administrators standing between the money source and the kids who need an education. I don't have the solution, but I can see the effects of the standoff between teachers unions and those who would reform the system, and it isn't pretty.

In any case, we need to get through the short term financial mess first, and it isn't looking good for that, either. John Taylor is a conservative financial whiz, at (I think) the Hoover Institution, who laid out the widely-respected "Taylor Rule" for Fed policy regarding interest-rate targeting. The Fed's target rate is now zero percent, and cannot go lower; but the Taylor rule says it should be six points lower (-6%). If that's correct, it means zero percent is "way too tight"; no wonder the Fed is resorting to quantitative easing (purchasing long term Treasurys) to stop the financial system's plummet, if it's still stoppable.

The short term fix on the fiscal side isn't looking good, either. According to this article -- http://tinyurl.com/cwcevl -- another massive injection will be needed; however, there is zero, and I mean ZERO, political support for anything more. That means our short term recession/depression could last another decade or fifteen years. By that time, liassez-faire growth maximization will be viewed as an economic joke of times long forgotten.

[Rich Johnson]

I don't know Steve. I read Galbraith's article and while certainly interesting, I'm not sure I agree with his pessimism. And his viewpoint is as biased as my own! In the other direction! He claims it was Bush's fault (our new Hoover) and is of the mind that the New Deal fixes were ultimately what helped us thru the depression although he concedes WWII had a big effect as well. Surely the War and postWar did as the U.S. was the only major industrial power afterwards able to supply what the rest of the world could not supply itself.

Since the economic problems of 2008 began, my interest in economics has piqued and I've learned much from many sources and especially from your blog and the posts of others. But throughout my readings I keep coming back to the gut feelings that recessions and depressions and economic downturns are natural and almost hygienic. The housing crisis is a good example. The housing bubble was encouraged by the fed, by Congress, by the Bush administration. I live in the DC area and I felt and feel the effects of the boom still (and the subsequent bust). The whole time it was going on I knew the bottom would drop out sooner or later. Housing costs were outpacing increases in salaries (mine anyway) and building was in full throttle when the builders could get permits amid the "smart growth" movement. Then the subprime mortgages came in and it wasn't just the lower income brackets capitalizing on it. It was home buyers who were moving into bigger and bigger homes until the interest rates began to rise. After refinancing and spending the new found equity or trading up the equity to a new house, buyers eventually got to a point they couldn't afford the houses they were in. Those who had lived in their homes for a long time lost considerable amounts of the Monopoly money equity that had built up. But is was phony. The intrinsic value (if such a thing can be quantified) had not increased in such a short time. The buying and selling frenzy had made prices skyrocket.

A similar thing happened with the tech stocks in 2000. When stocks were priced so high that they could companies could never possibly deliver earnings for what they were priced the stocks had to eventually fall. IPOs were launched at a frenetic pace and everyone wanted to get their share of the tech boom (I was one of the zillions who fell into that abyss).

I think it was Joseph Kennedy who was once said to have sold all his stocks after a shoe shine man doing his shoes was extolling the investment opportunities of a particular company. At that point Kennedy realized that the market was seriously overvalued so he cut and run. This seems to be a recurring theme in our history (boom and bust). Combine that with the government's proclivity drive many parts of the economy -- entitlements, technology, restriction of petroleum production in the U.S., actions by the FED, as well as the effects of our trade with other countries, the current war on terror.....is it any wonder we have booms and busts? And with so many independent cooks trying to contribute to the soup, is it realistic that the government can have a positive effect when all is said and done?

Economics seems to me to be a science involving pyschology, sociology, history, politics and other hard to quantify disciplines. The application of various predictive models to policy may be effective for incremental changes such as lowering or raising interest rates a quarter point. However, huge stimulus is suspect and too heavily influenced by the other disciplines that I mentioned above to be used effectively. When you skid on the ice (to use a weak analogy) the key is to turn the wheels in the direction of the skid and continue to do so incrementally until the car is correctly facing the direction of travel. Overreacting gets you into the ditch. I think that is what happened during the original TARP bill and is continuing with the stimulus packages. And long after the economy has righted itself through natural corrections, the huge amounts of spending are going to kick in and overcorrect.

To my knowledge, no administration has effectively steered the economy out of the ditch other than restricting the effects of government. I would cite Harding's laissez-faire policies of the early twenties avoiding a recession, Kennedy's tax cuts of the early sixties and Reagons policies of the 80's. Hoover, Roosevelt, Nixon, Carter in various ways used government controls to combat various economic problems with questionable results. Bush "I" had to deal with the inevitable slowdown of the Reagan boom and Clinton had a good run with the tech boom, balanced budgets (with negative long term consequences admittedly in terms of defense). Bush II had the inevitable downturn from the tech boom and 9/11. But under Bush II stocks went high again and houses skyrocketed for various reasons and Wall Street tried to top themselves as they did in the 80's and the confluence of events produced the current bust. As I repeat myself it seems that I'm showing a pattern that seems to be the American economy -- boom or bust. That will be the Rich Johnson theory. Forget Friedman and Keynes. Every boom is followed eventually by a bust. But a boom will follow eventually. How's that for predictive economics?

[Optimist123]

Rich:

I don't know, either. We're forced to live with the fact that true experiments are impossible in economics; the best we can do is to draw inferences about cause/effect from the observed data. Economists are *still* debating the Great Depression: what caused it, what finally ended it, why it lasted so long, when it would have ended "if only...", how to prevent another one, etc, etc. There isn't even consensus on the definition of a depression (...but I'm going with the two most-repeated: a 10% decline in per-capita GDP, or a 10% unemployment rate that persists for 2+ years, or obviously both conditions).

With so many counterfactuals ("if-only...") and so few solid theorems in economics, it's no wonder people tend to start from their chosen ideological beliefs, and then argue their "economic" position from within the safer-feeling mode of belief preservation. It's human nature. That's why politics trumps economics every time. I'm not immune to it either, although I am a hybrid: my judgment, based on what I've learned from studying both viewpoints, is that the Austrians (Hayek, specifically) got it right when it comes to what's best for the real economy's growth and prosperity -- and that Irving Fisher/J.M. Keynes got it right when it comes to monetary theory, especially when it comes to arresting a downturn.

"Let them fail" is a necessary ingredient of "creative destruction" -- but it's suicide when it results in the annihilation of the entire system. How deep would the current downturn go if we applied Andrew Mellon's early-1930s approach ("liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate") to today's slightly different list of nouns? I've decided I'd rather we not find out.

So much for ideology fallbacks; I'm still more interested in science than politics (i.e., in truth than persuasion). I plan to track a sufficient number of variables at a sufficient level of detail to (eventually) draw inferences about causes and effects, successes and failures, and especially truths vs half-truths vs empty rhetoric. It may take a year or more, but it's a fun hobby for me. (Some hobby, huh?)

[goy]

Hi Bob,

Seems like every time I try to use this TypeKey comment widget I encounter some problem. Maybe it's Firefox. Today it's a pop-up with the following text when I click "Post":

"We're sorry, we cannot accept this data."

Whatever that means. If it can't be accepted, or if it's just not accepting comments from me in particular, why doesn't the "Preview" function just express that??

Please see the link below, if interested.

http://tinyurl.com/c9eysu

cheers,

g

[beancounter]

Well, if you don't like more public sector employees Mr. Johnson then perhaps you could agree to more *powerful* public sector employees at the expense of political power. Commonwealth nations have extremely powerful auditor generals, comptrollers and so on, whose reports can make or break a corrupt government. If you like balanced budgets, look to Canada where the budget has been balanced since 1997, yet at the same time they are able to offer "socialistic" healthcare and benefits which would make the most liberal Americans scream treason (another problem with "libertarians" -- they don't see the big picture and ignore real world evidence in favor of ideology). Look up "sponsorship scandal" to see an example of civil servants toppling a corrupt government.

Laissez-faire at its heart is "leave them be" but there's an underlying assumption that leaving inefficient business alone will result in bankruptcy. This is not always true, and does *not* always happen without government intervention. A prime example is the rise of "human resources." Did any of you older folks ever know HR majors in college? Did any of you older folks (30+ years) ever know anyone who said "yes, I will go to college to become a businessman." Of course not. Yet nowadays human resource and business majors flood the streets. Business is littered with these parasites, sucking valuable time and money. Yet do companies go bankrupt just because they have an HR department or too many empty suits? No. They sputter along inefficiently, either because consumers don't have the education to make an informed choice or there is no real competition. If you don't believe government has a role in education Mr. Johnson, then at the very least you should agree government has a role in making as much information available as possible so consumers can make an informed choice (and the only way to force companies to provide as much information as possible without regulation/outright taking control of a company is criminal prosecution and/or fines of dishonest companies.)

[Rich Johnson]

Good reply Steve. And it is an interesting hobby!

Beancounter:

I'm not sure I understand your comments. To start with government employees I don't see a comparison with us and the Commonwealth nations. They do things differently and have a different model of government. I prefer our system with all its flaws where we minimize the number of government officials not accountable to anyone.

I'm not an zealot with regards to balanced budgets, however, budgets should be at least a constraint of the size and more importantly the scope of government functions.

With regards to big companies operating inefficiently, someone eventually pays a price (the shareholders). If a company is very bloated with people that are not providing value to somebody, then they become an expense that is not offset by a revenue thus profit is going to be effected. If the company is growing than such bloat can be sustained for a long time admittedly but when tough times come, some of the bloat will be jettisoned if the company is smart. If not they'll be generating sub par profits. The shareholders pay or the CEOs pay (thru replacement). Using Verizon as an example(where I used to work) I saw this frequently. Fortunately they had good revenues that could handle the inefficiencies. And as long as the customer got satisfactory service then they're happy. So you are right in the sense that inefficiency can go for a long time before being fixed. However, in some way large or small, someone pays.

In the government, someone pays -- the taxpayer. Unfortunately, the taxpayer has even less recourse than a stockholder or a customer. A stockholder can sell and buy another stock or a customer can go to another supplier. The taxpayer can vote for a different candidate but it's hard to stop a government program once it starts -- even by presidents who want to do so.

With regards to balanced budgets and universal healthcare and Canada I'll say this. Canada has a friendly neighbor with a powerful military so it does not have much of a defense expense. It is a resource rich country with 33 million people. It does ration healthcare and even pays for citizens to come to the U.S. for treatment. Universal healthcare is a great idea. However resources are limited so it ultimately just rations healthcare and ultimately just lowers the quality for everyone.

With regards to government's responsibility to education, I think it should be controlled locally or no higher than the state level. We didn't have a department of education before Jimmy Carter (or maybe Nixon I'm not sure) and I don't think the quality of the nations public education has gotten any better. I'd say more money's been spent but that doesn't make it better. DC schools are among the worst in the country. All their money comes from the Federal government. And plenty of money is spent.

I have nothing against government employees. My sister works for the Department of Energy and she's a hard worker and I've known plenty of fine public servants. I just personally think that too much government involvement in most areas other than the absolute essentials just doesn't work. If it did then the Soviet Union would have been an economic bohemoth. It wasn't. As industrial as France is, it's limitations are it's socialism. And it's entitlements. Imagine protesting because a company wants to be able to fire ineffective workers after two years! Imagine a country that enforces a 35 hour work week. Even with cradle to grave healthcare thousands died a couple of years back during a heatwave in August because so many doctors were on holiday.

Well I'll stop lest I keep ranting. Obviously I'm a limited government conservative.

[beancounter]

Mr. Johnson,

Limited government is fine, but I absolutely hate definition drift and I believe any reasonable person should hate definition drift. When I think limited government I think specific amendments especially I, II and IV. I certainly don't think limited government is physically small government, or bare essential government.

Keep in mind that everybody has a different meaning of bare essentials and it is a dangerous argument to employ, since someone willing to live with less than you always exists. It is also not a very good argument to make that resources are limited, akin to arguing the space program is a waste because its money could be used somewhere else. The budget process doesn't work that way, and even if it did Americans spend twice to three times more per capita on healthcare than other first world nations, has overweight and generally unhealthy citizens and medical bankruptcies are a bane for any family since everyone gets old and sick. Someone could argue "government" (not exactly right because doctors would be private practitioners and the first line of defense against waste) would have to be three times more inefficient than private sector healthcare and not require a profit margin or massive administration costs to determine eligibility and coverage.

Don't get me wrong. I am a fan of limited government too. I just wish there was room for compromise, and I hope you can see that the physically smallest governments can be inefficient. Even if you don't believe in regulation (and I don't either) you should believe in rule of law, which would necessitate government "interference" in almost everything in life from dishonest television ads to dishonest balance sheets. A consumer cannot make an informed choice when Verizon doesn't know the difference between .002 cents and .002 dollars.

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[Rich Johnson]

To clarify, I'll say that small government means that of limited scope. To be anymore specific I'd have to go department by department, program by program -- a useful exercise at some level but one you'd probably not care to read nor Steve would care to post. Suffice it to say I prefer small scope. Today's announcements by President Obama (who now is also the chairman of GM), makes may point. Government has absolutely no business being in the car business. None. Even the Swedes balk at involving the government with Saab which is currently ailing. Even when Carter lent money to Chrysler in the 70's it pales in comparison to this. People were shocked at Carter's intervention.

You bring up an interesting point about healthcare. We do pay more than other countries do. The first reason which is never adequately discussed is we have many more options available to us today than 20 years ago. Various levels of heart disease had many fewer options in the 1980s compared to today. All types of sophisticated surgeries are available today. A person with heart disease has a much greater survival rate today. With this greater array of services comes additional costs. I think there are many examples but I use heart disease due to my familiarity with it and my dad. I will also contend that more people come to the U.S. for medical care from other countries than vice versa. That's probably one of the few areas where we have a positive trade balance.

Further complicating things is our partial nationalization of healthcare through Medicare, Medicaid, and SCHIP as well as state healthcare programs. Here's where we face a dilemma. Of course it's desirable to have healthcare for the elderly, the poor and uninsured children. However, this coverage by the government and the taxpayer tosses a huge monkey wrench into the market mechanisms of medicine. The real costs are masked to the consumer. Private insurance contributes as well. If I pay $10 to go to the doctor, that low entry cost to care tends to make it seem cheaper than it is. Raising the entry costs for government provided healthcare might reduce unnecessary visits.

Another idea about healthcare that gets tossed around from time to time is to allow more competitors into each marketplace. Each state has its own requirements and insurance available in NJ may not be available in VA. I'm not sure of the reasons but more consumer choice could be available. Another idea is to make the government provided healthcare used for the more serious illnesses and hospitalizations only. People will obviously complain but we spend money on cellphones, cable TV, internet, cigarettes, junk food, etc. If healthcare is a priority then something else has to take a hit. And I believe people (not government) are smart enough to make such a choice if they have to. And I think this applies to every socioeconomic strata.

[beancounter]

Mr. Johnson,

Government doesn't have any reason to be in the car business, but it does have a reason to keep unemployment low (to prevent uprising/rebellion/socialistic revolution), keep transportation working (if roads and infrastructure are the responsibility of government then perhaps auto makers) and keep a domestic vehicle corporation for national security (military vehicles). Is it possible that a corporation can get too big to fail? Of course not. But certain people, not just liberals, believe that a corporation can get big enough so its disorderly failure creates a tidal wave in the economy. If you believe that any of these points at all have merit, even a little merit, then perhaps you should consider bridge loans or orderly bankruptcy as a prudent measure by government. Consider exactly what bankruptcy is -- it is not creditors rushing with strongmen to gather as many assets as possible before other creditors, but -government intervention- to prevent disorderly liquidation. To me, Obama's recent message was a *relief* in that he finally said he was prepared to let GM go into bankruptcy.

People are smart enough to make a choice, if the choice is there. Preexisting conditions prevent many from finding affordable insurance. They are also smart enough to make decisions, if the information is there. One common misconception about a growing information-centric economy is the citizenry will become more and more expert at everything. The reverse is true; as we all become extreme specialists in our fields, we will have less skills in say, navigating the legal morass that is insurance. Conservatives see lack of personal responsibility as a disease and liberals see it as not a problem at all. The reality is somewhere in between; it is a symptom of the "disease" of capitalism which cannot be fixed by appeals to family values or traditionalism. The only true fix is a mature health guru industry so an individual can pay a health guru to help him make choices. This already exists with lawyers, financial advisors, home inspectors and so on.

So does government have a role in a health guru industry? No, but perhaps it could kickstart it with RNs manning free hotlines. And it could certainly provide competition with a public system provided it doesn't crowd out the private system by making dual coverage illegal.