President Obama wants to have it both ways.  He wants to appear to be fiscally responsible and he knows that to do so, that something has to include Social Security.  However, to try to keep as many Democrats in office that he can he has to play that other favorite card of the Democrats, that Republicans want to push grandma in her wheelchair down the stairs by privatizing Social Security.

In a campaign stop in Racine, Wisconsin the president had this to say, “”I’ll fight with everything I’ve got to stop those who would gamble your Social Security on Wall Street. Because you shouldn’t be worried that a sudden downturn in the stock market will put all you’ve worked so hard for—all you’ve earned—at risk.”  Oh, really, Mr. President?  Then perhaps you can show us where all the Social Security money is that you don’t want to put at risk.  The problem is that the government spent it all.  That’s right, there’s no lock box, no account, no bank vault, no hole in the ground were the money is buried, earning nothing.  I only wish I was able to put “at risk” all the money that the government took out of my paycheck along with my employer’s contributions. 

Based on my last annual statement from the Social Security administration, the government collected about $170,000 from me and my employers on my behalf.  Had I the opportunity to put that “at risk” in the stock market, the Dow Jones 30 industrials to be precise, including all the ups and downs, that $170,000 would be worth about $800,000 today.  Thank you Democrats for keeping me safe from accumulating that amount of wealth and instead “investing” it in ethanol, turtle crossings in Florida, bridges to nowhere, airports in John Murtha’s district that no one flies to, etc.  By Social Security estimates, that money they took from me and my employers, will be paid back to me and run out about ten to twelve years before I expire.  So instead of having a real nest egg that I can live off of and pass the rest on to my heirs, my getting Social Security will depend on the next generation getting taxed to the eyeballs to pay me and they can hope the next generation does not rise up in arms when they get the bill.

Everyone who supports the Social Security system as it is today, acknowledging that we have to fulfill our commitment to those who have retired or are very near to retiring, should join Bernie Madoff in cell block C, for the Ponzi scheme the government created.  President Obama, it is time to stop lying to the American people.  We don’t want government to run our lives.  You have crammed your left wing agenda down our throats and we will give you our rebuttal on November 3.  Then your one term will be up two years hence.

Revised GDP numbers suggest that going down is exactly what the economy is doing.  The government revised second quarter GDP growth from 2.4% down to 1.6%.  Even Paul Krugman is saying the stimulus didn’t work, but his solution is to drive the country into bankruptcy faster.  Krugman’s complaint was that the stimulus wasn’t big enough.  He also believe we should,” use Fannie Mae and Freddie Mac, the government-sponsored lenders, to engineer mortgage refinancing that puts money in the hands of American families.”  Fannie and Freddie have already sucked $160 billion out of the Treasury and Mr. Krugman wants to back up and re-inflate the housing bubble.  Talk about failed policies of the past, sheesh!

The solution to the jobs issue is private industry.  The problem is that this is the most anti-business government in memory.  Business is the target of the administration’s ire, tax policies, health care policies, cap and trade schemes, repeal of the Bush tax cuts, card check, financial regulation, have I left anything out?  So business is sitting on its hands.  No matter how much cash it may be accumulating it does not want to take any steps, like expanding, until the full weight of all these choking policies are understood and priced out or until the Democrats are run out of the Congress and the anti-business sentiment is lifted there.

So let the Joe Biden show continue.  The man who says he know little about economics and proves it with every speech will go on telling us how the stimulus is working exactly as planned.  President Obama will continue to take a new vacation about every 90 days and we will cross our fingers that there is something left to recover when we recover our government from these inexperienced, clueless dolts.

In the August 23, 2010, New York Times, Paul Krugman decries that if we don’t let the Bush Tax cuts expire and thus have a massive tax increase in the midst of a weak Obama recovery, it will be so unfair, so evil… 

First let’s look at how twisted the logic of the left has become.  Mr. Krugman says, “These same politicians are eager to cut checks averaging $3 million each to the richest 120,000 people in the country.” Er, not really, Paul, unless the richest 120,000 people are stupid enough, with all their financial advisors, to have that much tax withheld from their incomes.  You see, Paul, the only reason the government would have to cut them checks is if they paid too much in taxes during the year, and since the current rates are already in place it is unlikely that they would change their behavior to suddenly have an extra $3 million sent to Washington.  Here’s the problem with your thinking, Paul.  It is not your money, it is not my money, it is not the government’s money to begin with.  It belongs to the people who have earned it.  It is the people to provide revenue to the government.  It is not the government who gives money to those who produce.  Got it?

Like most on the left Mr. Krugman always associates tax cuts with a loss of revenue and tax increases with a gain in revenue, and ignores how people change their behavior with regard to these changes.

As this chart shows, at the end of the Clinton administration and the dot.com bubble the economy fell into recession.  The Bush tax cuts were implemented in 2001 and they were across the board tax cuts, not just for the wealthy.  A second set of tax cuts came in 2003.  As you can see revenues started to fall before the tax cuts, but bounced back sharply after the cuts in 2001 and 2003.  But Mr. Krugman would have you believe that if you cut taxes, revenues fall and if you leave them along or increase them, revenues increase.  You can also see that Clinton’s tax increase in 1993, didn’t have much effect in changing the rate of revenue growth, but when the Republicans took over Congress in 1994 and instituted tax cuts in 1997 you can see the slope of the curve bend upwards and it is even steeper with the Bush tax cuts.  So in the absence of the 2001 recession, revenues collected increased with tax cuts, not tax increases.

Let’s look at who is paying what share of the taxes.  The follow chart shows what percentage of the tax burden was paid by what percentile of the income earners by Adjusted Gross Income.

So even as the Bush tax cuts reduced tax rates across the board, the “evil” rich still ended up carrying a larger share of the overall tax burden than they did before the cuts.  So just what is Mr. Krugman’s beef? 

I argue that were are nearing a dangerous threshold politically, where the majority of voters may soon find they pay no taxes and the minority pays all.  If that tipping point is reached, what is to prevent this majority from voting for massive tax increases that will only affect the minority?  All Americans should carry some share of the cost of government.  It should not be a free ride for some and a minority pays the tab. 

To further emphasize the fairness issue look at the following chart from the IRS in 2004.  The brown bars show the share of the income that the percentile on the vertical axis earns.  The blue bar shows the share of the total income tax bill they pay. 

The problem folks is spending.  As the first chart makes pretty clear, we have not been suffering from a revenue problem, we have been suffering from a spending problem.  This administration and their instigators, like Mr. Krugman, have been urging reckless spending upon reckless spending and even decrying that the administration has not spent nearly enough.  Krugman is sloppy in making his case and tries to convince his readers that we will be carrying buckets of money to the wealthy when the truth is that he wants to open the spigot wider from those who produce in this country to the profligate government who can then spend it on more turtle crossings in Florida, and to prop up the unions, and bankrupt states.  Stop spending, cut taxes, shrink the federal beast, and we will be in good shape in short order.

As many people have said, “I never got a job from a poor man.”  In looking back at my own career, I have worked for several companies that were started by entrepreneurs and who became wealthy. Do I care if they were wealthy?  No.  Do I wish they were taxed to the eyeballs?  No.   If they were, those are jobs I would probably wouldn’t have had.  Opportunity is what made America the country where people around the world fight to get into, not bashing the successful.  All who stive to come here want to become those wealthy successful people and give the same opportunity to their children.

St. Nicholas Greek Orthodox Church stood in the shadows of the World Trade Center until September 11, 2001.  It was destroyed when one of the towers fell on it.  For nine long years the congregation has been trying to rebuild the church but has been stonewalled by government officials.  In 2008 a deal was struck with the Port Authority where the Port Authority would provide land and $20 million to rebuild the church, but the deal appears to be dead.  According to the Port Authority:

 “the church was making additional demands — like wanting the $20 million up front and wanting to review plans for the surrounding area. They say the church can still proceed on its own if it wishes.

“’The church continues to have the right to rebuild at their original site, and we will pay fair market value for the underground space beneath that building,’ a spokesperson with the Port Authority told Fox News.”

The church sees it differently:

“But Karloutsos [assistant to the Archbishop] called the Port Authority’s claims ‘propaganda’ and said the church has complied with all conditions. He said the government should honor agreements that date back to 2004, under former New York Gov. George Pataki.

“Pataki, speaking with Fox News on Tuesday, agreed that the church should be rebuilt.

“’I don’t understand it,’ Pataki said. ‘Why the Port Authority now has so far put roadblocks in the way of its reconstruction is beyond me. It’s not the right thing to do.’”

Contrast this nine year marathon to the sprint that the mosque at Ground Zero is running.  The proponents are waving the flag of religious freedom, but is that the real flag?  Or is it a triumph of the radicals who knocked down the World Trade Center and now want to plant their victory flag in its place?  Consider the following:

1. It is called the Cordoba Initiative.  Historically speaking Cordoba was the high point of Islamic advance in Europe in the Middle Ages.  They built their grand mosque on the foundation of a cathedral.  If nothing else it’s an interesting choice of names.
2. The Imam behind the project said, only days after 9/11, that the US was an accessory in the attack and that Osama bin Laden was “made in the USA”
3. Who is funding the project?  If this is to build bridges between Muslims and non-Muslims in America, why isn’t being funded by all the moderate Muslims in America?  It is believed that money is coming from Saudi Arabia and Iran.  Why is that necessary?

The primary objection to the mosque is not that they don’t have a right to build it but that in building it so close to Ground Zero that it is incredibly insensitive.  How do you begin to build bridges by sticking your thumb in the eye of the people you are trying to win over?  It seems to suggest other motives.  Remembering the glee around the Middle East immediately following 9/11, I can imagine a similar celebration upon the completion of a mosque at Ground Zero.  If that is their real motive and it gets built, it will forever be a stake piercing the hearts of the families of those who died.

The Dodd-Frank Act that in a mere 2,000 pages sought to put the control back in financial regulation skipped right over Fannie Mae and Freddie Mac the Government Sponsored Enterprises that were at the heart of the fiscal crisis and are bleeding red ink.  Focusing instead on those evil bankers on Wall Street the Dodd-Frank Act really put those guys in a box, until Goldman Sachs slipped its fetters faster than Houdini.  So who’s buried under the pile of rubble that is the latest masterpiece of our massive government, Betsy Jensen.  Who is Betsy Jensen?

Betsy Jensen is a farmer in southwest Minnesota.  She and her family grow wheat and soy beans.  She doesn’t have a mortgage, so she didn’t cause the housing bubble.  But she does use derivatives to control the risk in farm prices which can be rather volatile.  For example, a bushel of wheat went for $18.69 in February of 2008 whereas it was selling for $3.49 in July of 2010.  A farmer has to buy their seed and fertilizer at the beginning of the growing season and they don’t sell their product until the harvest.  If prices fluctuate wildly during that interval, it isn’t hard to imagine what that can do to your business, let alone your sleep patterns.

So where do derivatives come in?  Farmers like Betsy can negotiate a guaranteed price for their grain with their customers.  Betsy risks missing out on some profits if the prices go up as they have recently (45%) due to fires in the wheat producing region of Russia, but she also is protected against a price drop, for similar reasons beyond her control.  She recently negotiated a price of $7.15 per bushel and with that knowledge, she can manage her farm business and sleep a little more peacefully.  For her purchases she can also use derivatives to buy fuel and fertilizer, where the latter has seen price fluctuations of $435 to $685 per ton.  Then along come Barney Frank and Chris Dodd, a couple of career politicians who never worked in the private sector.

The Dodd-Frank Act says it is unlawful to enter into swaps (derivatives) “in excess of such amount as shall be fixed from time to time” by the Commodities Futures Trading Corporation (CFTC).  That doesn’t sound like a free market to me.  What if, in Betsy’s example, the CFTC didn’t get around to raising the amount on wheat above $5 per bushel?  Betsy couldn’t arrange to sell it for $7.15.  What if the grain elevator couldn’t turn around and sell Betsy’s wheat for the 45% increase in price due to the Russian fires?  Do you think with a cap on the upside they might not be willing to pay as much for Betsy’s wheat?

From Dodd-Frank to Bill O’Reilly we hear about the evils of speculators.  O’Reilly used to rail against the speculators when gas prices were rising toward $5 per gallon.  The evil, greedy speculators were driving up the price of gas!  But little mention was made of speculators when the price of gasoline fell back down?  Did the speculators retire?  Go on vacation?  The reality is that speculators don’t care if the price goes up or down, they only care it moves in the same direction on which they are betting.  They can drive the price down just as fast as they can drive it up.  But they are useful, not evil.

Speculators bring liquidity, that is, money to the market.  Betsy Jensen estimates that about one-third of the purchasers of wheat contracts are traders who never take physical control of the product.  But by adding their view and their money to the market they keep prices from fluctuating wildly.  If these traders are banned then, as she put it, one-third of her customers would disappear.  With one-third fewer customers the price swings will increase rather than decrease.  Remember, a trader who does not take delivery of the wheat can make money on small swings in the price and is likely to get in or get out on smaller moves and thus change the market price accordingly.  If only those who take physical possession of the product are in the market, then other factors such as transport, storage, spoilage, must be factored into each transaction and the price swings will be wider and wilder.

But Betsy said it best, “I may not be able to manage Mother Nature, but I can manage my risk with derivatives.”  If only our government would get out of her way and let her do so.

The Democrats like to point to the Clinton presidency as proof of their fiscal responsibility.  It was a period of strong growth, balanced budgets, and prosperity.  They then point to the Bush presidency, all eight years of it, and deride it for deficits, and ultimately a very severe financial crisis.  But it is worth taking a moment to recall that the federal government is made up of three co-equal branches of government with built in checks and balances.  The Congress is not subordinate to the president and it does not work for him.  It is an equal branch of government that checks and balances the power of the presidency.  For the purpose of this discussion, I will leave out the third branch, the judiciary.

Despite the famous 1992 Clinton campaign slogan, “It’s the economy, stupid,” the recession had already ended in March 1991.  When Clinton took office he had a Democratic Congress and he pushed through a massive tax increase in 1993 without a single Republican vote.  We know what happened to Congress in 1994, the Republicans took over for the first time in 40 years.  Speaker of the House Newt Gingrich tried to pass a Balanced Budget Amendment to the Constitution, which was included in the Republicans’ Contract with America.  It passed in the House but failed by one vote in the Senate.  After losing this round, Gingrich met with the Republican leadership and put forth  the idea of acting as if the amendment had passed and just start submitting balanced budgets.  They succeeded in the last three years of the Clinton presidency to produce budget surpluses and decrease the national debt.  This included a tax cut by the Republican Congress in 1997, and the economy grew much stronger after the Republican takeover of Congress than under an all Democratic government.

In the 1996 election, the Democrats regained control of the Congress under Nancy Pelosi and Harry Reid.  Up until that point the economy had grown steadily under President Bush despite two wars.  With Bush in the White House and the Republicans in control of Congress we had tax cuts and seven years of economic growth.  In December of 2007  the economy went into recession, almost one year after the Democrats regained control.  Now with a Democrat in the White House, and the Democrats in control of Congress we are looking at massive growth in government, a whopping tax increase bearing down on us that will hit on January 1, 2011, and a growing debt that may eventually bankrupt us.

So what is all this talk about eight years of failed Republican policy?  Under Clinton and a Democrat Congress it was two years of a tax increase and modest growth.  Under Clinton and a Republican Congress it was six years of tax cuts, budget surpluses and strong economic growth.  Hmmm….same president, different parties controlling Congress.  Under Bush we had seven years of growth and tax cuts with a Republican Congress.  Under Bush and a Democratic Congress, recession, fiscal crisis.  Hmmm…same president, different parties controlling Congress.

But don’t expect honesty on the campaign trail from the Democrats.  It’s just not the Chicago way.

An article in today’s New York Times is just one more, “Don’t let a crisis go to waste,” move from this administration.  The article, titled “As Oil Industry Fights a Tax, It Reaps Billions From Subsidies,” uses the same tired talking points to justify another tax increase that will ultimately be passed along to consumers.

The article talks about how the oil companies take advantage of tax credits and breaks and then it also talks about how many oil based companies re-incorporate in countries like Panama, the Marshall Islands, the Cayman Islands, and Switzerland because it will lower their taxes.  When with the Statists get it?  If you raise taxes both corporations and people will change their behavior to lower their taxes.  Impose a millionaire’s tax in Maryland and Maryland discovers they have one-third fewer millionaires a year later and hundreds of thousands of dollars in less revenue.  Impose among the highest tax rates in the developed world on businesses and businesses will move to where the taxes are lower.  Create tax breaks and then somehow the Progressives are surprised that companies took advantage of them.

The initial thrust of the article was that the tax on oil companies was necessary to pay for the cleanup of the oil spill in the Gulf.  Pardon my confusion, but didn’t the government just get BP to pony up $20 billion into an escrow fund for this purpose?  Hasn’t BP said from day one that they will pay the cost for the clean up?  So why are the Progressives in Congress rushing to put a new tax in place other than to take advantage of a crisis to reach into your wallet?

Another unintended consequence of our onerous tax policy is that when companies incorporate in other countries, those countries often have lower engineering and environmental standards.

I am no fan of corporate welfare so why don’t we take the IRS code and run it through a shredder?  Get rid of the tax breaks across the board.  Lower the tax rate to a fixed number that is on par with other developed countries.  According to the Heritage Foundation, the freest economy in the world is Hong Kong, which oddly enough is located in Communist China.  The Chicoms were smart enough to leave well enough alone when Hong Kong reverted to their control from Britain in 1997.  Their individual tax rate is progressive ranging from 2% to 17% or an option for a 15% flat rate depending on which liability is lower.  The top corporate tax rate is 16.5%.  Their five-year compound annual GDP growth rate is 5.7%; unemployment is 3.5%; and their inflation is 4.3%.  By comparison, our top corporate tax rate is 35%, more than double that of Hong Kong; our five year compound annual GDP growth rate is 2.2%; unemployment is 9.4% (at the time of this study); and inflation is 3.8%.

If we could implement real tax reform it would not only simplify our lives, save several hundred billion dollars in compliance costs, reduce uncertainty for business, create jobs, and grow the economy.  With a larger pie, overall tax revenues will also increase. 

In that Heritage study the United States has the eighth freest economy in the world, down one place from the year before; not the direction we should be going.  Imagine if we set a goal to become the freest economy in the world.  Americans like a challenge so let’s set our sights on becoming number one.  The first three to concentrate on passing are those directly in front of us: Canada, Switzerland and Ireland.  On this Fourth of July, let’s plant our flag and get to work.

As written about extensively here, government regulators have failed us in so many ways that to continue the practice of putting more control in the hands of government is lunacy.  To wit:

• The financial crisis, although typically blamed on Wall Street greed, was due in large part to government agencies and programs (Fannie Mae, Freddie Mac, HUD, Community Reinvestment Act, National Homeownership Strategy) that opened the door through which Wall Street followed.
• The oil spill in the Gulf happened after regulators either signed off on waiver applications from BP or just didn’t enforce the regulations on the books
• Anywhere from $60 billion to $100 billion is stolen from Medicare/Medicaid every year and our government can’t seem to stop it
• First time homebuyer tax credit was claimed, to the tune of $9 million, by incarcerated felons.

But the current administration insists that government must get bigger to tackle our nation’s problems and must tax us more to do so.

Senator Chris Dodd and Representative Barney Frank were at the heart of the financial debacle, claiming that Fannie Mae and Freddie Mac were in sound financial shape.  Meanwhile Senator Dodd was getting a sweetheart mortgage from Countrywide as a “Friend of Angelo” Mozillo, the CEO of Countrywide.  Now we are to believe that Senator Dodd and Representative Frank have ridden to the rescue and have crafted the solution we have all been waiting for, just don’t ask about Fannie and Freddie, they aren’t included in this master work.

The Federal Reserve will now have more power to regulate banks, after failing to monitor what was going on at Citibank and having the government step in because they were “too big to fail.”  The Treasury stepped into to bail out some banks and let other financial firms like Lehman Brothers to go under, will now have more power to determine which financial institutions are sound and which ones are not and step in to take control without allowing the bankruptcy courts to get involved.  The SEC which was asleep at the switch, or too busy watching porn on taxpayer purchased computers,  when the Bernie Madoff scam was delivered to them wrapped in a bow, will now have more power to decide how easy it will be to allow union pension funds to place their candidates on boards of directors.

The new legislation, which does nothing really new, runs to 2,000 pages (did you expect something less?) and leaves much of the details to the regulatory agencies themselves to fill in the blanks.  And never to miss an opportunity to slip a new tax into the mix there are $19 billion in new taxes to pay for this new regulatory oversight.

So when regulators fail, the government’s response is not to look at government’s role in creating the original problem, but to blame any private interests and add more regulations that will increase the scope and power of the government, take away your liberties, and do nothing to fix the original problem.  When the next crash comes, and it will, these same folks will say, “oh, dear, how did this happen?”  They will blame any private interests that are anywhere near the problem, absolve government agencies of all blame, and layer on more regulations.

The only way to fix this problem is to make sure these same folks are not around in the future and to cut the government down to size.

Did anyone not see this coming?  An article in yesterday’s Wall Street Journal reports that new home sales plunged.  Why?  The government’s meddling tax credit for first time home buyers expired and gee, the trend didn’t continue?  What a surprise.  Meanwhile the government has another program, Making Home Affordable, to help homeowners refinance their home mortgages that they can no longer afford.  Instead of letting the chips fall where they may and have prices find a bottom and adjust, we have the drip-drip-drip torture of these programs and the recession drags on.

New home sales fell 32.7% from April to a record low seasonally adjusted annual rate of 300,000.  Compared to last year the sales fell 18.3%.  In addition the previously reported sales numbers for March and April were adjusted downward.

Here is what we have.  Our government is taking our tax dollars and giving them to people to help them buy a house.  You may be struggling to pay your own mortgage and instead of the government letting you keep more of your own money and perhaps make an extra payment on your own mortgage to lower your outstanding debt or increase spending which would help grow the economy, you are paying for your mortgage and your neighbor’s.  Instead of letting those who can’t afford their mortgage face that reality, the government steps in and drags out the process.  If government got out of the way, then the banks would have the incentive to negotiate in good faith rather than looking for a government bailout.  If a mortgage is salvageable, they should renegotiate with the homeowner and take a small loss rather than a big one.  If the mortgage is not salvageable, then foreclose or short sell it and be done with it.  The housing overhang on the economy would get quickly sorted out and we could return to a more stable housing market.  Get the government out of the way and let us keep our tax dollars.

In 1920-21 there was a steep and serious recession.  This was before the age of government intervention of Hoover, FDR and all who followed.  Businesses were able to cut wages and react to the circumstances in that freer market.  Unemployment peaked at 11.7%, almost 2% higher than we have now, but by the following year it was down to 6.7% and they year after it fell further to 2.4%.  We are a year and a half into the current mess and the current administration seems intent on matching FDR’s record of stretching this out for eight years.  We have a robust economy that can rebound sharply, if the government gets out of the way.  But this government keeps tinkering and the economy keeps bouncing along the bottom.  And let’s not forget fraud.

The Treasury’s Inspector General for Tax Administration, J. Russell George, reported that 19,000 filers for the first time home buyers credit hadn’t purchased a home and there were 74,000 filers had purchased a home but it was not their first.  In additiona there were 53 cases where IRS employees filed “illegal or inappropriate” claims for the credit and today we learn that $9 million was stolen by prisoners who were incarcerated when they filed for the credit.  So don’t worry folks your tax dollars are not only prolonging the recession, but they are being stolen as well.  Feel better about your benevolent government?  Aren’t you glad we live in a country where your government can forcefully take the fruit of your labor and throw it to the wind?

Government that governs least governs best.  Let’s cut the beast down to size.

As President Obama used his first Oval Office address to push for another massive government takeover of our economy in the energy sector, it is time to debunk the myth regarding regulation versus free markets.  The Statists like to claim that the financial crisis, the lack of health care, and the disaster in the Gulf are all proof that free markets are evil and we need the benevolent care of our federal government to keep us safe and warm.

 Regulation

 Let’s focus on the current crisis, the oil spill in the Gulf of Mexico.  Here is the government’s role in this mess:

• Government has banned drilling on land (ANWR) and in shallow water of the coasts of California, Florida, the East Coast, while not only forcing oil companies to go into deeper water, but providing incentives to do so.
• The same agency of the federal government (MMS) is charged with both collecting royalties from the oil companies and for levying fines on them for violations of regulations.
• While drilling the Deepwater Horizon well, BP asked the government for several waivers of regulations, and the waivers were granted.
• After the spill started, Governor Bobby Jindal of Louisiana wanted to build sand berms to block the oil from reaching the cost, but the federal government wanted to study the problem and would not allow him to proceed.
• Foreign nations such as Norway, Holland, Belgium and Japan offered to provide ships to help clean up the oil in the Gulf, but U.S. law, the Jones Act of 1920, does not allow them to operate in U.S. waters.  When asked why the government didn’t just suspend the Jones Act for this emergency, the government’s lead agent on the ground, Thad Allen, said, “Nobody’s come to me to ask for a waiver.”  When Carol Browner, Obama’s energy advisor was asked why the administration did not lift the Jones Act said, “Nobody has asked us for a waiver.”  Who are they waiting for to ask them?
• The government placed a cap on the amount of damages that a company would be responsible to pay at $75 million, which creates a moral hazard.  That is, if I can make billions extracting oil and my out of pocket cost if I screw it up is $75 million, I’ll take shortcuts all the way.
• BP has said they are responsible for the oil spill, they will pay to clean it up, they will pay all legitimate claims resulting from it, even waiving the $75 million cap that the law allows.  So why do our leaders use language like, keeping their boot on the neck of BP and knowing whose ass to kick?  This is starting to cause a backlash in the U.K. which has resulted in comments such as, “The rest of the world is fed up with the parasitic attitude of the U.S.”
• The government starts making statements that they want BP not to pay a dividend to its shareholders or to put $20 billion into an escrow fund that the government will oversee and spend as they see fit and even to the point of putting BP into receivership.  Who is our President, Hugo Chavez?

 Free Markets

 Let’s look at what would happen in a truly free market:

• Anyone wishing to drill for oil would be able to reap the profits from the well, but would also have full responsibility for the costs of any and all damages or cleanup.  This may lead to less drilling if the venture is too risky, but that’s how markets work; it is a balance of risk and return.
• To help offset some of the risk, insurance companies could make a market in providing insurance for a disaster, but rest assured the insurance company would have their personnel inspecting the rigs to make sure all necessary risks were minimized and if not, jacking up the premiums or cancelling the insurance.
• Government regulation would be simpler in terms of setting standards of what quality of materials could be used, what redundancy must be in place to provide for any failures of primary systems, what levels of emergency equipment must be in place and what contingency plans must be prepared and tested to make sure they work.  If an oil company doesn’t not have adequate insurance, drilling must stop until they do.  If the oil company is out of compliance with a major safety issue, drilling must stop until it is corrected.
• When going into new areas such as deep water, the technologies to be used should be tested and independently verified to make sure they work as designed under the new conditions, and the insurance industry would be very much interested in participating in such testing, to minimize their risk.
• In the event of an accident, the government should lend all possible assistance to the oil company to stop the leak and clear the red tape for a cleanup effort and discuss responsibilities after the disaster is under control.

 The end result would be more cautious companies because they could be wiped out if they cut corners.  Insurance companies would have a second set of eyes making sure that things were done properly, because they make money when nothing goes wrong and are indifferent to whether any oil is recovered or not as long as the premiums are paid.  The government would be out of the business of micromanaging the industry; providing incentives and penalties under the same agency; having key personal asking “mother, may I” before taking any steps, and we wouldn’t need a dozen agencies with overlapping responsibility trying to take control.

Free markets have incentives that do work.  What is often complained about is the myth of a free market where the government has placed perverse incentives on companies and then act surprised when said companies follow the incentives.  Their response is always more regulation with more perverse incentives and the cycle repeats.  More government is not the answer, it is the problem.