Who doesn’t love a freebie?  Who does not get a thrill of good fortune by finding money in the street, no matter how insignificant the amount?  We may not believe in the Tooth Fairy, but many of us believe we have a rich benevolent uncle, Uncle Sam, who is willing to lavish upon us his wealth if only we would ask.  The sad truth is that Uncle Sam is not rich, but penniless and is running a ponzi scheme that would make Bernie Madoff blush.

Health Care for $20

One of the major reasons that health care costs are rising out of control is that no one is minding the store.  While Washington twists itself in knots to rearrange deck chairs on the Titanic of health care, we have little to no say in how our health care dollars are spent.  Our health care “insurance” system is not really insurance.  Insurance is meant to protect us from a financial catastrophe.  Going to the doctor for a checkup is not a catastrophe.  Paying a $20 co-pay for that checkup is like finding money on the street.  There is no way anyone can get a physical exam, except by a hooker, for $20.  It is a good idea to get a physical checkup every year?  Yes, then pay the bill and ask what you are paying for and make sure you need it.  You take your car in for service don’t you?  Do you file an insurance claim when you do?  Can you get it done for $20.  Let’s get real.  What we have is called third party payer and when someone else is picking up the tab, do we care what it costs?  Really?  But someone is picking up the tab.  Look in your other pocket, because you are.  If you are generally healthy and you get your annual checkup, your insurance premium (here in New York at least) will probably run around $10,000 per year.  But, hey, you only paid $20 for that physical!  What if you paid the full amount for the physical, say, $500.  What if your insurance premium was cut to $5,000 because you would pay most routine medical costs out of your pocket and what if you could put the $4,500 left over ($10,000 original premium, minus $5,000 current premium, minus $500 cost of checkup), into a tax free account that can be used for future medical expenses or retirement if you don’t use it?  If you are a young person and stay healthy into your mid-40s, you would have accumulated over $90,000 in your medical savings account and you still have catastrophic insurance coverage and the government stays out of the picture.

Retirement for Free

Like many well intentioned Government programs, Social Security, enacted during the Great Depression, seemed like a good idea at the time.  When enacted there was about 15 workers paying in for each recipient drawing out.  Today there are about a little over 3 workers paying in for each beneficiary.  Bernie Madoff would blush at the audacity of it.  On top of that the money that is paid into Social Security can only be “invested” in Treasury Securities so the return is lousy, but safe.  People reacted to Social Security by saving less because the government safety net was there.  Had people been encouraged to save for their own retirement, they would not be leaving their children this legacy of a ticking time bomb.  So today, many young people feel the government’s hand in their pocket when they look at the FICA line on their pay stub, but don’t believe they will ever get a penny back.  Nice concept.

Bring Home the Bacon!

What’s the measure of a good Congressman or Senator?  Bringing home pork for the district, no?  If you are like me, you get flyers every year or several times per year, touting how Congresswoman Jones obtained federal funding for that pier at the amusement park.  With 435 Congressmen you can count on this, for each $1 that your Representative brings home $434 leaves the Treasury for each of the other Congressional districts and probably more, depending on the power and seniority of your Representative.  Guess who’s paying for that Turtle Crossing in Florida?  that bridge to nowhere in Alaska? that airport in Johnstown, PA that no one uses?  That’s right, you are.  What if we decided locally if we really needed a pier at the amusement park, and if we did, pay for it ourselves?  Then we could let the people of Florida decide if they want to build a turtle crossing, the people of Alaska decide if they wanted a bridge to nowhere and the people of Pennsylvania decide if they wanted an airport that no one used.  Then we could cut federal taxes by an equal amount to keep them out of mischief and help us pay for these projects if we really wanted them.

Let’s Get Organized

There was a time in our history where labor unions performed a valuable service.  In those times when many industrial jobs were unskilled or semi-skilled, employers could dismiss someone on a whim and replace them within the hour.  Unions gave those workers some counterbalancing power and fairer treatment.  Today, we have a much more sophisticated economy and workers have more skills and mobility.  Union membership has declined accordingly, in the private sector at least.  Why is union membership still growing in the public sector?  What is different about workers in the public sector that they still need unions?  Are we suggesting that all government workers are unskilled?  Why do teachers need a union?  Are they not skilled such that they could sell their services to the highest bidder?  Why do unions fight merit pay for teachers?  Why are school principals, the de facto CEO of the school and who in New York easily make six figures, unionized?  Do you get an idea why our K-12 public school system is trailing the world in performance?

In Michigan, privately owned small businesses that provided day-care services suddenly discovered that they were part of a union and union dues were being withheld from their government contractual payments.

Ms. Berry owns her own business—yet the Michigan Department of Human Services claims she is a government employee and union member. The agency thus withholds union dues from the child-care subsidies it sends to her on behalf of her low-income clients. Those dues are funneled to a public-employee union that claims to represent her. The situation is crazy—and it’s happening elsewhere in the country.

Ms. Berry, runs “The Berry Patch” a private day care center she operates from her home catering to low income clients.  The money that was once paid to her, now goes to a union that does little for her.  She is “self employed and wants nothing to do with the union.”  Don’t you think we need more of these tactics in America?  Card Check anyone?

Going Postal

And let’s not forget the Postal Service.  As postal rates are again scheduled to increase on January 4, let’s look at this paragon of efficiency, that is actually authorized by the Constitution.  In 2008, the Postal Service lost $3 billion, and the Postmaster General John Potter pulled down $800,000 in compensation including $135,000 in incentive bonuses.  What do we have to pay this guy if he actually breaks even?  Also, let us not forget this is also a very heavily unionized operation.

Don’t Worry, You Won’t Feel a Thing

During World War II, FDR needed to raise more revenue to pay for the war.  Fearing a backlash, his team hit upon the idea of payroll withholding.  Knowing the potential backlash that would result when taxpayers had to write that big check on April 15th, he rightly figured that if he took a little bit each week, he could take a lot more in total.  Statists in Washington have never looked back.  It’s like the tax that was imposed on telephone service to pay for the Spanish American War that is still in place today.  Instead of picking our pockets every week, what do you think most Americans would say about the size of the federal government if they had to write one big check on April 15th?  There would be no tax rebates, because there would be no tax withheld.  Do you think Americans would force Congress to sharpen their pencils and scale back the size of government?

Help is On the Way

Ronald Reagan said, “The nine most terrifying words in the English language are, ‘I’m from the government and I’m here to help!’”  But perhaps the best example of how far from our founding principles our government has strayed comes from Congresswoman Rosa DeLauro of Connecticut as she spoke during a House End of Year Wrap Up Session:

“This House–we understand, we’re there,” she said.  “You can count on us because we believe that it’s our moral responsibility to make sure that you and your family need our help.” 

I don’t know about you, but I don’t need the House of Representatives making sure I need their help.  I need as little interference as possible from them.  Their meddlesome intrusions in our lives is killing what made this country great.  It is a point we cannot make often enough.

If you look at President Obama’s record on what he says one day and one he says later when reality sets in, are we really ready to believe him when he says,

“Whatever plan we design upholds three basic principles,” he said. “First, the rising cost of health care must be brought down; second, Americans must have the freedom to keep whatever doctor and health care plan they have, or to choose a new doctor or health care plan if they want it; and third, all Americans must have quality, affordable health care.”

He told us we absolutely had to pass his $787 Billion stimulus package or the unemployment rate would hit 9%, but if the package passed, the unemployment rate would be held to 8%.  It didn’t work.  Unemployment is at 9.1% and climbing.  He said bankruptcy for the auto companies would be disasterous for the economy.  After pouring billions into the auto companies, where are they?  In bankruptcy.  It is estimated that his health care “solution” would cost between $1 and $1.6 trillion. Why should we believe it?  What has he told us he would do that has actually come to pass?  North Korea?  Iran?

What confidence do we have that the government can do anything, other than national defense, better than private industry?  The postal service?  Amtrack? Farm subsidies? Earmarks? Speaking of healthcare what about Medicare and Medicaid?  In a report from March 2008:

“We need to act quickly and effectively to address Medicare’s fiscal health, including enacting the steps proposed in the President’s budget, which would postpone the insolvency date of the Part A trust fund for ten years,” said Health and Human Services Secretary Mike Leavitt.

A Modest Proposal

Before attempting to overhaul one-sixth of the U.S. Economy, why doesn’t the Obama Administration fix Medicare and Medicaid?  Show us your stuff Mr. President. Not your charm, not your winning smile. The campaign is over.   Prove that you can make these government programs work before you take on any more massive health care undertakings.

At 06:00 this fine Saturday morning, the Obama folks released an analysis by their economic team of how their economic stimulus package is supposed to work (see full text here).  Quite frankly, I think there would be more stimulus from handing out coupons to Starbucks for a good shot of Joe, than this stimulus plan suggests.

Among the first things to catch my eye was the following statement:

“It should be understood that all of the estimates presented in this memo are subject to significant margins of error.”

There’s nothing like a good caveat to start off an explanation of how you’re going to spend nearly $1 trillion.  It brings to mind the old economic joke of how economists have successfully predicted eight out of the last five recessions.  While I understand the need to explain that these economists don’t have a crystal ball, you wish they were sitting at the table with a much smaller pile of our chips.

The thrust of the plan calls for “ substantial investments in infrastructure, education, health, and energy. “  To me that translates into bigger government than we have now.  Infrastructure is largely government owned.  There is also a significant lag effect in infrastructure projects.  Education is also government run.  After over $1 trillion in spending by the Department of Education, our education system is no better and probably worse than when it started.  Teacher employment has skyrocketed with the goal of making class sizes smaller with no demonstrable improvement in learning.  So, let’s pour more money into that arena and make sure we saddle communities with higher property taxes for years to come.  Sounds great!  Where do I sign up?  But, it does make the teacher’s unions happy.

Another chunk of the stimulus packages is to provide:

“State fiscal relief designed to alleviate cuts in healthcare, education, and prevent increases in state and local taxes.”

In other words, let’s take money from one government entity and give it to another, the reason being so that they don’t have to run a deficit at the state level.  Instead, we’ll run a deficit at the federal level.  Brilliant!

When you look at the charts, here’s where it really gets interesting.  The plan says it will take 5 years for unemployment to return to a 5% level, which is higher than pre-recession levels and it will reach this level with or without a stimulus package.  The difference is that the stimulus package will provide faster relief in the intervening period.  Their forecast is that unemployment will peak at 8% in 3Q09 with the stimulus, and at 9% in 2Q10, without the stimulus.  So we are to spend ¾ of a trillion dollars for a 1% improvement in the unemployment rate, for four years.  That’s an additional $193 billion a year for four years to get us to the same place we would be without the stimulus.  What the analysis doesn’t show is the stimulative impact on the economy of not having a $775 billion dollar deficit to pay off after the economy recovers.

The analysis then addresses the effect of tax stimulus:

“It is important to note that the jobs effects of temporary broad-based tax cuts would probably be considerably smaller. Large proportions of temporary tax cuts are saved, blunting their stimulatory impact on output and employment. The prototypical recovery package only provides for the first two years of the Making Work Pay tax cut. Our analysis assumes that households treat the tax cut as permanent in determining their short-run spending.” {emphasis added}

I would take that argument a step further.  As we saw earlier in 2008, there was a minimal stimulative effect from the $300-$600 tax credit that was issued.  Given a finite dollar amount, as the proposal states, most people are inclined to save rather than spend it.  I would argue that tax relief of any fixed dollar amount, that would be realistic as we can’t give everyone a check for $1 million, is going to have a limited stimulative effect on the economy.  However, when you cut tax rates, the stimulative effect is genuine and long lasting.  Why?  In the Obama plan, the tax relief is $500 or $1000, depending on if you file individually or jointly.  If I know that I am getting $500, regardless of how much I work, the stimulative effect of the $500 depends on what portion of my income that is. But like the $300, it is likely going to be used in these times for saving or paying down debt.  The fact that I may, and I repeat, may get another $500 next year, isn’t likely going to make me splurge on a new car.  However, if I know that my taxes will be lower on every dollar I earn, because of lower tax rates,  I am encouraged to produce more, work more, keep more, and spend more.

From an article in Reason this past Monday before Obama’s speech:

“Lets break this down. Its nice to see that the change we can believe in won’t alter the way Washington plays games with taxpayer money. We can give Obama the benefit of the doubt until we hear from him later this week, but if “officials” are really committed to “historical and empirical evidence” of how to get out of a recession, they won’t stimulus spend. Japan spent 10 years–its “lost decade”–trying to spend its way out of recession and wound up doubling unemployment and increasing the debt level above GDP. “Historically” real tax cuts for the wealthy and business world increased productivity and national growth, but they aren’t politically savvy, so we’re unlikely to see those too.”

So the search is for “popular” tax cuts, not effective tax cuts.

If you ask someone today which president is most responsible for the Great Depression, the answer will likely be Herbert Hoover.  However, Hoover was president for only three years of the Great Depression, while Roosevelt was president for eight of those years.  So while Hoover, without question, make some key errors that made the situation worse, Roosevelt couldn’t find his way out of the problem for almost three times as long, and yet the Democrats are using Roosevelt as a model but saying we have to do it bigger.  Are you getting a little concerned now?

Obama can use this to his advantage.  Just like Roosevelt and Hoover, Obama can and will blame the economic problems all on George W. Bush, for as long as Obama remains in office.  No matter what he does or fails to do, he can point to Bush and then to the Great Depression and say, hey, these things take a long time to fix.

Another point the Reason article makes is that recipients of the Obama tax cuts are very likely to be people who do not pay income taxes:

“While Americans know better what to do with their money than the federal government, many people got those checks who didn’t pay taxes in the first place, so they got other people’s money back. That redistributory system doesn’t encourage growth, it just hands out money.”

Americans do know better what to do with their money.  So here’s my prescription for the economic problem:

• Make the Bush tax cuts permanent
• Explore making the tax cuts deeper, going back to the rates that Reagan put in place starting the longest peacetime expansion in history.  Face it folks, if you want to get the economy moving, you have to give tax relief to people who actually pay taxes.  That’s were the money is, and it will be put to work to invest in businesses and create jobs, not to pay off the credit cards.
• Start dismanteling the federal government.  It is too big, it spends too much money, programs that start never end, and it is eating up too much of the economy.
  • Why is education a federal issue?  Kill the Department of Education
  • Why is the Department of Agriculture as big as it is when only 2%-3% of the population work in agriculture
  • Why are food stamps a federal program rather than being at the state or local level?
  • Why can’t we fix Social Security and Medicare.  The average return on Social Security investments is about 1%-2% per year, which is dismal
  • Why was the Grace Commission report, prompted by Reagan and finding about $400 billion in savings, largely ignored?
  • Why is our tax code, that is estimated to cost taxpayers $200 billion per year to comply with, not replaced with a flat tax?
• Kill the uncertainty overhanging the economy.  Tell businesses that the bailout window is CLOSED. Go back to running your businesses like you should, or face the consequences of your actions.  Government should clearly state what it will do and what it won’t do.  Without that, everyone will sit on the sidelines waiting for the other shoe to drop.

Once people stop waiting to hear what the government plan is, they will set about doing what they have to do for themselves.  Many of the problems that got us into this mess were caused by the government (Fannie, Freddie, Community Reinvestment Act, bailing out this company but not that one, keeping interest rates too low for too long, enormous deficit spending).  How any sane person thinks that “only the government” can get us out of it, escapes me.  This great country has enjoyed tremendous growth and prosperity through much of its history, with government playing a very small role.  But government programs and initiatives (New Deal, Great Society) have saddled us with a host of problems that we will be dealing with for many years to come.  It’s time that when the doorbell rings and we open it to hear, “I’m from the federal government, and I’m here to help you,” that we slam the door and follow the age old advice, “If you want something done right, do it yourself.”