I am writing to ask you to withdrawal your support for the Senate Health-Care Bill. This bill will soon come to a vote in the state senate and for reasons outlined below I urge you to withdrawal your support.

Deal making is career breaking
No matter how appropriate the majority of a bill is, deal making of the type thrown within this bill will never be accepted by VA citizens. It is utterly inappropriate to support a bill that provides support and monies to other states in the manner that this bill does. It is extremely inappropriate that Senators’ Nelson, Baucus, and Dorgan received last minute deals, among other Senators.

Unknown Costs
There is no reliable study on the exact implications on the costs or savings of this bill. In fact you mention in your support statement that it will, “reduce the deficit by more than three-quarters of a trillion dollars over the next 20 years.” Whereas your colleague Senator Webb states, “will lower the federal budget deficit by $133 billion over the next ten years, and by more than $1 trillion over the decade following.” It is insightful that not even a member of your same party elected in your same state can agree on the projected savings.

Reform Yes, but not this type of reform
Your statement also correctly identifies that our current system is not sustainable, “Most importantly, the status quo of our present system, which is damaging our national economy at many levels, is unacceptable.” However, voting for a change because a change is necessary is an extremely weak position. How about voting for change that is right, that correctly fixes the issue (a position I think only a fine minority in your party would state about this bill).

The passing of this bill will affect the ability of democrats to get elected in the next election cycles. Mainly because (1) people don’t like last minute deals (2) people really don’t like to pay for something in year 1 that may or may not save money 20 years in the future (neither young people nor old people) (3) the bill doesn’t actually put in place reform that is favorable.

People are smart, and they are getting smarter, they understand that senators want to show their constituents that they did something that helped, but they are smart enough to analyze if what was done actually helps and prefer to support people who make the right decision not those who just make a decision.

This letter went to Senator Warner whereas a similar letter was sent to Senator Webb.

Capitalism:

Capitalism typically refers to an economic and social system in which the means of production (also known as capital) are privately controlled; labor, goods and capital are traded in a market; profits are distributed to owners or invested in new technologies and industries; and wages are paid to labor. (Wikipedia)

Statism:

A major government or state role in the direction of the economy, both directly through state-owned enterprises and indirectly through the state-directed economic planning of the overall economy. (Wikipedia)

It is often stated that we live in a mixed economy, one where statism and capitalism co-exist. In some markets there is little to no government intervention in others there are large interventions by the government. I can think of no markets where government intervention does not exist outside of ‘black-markets’, or more abstract concepts of a market such as trading favors in a relationship, but these usually fall within the private social institutions grouping.

I think it is important prior to expressing an opinion on something as broad as capitalism (or statism) to think about what social institutions create the concept of capitalism (or statism) and which particular social institutions are part of a critique or complaint. Usually the complaint is relative to a small aspect of a social institution rather than it to its entirety (or simply a critique about human nature rather than any particular social institution). Aligning our rhetoric with what we are truly perceiving helps with social discourse.

To quote the WSJ article:

If the FCC does force U.S. wireless carriers to open their networks to data-heavy applications like streaming video, it could push them beyond the limited capacity they have. Already, in areas like New York and San Francisco, a high concentration of iPhones has caused many AT&T customers to complain about degrading service.

Its a wonderful thing to have additional content on a wireless carriers network. I would suggest that this is one part of the service offering from a carrier that a consumer looks at when deciding on which carrier to use (although phone model offerings, and plans are likely more important). Although I’m no expert in the wireless industry, I just don’t see the market failure here. Why is it necessary for the government to step in and force an industry to do something that it doesn’t want to do, that it hasn’t done, and for which there are competitive pressures for them to be doing?

On the competitive pressure point. I imagine that one carrier would like to provide access to more websites and online content than their rivals. It provides more value to their customers making them more happy. I am fairly sure that they would want to properly balance this with network reliability and consistent access. I trust that they are doing a good job at balancing these issues or else someone else would do a better job and the company doing a bad job would go out of business (or at least loss market share). That’s competitive pressure, their is pressure within the industry to do this correctly. And I don’t see much evidence of the contrary.

One cited reasons for these new rules is that wireless providers are now in the content generation market, and they favor their own content and sites by slowing or speeding up certain sites. If their content is not good content and they favor their sites too much compared to their competition then customers would switch service providers, or at least bitch to their current service provider.

My point is basically, if consumers found this to be a problem such that they were not being served properly, then some company would realize this and offer a service which fulfilled that consumers needs. Or at the minimum you would here complaints from consumers rather than other businesses.

The Obama administration is taking the side of Google, Amazon.com Inc. and an array of smaller businesses that want to profit from offering consumers streaming video, graphics-rich games, movie and music downloads and other services.

WSJ article

My interpretation is that for some reason it is believed that government officials, be it representatives, appointees, or career bureaucrats, are somehow better suited to run things than a private market (think all of our social institutions not just companies). Milton Friedman in the below quote said it well, by asking, in an interview with Phil Donahue, why is it believed that politicians have a nobler self-interest than the self-interest of market participants (think, you and I).

“Do American Presidents reward virtue? Do they choose their appointees on the basis of the virtue of the people appointed or on the basis of their political clout? Is it really true that political self-interest is nobler, somehow, than economic self-interest? You know, I think you’re taking a lot of things for granted. And just tell me where in the world do you find these angels who are going to organize society for us? I don’t even trust you to do that.”

And F.A. Hayek sums up the concept that people in power like to exercise their power.

“The probability of the people in power being individuals who would dislike the possession and exercise of power is on a level with the probability that an extremely tender-hearted person would get the job of whipping master in a slave plantation.”

In fact the United Steelworkers couldn’t get any trade complaints passed through the Bush administration so their hoping for some traction with Obama (particular since he pledged to increase trade enforcement). They are currently trying to get ‘trade enforcement’ considerations by Obama on imported Chinese tires.

Well Obama ended up signing a 35-percent tariff on imported tires (a tariff acts like an additional tax on tires from China, read more about tariffs via wiki). The action provides a 35-percent tariff the first year, beginning September 26; 30 percent the second year; and 25 the third. That’s on top of the four-percent tariff that the U.S. already imposes. Then the statute expires completely at the end of 2013. The reason for the increased tariff is that current trade laws have a anti-dumping law which in this case has been investigated by the US International Trade Commission which has determined that (see their report),

On the basis of information developed in the subject investigation, the United States International Trade Commission (Commission) determines, pursuant to section 421(b)(1) of the Trade Act of 1974,1 that certain passenger vehicle and light truck tires2 from the People’s Republic of China are being imported into the United States in such increased quantities or under such conditions as to cause or threaten to cause market disruption to the domestic producers of like or directly competitive products.

So basically the Chinese are able to import tires that are less expensive and that this causes market disruption. I wonder if saddle makers made similar complaints to their US representatives in the advent of the automobile, claiming that automobiles will subject their industry to market disruptions.

I thought a quick overview of why this hurts all of us would be beneficial. China can produce tires with less expenses than a US company. They can do this because of differences that exist within their economy, like lower wages and lower costs of production. This provides the US market with less expensive tires. When a tariff is enacted it increases the price of imported tires and limits the number of imported tires that come into the US market (this later point is because Chinese firms profit margin decreases because the demand for their tires decreases due other additional costs imposed by the tariff and they produce less tires for export).

In fact, I just purchased a set myself, and was happy to buy a reliable well made tire from China that costs less money. If these tires were more expensive due to a tariff or not available because the Chinese companies can no longer remain profitable, then I would have to purchase more expensive US made tires, or pay for more expensive tires from China. That would leave less money in my pocket, and every other consumer who picked out less expensive Chinese tires. This makes me less well-off, there is less money to spend on other things like donations to universities or going out to dinner in my neighborhood.

Well, one my ask, why would a President want to hurt all of the consumers of tires in the US. Its not that the President wants to hurt consumers, but rather the US Steelmakers and a few other special interest have convinced the President that they are worth helping. Too bad US consumers can’t get the attention of the White House like special interest do.

I agree with a WSJ blog that this shouldn’t be viewed as a beginning of a Trade War, as it may just be a warning shot, but it still is unnecessary and doesn’t allow me to freely contract with a company providing me a more favorable alternative to US made tires.

To quote the president in a speech given Aug. 2, 2008,

When special interests put their thumb on the scale, and distort the free market, the people who compete by the rules come in last.

Well I’m following the rules as is every other consumer who wants to purchase less expensive tires, and we are coming in after the special interest. Hopefully people will start to learn that politicians manipulate public sentiments to get elected (i.e., they tell us what we want to hear which does not follow what they end up doing).

Why Should One Get Support While the Other is Hurt

There has been push back from environmentalist for the lack of stringency of the bill (see this op-ed), whereas conservatives criticize the bill for the negative consequences to the economy and increased costs to households (see this report).

For me it is fairly simple. If we increase the cost of doing business in the U.S., then companies will move to other countries to produce goods and services (internet searches are energy and carbon intensive). This decreases the economic activity in our country while moving carbon intensive industries to countries with no carbon limitations, resulting in the same or even more likely a larger carbon footprint for the world and reduced economic activity in the U.S.

If the goal of the government was to move to a green economy to reduce our carbon footprint than they should stop subsidizing the production of carbon intensive fuels and uses for those fuels.

A cap-and-trade program simply attempts to increase the costs of using carbon based fuels, by requiring an emitting entity to hold an allowance, which costs money (similar to a tax). There is another way to reduce carbon, among others, by increasing the cost of producing carbon based fuels. An interesting aspect of this approach is that the cost of producing carbon based fuels is lower due to government subsidies.

The US government subsidizes the production of carbon based fuels, most notable oil, coal, and natural gas, through numerous programs and incentives.

Here are a couple of methods of subsidizing oil (from GreenPeace article)

Tax Breaks for Domestic Oil Exploration and Production.
Defense of Persian Gulf Oil Supplies.
Provision of the Strategic Petroleum Reserve.
Support for Oil-related Exports and Foreign Production.

Also, the subsidization of royalties (from NY Times article).

In the United States, the federal government’s take — royalties as well as corporate taxes — is about 40 percent of revenue from oil and gas produced on federal property, according to Van Meurs Associates, an industry consulting firm that compares the taxes of all oil-producing countries. By contrast, according to Van Meurs, the worldwide average “government take” is about 60 to 65 percent. And that figure, of course, excludes countries that do not allow any private ownership in oil production.

Last fall, the Interior Department agency that collects oil and gas royalties has been caught up in a wide-ranging ethics scandal — including financial self-dealing, accepting gifts from energy companies, cocaine use and sexual misconduct. Maybe this is why we have some of the lowest royalties in the world. (See NY Times article, and Colorado Independent Article)

So, let’s stop subsidizing the production of carbon based fuels, and do this by first increasing royalties and increasing the transparency and oversight of the Interior Department. Allowing the cost of carbon based fuels to reflect their true market costs will create an incentive for green development, while reducing government intervention and manipulation. Win win situation between the greens and libertarian/conservatives. And increasing government royalties could allow us to pay for all the other government services, so the liberals win as well, albeit to the detriment of the libertarians.

See the End Oil Aid website for further information on ridding our market of harmful oil subsidies.

Nicholas Kristof describes three ill-effects of the War on Drugs:

1. Increased incarceration.

The United States now incarcerates people at a rate nearly five times the world average. In part, that’s because the number of people in prison for drug offenses rose roughly from 41,000 in 1980 to 500,000 today. Until the war on drugs, our incarceration rate was roughly the same as that of other countries.

2. Increased the price and subsequently the profits of drug lords.

One reason many prominent economists have favored easing drug laws is that interdiction raises prices, which increases profit margins for everyone, from the Latin drug cartels to the Taliban.

3. Wasted resources.

Jeffrey Miron, a Harvard economist, found that federal, state and local governments spend $44.1 billion annually enforcing drug prohibitions. We spend seven times as much on drug interdiction, policing and imprisonment as on treatment.

I also just watched a documentary on MS 13 (World’s Most Dangerous Gang) which connected the gang’s power with drug sales.

One simple point I hope my readers can ponder. When was the last time you saw a gas station owner get in a gun fight with another gas station for the rights to sell beer in a neighborhood.

Also check out what the group Law Enforcement Against Prohibition, or LEAP, is doing to support a sound drug policy. This is an organization of police officers, prosecutors, judges and citizens who favor a dramatic liberalization of American drug laws.

I came across a good article on Soft Paternalism on NPR, Using Psychology to Save You from Yourself.

The basic concept of Soft Paternalism, or so its supports claim, is derived from Behavioral Economics, which is,

a school of economic thought greatly influenced by psychological research — which argues that the human animal is hard-wired to make errors when it comes to decision-making, and therefore people need a little “nudge” to make decisions that are in their own best interests. And that is exactly what Obama administration officials plan to do: By taking account of human psychology, they hope to save you from yourself.

The argument against Soft Paternalism is often along the lines of government also being made up of error prone individuals, so that the government should remain out of the business of making decisions for individuals.

“Just understanding that human beings don’t make perfect decisions does not make the case for government by any stretch of the imagination,” Glaeser says. “After all, governments are made up of people, too. They are subject to the same foibles and weakness as the rest of us.”

The retort provided by one of the article’s subjects brings up an example of Soft Paternalism in Britain.

Any American who goes to London realizes that they are endangering their lives every time they try to cross the street, because the traffic comes from the wrong direction. Our instinct is to look left, but if you look left, you’ll get run over by a double-decker bus. To help us, Thaler says, someone in the British government decided to write on the sidewalks of busy intersections filled with American tourists the words “look right.”

The problem I have with this is not that government officials are error prone, although I realize they are error prone (on top of incentives that are not aligned with my well being), but that this type of intervention in individuals lives can lead to a lazy populice, which can become even more error prone.

The reason we are taught to walk across the street safely, is so that we can become independent adults, pursuing what makes us happy in our own way. If we no longer need to be taught to walk across the street, or how to choose a doctor, or what to do with our money, then we are no longer individuals pursuing our own happiness. We are merely mechanisms of a society which has robbed us of our path to empowerment and self fulfillment, the maturity to take responsibility for our actions. I would prefer to live with people who feel responsible for thier own actions and felt empowered and esteemed for being able to do things like, walk across the street.

The country’s biggest banks have made moves to bolster their balance sheets by about $56 billion since the government disclosed the results of its financial “stress tests” two weeks ago, Treasury Secretary Timothy F. Geithner said Wednesday.

So the question that came to my mind after reading the article is, “Where is all this money coming from?’

That’s right. The Federal Reserve has been expanding the money supply so quickly that banks that only a few months ago couldn’t raise capital and were looking at a qquick demise are now able to raise $56 billion.

It is har dto measure precisely the amount of monetary expansion occurring as a result of numerous actions by the Federal Reserve. This analysis has it pegged at close to $1,100 billion. Another shows the increase at closer to $700 billion.

So what’s the problem with such a quick and extensive expansion of the money supply. This is the debated questions, or rather more specifically the debate is two parts (1) is the monetary expansion needed and (2) will the long term consequences be worth the debated short term gains.

Simply put, excessive monetary expansion creates inflationary pressure which devalues the US dollar making it less attractive to foreign investors and creates uncertainty and instability. The argument is that the benefit of monetary expansion is to stimulate the economy in the short run. There is little to no empirical evidence that this is true and economist do not agree on this being true.

During Federal Reserve Chairman Bernanke’s December 1, 2008 remarks he states,

Expanding the provision of liquidity leads also to further expansion of the balance sheet of the Federal Reserve. To avoid inflation in the long run and to allow short-term interest rates ultimately to return to normal levels, the Fed’s balance sheet will eventually have to be brought back to a more sustainable level. The FOMC will ensure that that is done in a timely way. However, that is an issue for the future; for now, the goal of policy must be to support financial markets and the economy.

Obviously in Bernanke’s mind, this is something to think about in the future, or in economist’s jargon, in the long run. Keynes was a proponent and some say the creator of monetary expansion policy and a critic of Keynes, Ludwig von Mises, stated in response to Keynes arguments for monetary expansion,

…we have out lived the short run and are suffering from the long run consequences of [Keynesian] policies.

In response Keynes simply states,

In the long run we are all dead.

Well in the long run for the current monetary expansion, we may not be all dead, I will be alive, Bernanke will likely still be alive, albeit likely no longer the Federal Reserve Chairman. What I think is the more realistic retort to the reasonable criticism of von Mises is “In the long run, people tend to forget what caused the mess.” They might not be dead, but the problem is dead as people tend to only think of things statically and don’t see connections between past behaviour and decisions and current unfavorable predicaments. When the long run comes, they’ll likely blame something that is occuring in the short run.

Just as the current economics crisis is thought to be a result of short term speculation rather than the long term consequences of government intervention in the economy, and most notably the housing market (see article on the relationship between the economic crisis and government policy). I’m excited to see how people perceive the future inflation and devaluation of our currency.

I came across the group ‘The Cap Solution‘ through a few different avenues, energy industry related research, at the public library as an advertisement in the front hall, and at the local farmers market on a bulletin board. The Cap Solution is consortium of the Environmental Defense Fund, the Blue/Green Alliance, and the United Steel Workers.

Here’s what they stand for:

The cap solution in a nutshell

Capping carbon pollution encourages the growth of renewable energy and energy-efficient industries. It brings customers to these businesses, which in turn will create good jobs and help revitalize American towns.

They are correct that it will encourage the growth of renewable energy as a GHG cap will increase the costs of traditional generation (e.g., coal and natural gas). I’m not sure if it will create jobs, as that assumes the jobs lost from the coal and natrual gas generation sector will be more than replaced by jobs associated with ‘green energy’. Their logic does fully fall apart with the comment that a GHG cap will, “revitalize American towns.”

Let’s explore this logic a bit further:

New jobs americans can do tomorrow

Take the wind turbine. It’s a machine. Americans are good at machines. A typical wind turbine has 8,000 parts and is made of 250 tons of steel. Somebody’s got to make that steel, fabricate those parts, assemble those parts, deliver the assembled turbine to a wind farm, erect the turbine and manage the wind farm. That’s a lot of jobs right in the American workers’ sweet spot. And this is just one example. A Carbon Cap will create demand for energy efficient windows, LED lighting, ball bearings for turbines and thousands of other products.

So here is where I strongly disagree with their logic. If we implement a GHG cap we increase the price of manufacturing in the US, particularly the cost of manufacturing energy intensive products. Steel is energy intensive. So while we increase the costs of doing business and producing steel and India and China do not increase the costs, they become more competitive in the market and thus will be most likely the producers of the new wind turbines. In fact this article, claims that China will be the biggest producer of wind turbines in 2009. So why, in particular, is the United Steelworkers supporting this legislation. Well as an economist I tend to think of incentives, what is it that the United Steelworkers like, what reward would they possibly seek…protectionism.

This can be seen by the Cap Solution’s simple sentence:

And by starting now, we’ll make sure these products are made here and exported all over the world. Instead of becoming more products we have to import.

In fact the United Steelworkers couldn’t get any trade complaints passed through the Bush administration so their hoping for some traction with Obama (particular since he pledged to increase trade enforcement). They are currently trying to get ‘trade enforcement’ considerations by Obama on imported Chinese tires (see article).

Its unfortunate that the environmental leadership in our country can’t make the connection between increased costs of production and the health of our economy, and how the health of our economy allows us to purchase environmental services (e.g., pollution control and preservation). I also find that most people forget that the reason we get to even consider worrying about GHG is that we have a high standard of living. I fear that our ability to worry about GHG, our high standard of living, will erode as we start to turn our worries into policies. Policies that increase the costs of doing business in the U.S., while not simultaneously increasing the cost of doing business in other countries, putting all of us at a competitive disadvantage.

This group, waiting in line for free food for unemployed, aren’t waiting in line to volunteer for a non-profit, or learn about environmental degradation, they’re unemployed and employment and security definitely come before environmental protection.