The Presidency 2008 – the Weekly Betting Line

Democrat Primary Winner:

Hillary – 4-5

Shrill, socialist, disingenuous, scripted, obvious movement to center, a woman who has used ALL of her husband’s substantial chits and skills and charisma for the last four years, yet still can’t muster much over 40% of her own party’s vote. This is how stupid the Dems are. Get’s the black vote. Has not a prayer in the general – anyone but Hillary.

Barack – 20-1

As Joe said, smart, articulate, clean and good looking. Great speaker, lots of charisma, reminiscence of Jack Kennedy. No experience and not black enough for the black vote. No platform. Against the war – and actually a record of being against the war. Must explain the 4 years at the Masrada – and soon. Wins traction points as a potential VP candidate and great exposure for the 2012 race.

Edwards – 100-1

Wins socialist, universal health care voters who love the idea of raising taxes on the rich and who like Southern snake oil salesmen with lizard tongue thing going on. Loves sound of own voice. Hasn’t a prayer and not a VP candidate either.

Biden – Done – Joe … shut up!

Republican Primary Winner:

Giuliani – 4-5

He is what he is. Smart guy, articulate, courageous, affable, charming and good looking. Rudy did what he had to to get elected in liberal New York – he is not a pro-choice guy, he is not an anti-gun guy, and he is a rational almost-conservative right wing guy who is electable. (Sorry, Gunny). He agrees with W’s supreme court picks and he has demonstrated courage, honesty and leadership in tough situations. This is our best hope at getting a guy into the race who can win. A McLain (national security – war hero – even though he seems confused about the Geneva convention) or Gingrich (fiscal conservative) VP running mate would finish the ticket.

McCain – 8-1

Republican creds (though these days doesn’t mean much, war hero, supports this war, understands the Middle East, leadership skills, although he is a little loose at the mouth, Naval Academy grad (which is worth a lot). Soft on immigration. VP probable.

Gingrich – 15-1

Brilliant guy. Needs to lose the colored shirts and look more Presidential. Newt stands for everything I believe. If Rudi gets it, I hope he chooses Gingrich to run with.

Mitt – 100-1

Give me a break.

Universal Health Care - Economics 101

What single element always brings rationality, productivity and lower prices to any market? Semiconductors, personal computers, mobile phones, HDTVs, automobiles, computer storage, green home building, and the list goes on forever. All of these are free markets and demonstrate the results of unfettered capitalism.

Only when government or organized labor subsidizes or unionizes markets, do they become closed and manipulative. Look at Oil. Big oil companies do not set prices … and their 10 cent per gallon profit (which Red Nancy characterizes as “obscene”) actually pales in comparison with the Federal government’s 60+ cent per gallon profit. Were getting to Health Care, I promise. Oil is a heavily regulated and controlled market created by OPEC, and thus is not free and open. OPEC owns most of it and prices it in accord with their perception of supply, demand and desired capacity. Oil is then priced on the open markets by commodity futures traders who guess what the supply, capacity and demand is going to be in the future. Until oil gets to the commodity traders, it has a base price set by OPEC and non-OPEC producers who can draft right behind.

Oil is effectively the same as public school education costs, or US automobile costs, or the cost of your government. It is effectively unionized. Which brings us to health care.

The average guy on the street never cared much for Economics in school … I mean, what a bore, and how will this be useful to me in the future? Besides, if you put hundred economists in a room. eight hours later you would have a hundred theories about the best way to do anything. It is crystal clear to me that the economists who got it right are Hayek, Schumpeter, Freidman and Laffer who created a model for free market capitalism that has driven this country to unprecedented wealth and prosperity and dragged the larger part of the free world along with it.

It appears that the house and the senate are either populated with average guys on the street, or shameless politicians who care only about being re-elected … or both, I suppose.

To say the words, “We should provide affordable health care for every man, woman and child in America” politicians get to sound caring, bold, populist and re-electable. What they actually sound is reckless and unaccountable. The only way to provide affordable health care is to create a free market for health care. And, if anyone should know this, it is Arnold Schwarzenegger. This man does not have a socialist cell in his body. His entire history is a model of free market capitalism. So, proposing universal health care in California is clearly a populist political gambit designed solely to get him reelected and then, who knows? Orin Hatch has proposed an amendment that would essentially overturn Article 2 of the Constitution and allow Arnold to run for the big job. Stay tuned.

The big problem today with health care is the complete disconnect between the consumer and the providers. Instead of the consumer deciding what kind of health care s/he wants or needs, like when shopping for a flat screen LCD, the providers decide what they are going to offer and because there are no choices, the consumer gets screwed. When the consumer has very little control over a market, the market goes in the toilet … the now defunct Soviet Union is a great example.

Most private heath care plans cover everything imaginable and individuals are forced to pay for that coverage even though they will probably use less than 5% of the services provided. It is sort-of like a health care plan designed by Microsoft; pay a lot for Excel and Word but use only 5% of their functionality.

Instead of a de facto nationalized “universal health care” which will only increase costs, add more bureaucracy, eliminate incentives for increased productivity and innovation, and result in waiting lines for MRIs (try to get one in Canada), we should launch an aggressive HSA (health savings account) program allowing individuals to choose the health care they need.

One approach that makes sense is a two pronged non-taxed HSA (like the 401(k)) where 25% of the premium goes toward catastrophic health care with a $5000 out of pocket cap, and 75% goes into a savings account that is used for prescription medicine, routine doctor visits, etc. If it isn’t used, it sits as working capital and is invested similar to your 401(k) plan, another boost for the economy.

FEHBP (the largest union health care membership in the country) is probably representative of the norm; 47% of patient expenditures go to prescription medicine, while only 20% goes to hospital in-patient care and physicians visits, yet most of what you currently pay in premiums is spent on hospital in-patient care that you will probably never use and physicians whom you will never see. So, 80% of the cost pays for 20% of what you actually need. Again, we are paying for a system designed not by consumers but by bureaucrats, and not open to the competitive vengeance of the free market. Catastrophic care is pretty cheap and if you factor in the current employer contribution and the current deductibles, a properly structured HSA would lower the costs of health care to both individuals and their employers and allow individuals the freedom to manage their own health care.

The problem with implementing such a plan is political. Red Nancy has multiple problems with such a plan. Not only would it change her demographic dynamics by reducing the dependency of her voters on the Democrat party, but it would essentially result in a tax cut to Joe six-pack, expose Nancy to a less rich health care package for herself while exposing the Union health care coverage to the light of day (as a Federal Union employee, her package is worth a lot of money and Bush’s proposed $15,000 tax plan would cause Nancy to pay taxes on the amount North of that) and demonstrate the efficiencies of free market capitalism. But, it appears that we are rapidly headed in the other direction. In addition to the government banning trans-fat from restaurants and outlawing foie gras, we now have public schools measuring body mass and sending warning letters home to parents. George Orwell appears to have been right, yet off by 20 years or so.

Why can’t we truly reform Congress and send in people whose goals are to stimulate the economy and create prosperity for their citizens? It should be obvious to everyone that when people control their own money, they tend to get more value from it and create a competitive, equalizing free market environment where productivity, investment and the economy thrives. When the government controls it, we get the US Post Office, Public Education and National Health Care. Hello?

Trade Deficits and the Economy

My wife, having spent a week in California called last night and was really depressed ... listening to NPR for a week might do that to you ... the liberal perspective on life is like that group in high school that could never succeed at anything and so formed up to complain to the administration that they were being bullied by the winners and got the standards reset so that everyone could get D's and graduate. So, they all did and now they are in Congress. It is also apparent that they barely earned a D in Economics.

The fact that Harry Reid constantly complains about the trade deficit, which is really an early argument toward government controls is either: a) evidence that he doesn't understand anything about economics (which would be frightening), or b) evidence that he is a savvy politician and knows that the clarion populist call to "save our children and grandchildren from having to shoulder this enormous debt" is a no-brainer vote getter from mindless idiots who have not a clue as to how their daily bread and butter actually arrives.

Not only is the trade deficit not bad for the US economy, it is the best thing that could possibly happen to it and for the rest of the world as well. So, here is econ 101 short form:

Trade is driven by investment flows. When people from other countries invest vast amounts of money in the US, we run a trade deficit because of our global accounting - see below. The US, in contrast to the unstable, stagnant, terror-ridden, free-market endangered rest of the world is a safe, transparent, low-inflation haven that provides a slam-dunk return, and so why wouldn't everyone invest here?

Unfortunately, because of that screwy score card, Harry either believes that we are in trouble or gets to use the outcome for political gain. For example, if China sells $1 billion in say, tennis shoes to Wal-Mart and then uses that money to buy a micro-chip factory in Shanghai, we call that an "export" and Harry stupidly cheers. If on the other hand, they use that money to build a chip factory in Virginia, which by the way then creates hundreds of jobs for engineers and salespeople, we call it an "import" and Harry and the rest of the Democrats decry the "import" and our resulting trade "deficit".

Joe six-pack and his buddies at NPR stupidly and lazily line up behind and vote for the Democrats who want to put an end to the trade deficit through government controls. Because all anyone hears from the doom and gloom media is that the US is an aging society that is drowning in debt and burdening the world with risk, we have distorted our domestic and international policy making. The media is a lot like academic economists. They vote largely Democratic and cannot stand the fact that the current American boom has happened under a Republican watch. And, what a boom. Record stock market. Economic growth averaging more than 3% since 9/11. Since the tax cut of 2003 on income, dividends and capital gains, the US GDP has expanded by an amount greater than the size of China's entire economy.

Academic economists write of job losses at old-line manufacturers but ignore the larger and more diffuse number of jobs created at smaller private service companies. They whine about the trade deficit but fail to mention the flip side of capital surplus - the flow of foreign investment cash pouring into the US - keeping the stock market high and borrowing rates low. Maybe the disconnect between the headlines and the actual markets have more to do with the fact that academic economists see their influence waning. If the world's economies run best on a Hayek-Schumpeter-Freidman-Laffer free-market model, then economists of the meddling sort have little to do - except b*tch.

Joseph Stiglitz, a Columbia economics professor, Nobel Prize winner and card-carrying member of the sour punditocracy recently wrote a sky-is-falling piece in the Guardian (of course) entitled "2007: Will the Dam Break?" Stiglitz sees a flood coming. "At the root of America's economic problems are measures adopted early in Bush's first term. In particular, the Administration pushed through a tax cut that largely failed to stimulate the economy, because it was designed to benefit mainly the wealthiest taxpayers." Yet, Joseph, how do you explain why tax revenues have increased to historic levels since that tax cut?

Later in the same article, he says, "America's household savings became negative for the first time since the great depression." He uses Commerce Department data which only factors in actual savings deposit accounts at Banks. No real estate. No 401(k)s. No stocks. No bonds. No treasury notes. No other assets on American household balance sheets. This is like offering evidence of global warming based on the claim that 2% of the polar ice cap is melting while ignoring the other 98% that is freezing. Calculated properly, US households have more financial savings - and in most years add more - than the rest of the world combined. What a great country, huh?

Econ 101 - longer form: The US is the world's biggest producer, exporter, seller, saver and innovator. On average it adds 30% more to global GDP each year than all of Asia (45% more in 2006) with one tenth the population. US employment, wages and profits are at record levels. America is the biggest source of foreign aid and the only major source of its most effective component: private donations. All the result of tax cuts "for the rich".

Despite the sour fiscal predictions, the federal budget is on course to be in balance by 2010 with debt-to-GDP ratio well below the Clinton Administration's average - if we did nothing. Harry and his friends simply cannot reconcile the claim that our trade deficit costs jobs and adds to global financial risk - while we enjoy a 4.5% unemployment rate and the eager flow of long-term, low-cost foreign capital into US investments. What's the problem again, Harry?

Selling our economy short may be causing even more damage to our international economic policy. We are now apologizing for the global trade imbalance. We accept blame for growing our economy and population faster than our trading partners (which draws in imports) and providing more attractive investments (which brings in foreign capital). The primary burden should be on the trade-surplus, capital-outflow countries to enhance their economic climes, not on us to diminish ours. Russia has two exports - natural gas and weapons - and two customers - Europe and Iran. All of Europe's natural gas comes form Russia and all of Iran's weapons come from Russia. How does that model look?

The world has huge economic problems. Europe's low birthrate, high unemployment and exodus of human capital are of bigger consequence to the world than the US trade deficit, yet the trade deficit dominates the G7's agenda and world headlines. Japan and South Korea are still relying on corporatism instead of economic flexibility, a global liability as their workforces shrink. Russia's bleak hope is to create energy monopolies fast enough to prevent the Islamic world and China from overrunning its sparsely populated borders. Much of Latin America and Africa are decapitalizing, running IMF-mandated (International Monetary Fund) fiscal and trade surpluses (capital outflows) that have contributed to their multi-decade stagnation in per capital income.

Despite the rich global environment for economic progress, the US - low on self-esteem - has focused on China's yuan as the 21st century's economic scourge. US exports and global growth would get a much bigger boost if more countries joined China in growth promoting currency stability than if China joins them in currency instability. Begging China to add to the yuan's value at the dollar's expense parades our weak image and enhances China's strength.

At the same time, Latin America seems to have decided the US is one of the weak links in the global economy and has reached out to Europe and China for investment and free-trade agreements with the he view that those are the economic relationships of the future. The real problem with the trade deficit is not what it is doing to our economy or Harry and his friends using it for political gain, but that it is now being misread by some of the rest of the world and has resulted in weaker relationships and the clouding of our economic vision here at home, even as our economy enters its third decade of robust expansion.

Many in Congress, the Treasury Department and business believe that we should have "reciprocal trade" with other countries, that is to say no deficit or surplus. That is equivalent to saying that a business should have reciprocal relations with every one of its accounts. I have been running a deficit with Albertsons, Safeway and Whole Foods for over 40 years, yet somehow my economy is just fine. This is a classic, preposterous, stupid and destructive congressional notion. This year marks the 400th anniversary fo the settlement in Jamestown, VA. Since that time, America has run trade deficits for all but 50 some-odd years. Just look at what all that bad economics has done.

Have a prosperous day.